-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LnduTglkoCMFLli1N/gk3dDjf1S/0KGOjCvoietldzigN6YU9ed4StYwHsNQZHyY M9pLN4OOzlI9KWdcBjKA9Q== 0000928385-99-002223.txt : 19990713 0000928385-99-002223.hdr.sgml : 19990713 ACCESSION NUMBER: 0000928385-99-002223 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 19990712 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AGW LEASING CO INC CENTRAL INDEX KEY: 0001086843 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 582441171 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-79189-01 FILM NUMBER: 99662831 BUSINESS ADDRESS: STREET 1: 230 PEACHTREE ST STREET 2: SUITE 1700 CITY: ATLANTA STATE: GA ZIP: 30303 BUSINESS PHONE: 3105406222 MAIL ADDRESS: STREET 1: 230 PEACHTREE ST STREET 2: SUITE 1700 CITY: ATLANTA STATE: GA ZIP: 30303 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AIRGATE WIRELESS INC CENTRAL INDEX KEY: 0001086844 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 582422929 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-79189-02 FILM NUMBER: 99662832 BUSINESS ADDRESS: STREET 1: 230 PEACHTREE ST STREET 2: SUITE 1700 CITY: ATLANTA STATE: GA ZIP: 30303 BUSINESS PHONE: 3105406222 MAIL ADDRESS: STREET 1: 230 PEACHTREE ST STREET 2: SUITE 1700 CITY: ATLANTA STATE: GA ZIP: 30303 S-1/A 1 AMENDMENT NO 2 TO FORM S-1 As filed with the Securities and Exchange Commission on July 9, 1999 Registration No. 333-79189-01 Registration No. 333-79189-02 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- Amendment No. 2 TO Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------- AirGate PCS, Inc. Delaware 4812 58-2422929 AGW Leasing Company, Inc. Delaware 4812 58-2441171 (Exact name of registrants as (State or other jurisdiction) (Primary Standard Industry (I.R.S. Employer specified in their charters) of incorporation or organization) Classification Code Number) Identification No.)
--------------- Harris Tower Thomas M. Dougherty Suite 1700 AirGate PCS, Inc. 233 Peachtree Street, N.W. Harris Tower Atlanta, Georgia 30303 Suite 1700 (404) 525-7272 233 Peachtree Street, N.W. (Address, including zip code, and Atlanta, Georgia 30303 telephone number, including area (404) 525-7272 code, of registrants' principal (Name, address, including zip code, and executive offices) telephone number, including area code, of agent for service)
--------------- Copies to: Mary M. Sjoquist, Esq. Gary P. Cullen, Esq. Joseph G. Passaic, Jr., Esq. Skadden, Arps, Slate, Meagher & Flom Patton Boggs LLP (Illinois) 2550 M Street, NW 333 West Wacker Drive Washington, DC 20037 Chicago, Illinois 60606 (202) 457-6000 (312) 407-0700 --------------- Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. --------------- If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, please check the following box: [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If the Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] CALCULATION OF REGISTRATION FEE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Proposed Maximum Title of Each Class of Aggregate Offering Amount of Registration Securities to be Registered Price(1) Fee - ------------------------------------------------------------------------------------------------- Common Stock, par value $.01 per share......... $122,666,672 $34,101(2) - ------------------------------------------------------------------------------------------------- % Senior Subordinated Discount Notes due 2009.......................................... $150,000,000 $41,700 - ------------------------------------------------------------------------------------------------- Subsidiary Guarantee of the % Senior Subordinated Discount Notes due 2009.......... -- (3) - -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- (1) Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(o). (2) Includes $27,800 previously paid in connection with the initial filing and $6,301 which is being paid in connection with Amendment No. 2. (3) Pursuant to Rule 457(n), no separate registration fee is payable with respect to the subsidiary guarantee. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EXPLANATORY NOTE This registration statement contains two forms of prospectus. The common stock prospectus will be used in connection with an offering of common stock of AirGate PCS, Inc. The senior subordinated discount notes prospectus will be used in a concurrent senior subordinated discount notes offering. The common stock prospectus and senior subordinated discount notes prospectus will be substantially identical, except for the front cover page, table of contents, summary of the offering, risk factors relating to the particular offering, description of securities, underwriting section, United States federal income tax consequences section and back cover page, and except that the dilution and dividend policy sections contained in the common stock prospectus will not appear in the senior subordinated discount notes prospectus. The differing pages for the senior subordinated discount notes prospectus included herein are each labeled "Alternate Senior Subordinated Discount Notes Pages." The form of common stock prospectus is included in this registration statement, and the form of the Alternate Senior Subordinated Notes Pages of the senior subordinated discount notes prospectus follows the common stock prospectus. ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +We will amend and complete the information in this prospectus. Although we + +are permitted by U.S. federal securities laws to offer these securities using + +this prospectus, we may not sell them or accept your offer to buy them until + +the documentation filed with the Securities and Exchange Commission relating + +to these securities has been declared effective by the SEC. This prospectus + +is not an offer to sell these securities or our solicitation of your offer to + +buy these securities in any state or other jurisdiction where that would not + +be permitted or legal. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION -- July 9, 1999 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Prospectus , 1999 [AirGate Logo] AirGate PCS, Inc. 6,666,667 Shares of Common Stock - -------------------------------------------------------------------------------- AirGate PCS, Inc.: . AirGate PCS, Inc. Harris Tower Suite 1700 233 Peachtree Street, N.W. Atlanta, Georgia 30303 (404) 525-7272 Proposed Symbol & Market: . PCSA/Nasdaq National Market The Offering: . We are offering 6,666,667 shares of our common stock. . We have granted the underwriters an option to purchase a maximum of 1,000,000 additional shares of common stock to cover over-allotments. . This is our initial public offering. We anticipate the initial public offering price will be between $14.00 and $16.00 per share. --------------------------------------------------------- Per Share Total Public offering price: $ $ Underwriting fees: Proceeds to AirGate:
- -------------------------------------------------------------------------------- This investment involves risk. See "Risk Factors" beginning on page 5. - -------------------------------------------------------------------------------- Neither the SEC nor any state securities commission has determined whether this prospectus is truthful or complete. Nor have they made, nor will they make, any determination as to whether anyone should buy these securities. Any representation to the contrary is a criminal offense. - -------------------------------------------------------------------------------- Donaldson, Lufkin & Jenrette SG Cowen The Robinson-Humphrey Company [Graphic displaying a map of the United States highlighting Sprint PCS' licensed areas with blow-up picture of AirGate PCS' territory, one page of four pictures of customers using wireless telephones and one picture of a national retail store which has an agreement with Sprint and Sprint PCS to sell its products and services] [Series of pictures of a wireless telephone, Sprint PCS network operations center, Sprint PCS store and PCS network equipment] TABLE OF CONTENTS
Page Prospectus Summary.................................................... 1 Risk Factors.......................................................... 5 Forward-Looking Statements............................................ 14 Use of Proceeds....................................................... 15 Dividend Policy....................................................... 15 Capitalization........................................................ 16 Dilution.............................................................. 17 Selected Financial Data............................................... 18 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 20 Industry Background................................................... 27 Business........................................................ 30 The Sprint PCS Agreements....................................... 45 Description of Certain Indebtedness................................... 59 Management............................................................ 63 Principal Stockholders................................................ 70 Certain Transactions.................................................. 71 Regulation of the Wireless Telecommunications Industry................ 72 Description of Capital Stock.......................................... 75 Shares Eligible for Future Sale....................................... 77 Underwriting.......................................................... 80 Legal Matters......................................................... 83 Experts............................................................... 83 Available Information................................................. 83 Index to Consolidated Financial Statements............................ F-1 ----------------
This prospectus includes product names, trade names and trademarks of other companies. PROSPECTUS SUMMARY In this prospectus, "Sprint PCS" refers to SprintCom, Inc. and Sprint Spectrum L.P. "Sprint" refers to Sprint Corporation and its affiliates other than Sprint PCS. Statements in this prospectus regarding Sprint or Sprint PCS are derived from information contained in our agreements with Sprint PCS, periodic reports and other documents filed by Sprint and Sprint Spectrum L.P. with the Securities and Exchange Commission, or press releases issued by Sprint and Sprint PCS. References to AirGate as a provider of wireless personal communication services or similar phrases generally refer to our designing, constructing and managing a personal communication services network in our territory under our long-term agreements with Sprint and Sprint PCS. The Company We are the exclusive Sprint PCS affiliate in our territory in the Southeast and the second largest Sprint PCS affiliate in the United States based on population. We have completed our PCS network design and are commencing construction of our personal communications services network. Under long-term agreements with Sprint PCS, we will exclusively market personal communications services, generally known as PCS, under the Sprint and Sprint PCS brand names. As a Sprint PCS affiliate, we will offer the same 100% digital, 100% PCS products and services that have made Sprint PCS the fastest growing wireless company in the United States. Our network will be built to meet or exceed the high standards for technical and service quality established by Sprint PCS. We will use Sprint PCS' established back office services to handle customer activation, billing and customer care. The customer, who effectively will see our products and services as those of Sprint PCS, will be able to make nationwide calls using Sprint PCS' network and other wireless networks with which Sprint PCS has roaming agreements. We will benefit from Sprint PCS' national advertising campaigns and will have access to major national retailers for distribution under existing Sprint PCS contracts. We plan to launch commercial PCS service in the first quarter of 2000 with initial coverage to over 1.5 million residents and expect to offer service to more than 5.0 million residents, or 74% of the population in our territory, by the end of the fourth quarter of 2000. Today, we are a development stage company and have not generated any revenues. Our territory has a resident population of more than 6.8 million and covers 20 contiguous markets in one of the fastest growing regions in the United States. The territory covers almost the entire state of South Carolina, including Charleston, Columbia and Greenville-Spartanburg, parts of North Carolina, including Asheville, Wilmington and Hickory, and the eastern Georgia cities of Augusta and Savannah. Our territory is contiguous to important Sprint PCS markets which are already operational, including Atlanta, Georgia; Charlotte and Raleigh, North Carolina; Norfolk, Virginia; and Knoxville, Tennessee. In addition to serving the resident populations of these markets, our territory welcomes over 27 million visitors each year to popular vacation and tourist destinations, which include Myrtle Beach, Charleston and Hilton Head Island, South Carolina; the Outer Banks of North Carolina; and Savannah, Georgia. As a result, we will generate roaming revenue from visitors to our territory who will use our PCS network for seamless national Sprint PCS services. Under existing Sprint PCS agreements with national third-party retailers, including distribution agreements with Circuit City, Office Depot and Best Buy and an exclusive PCS distribution 1 agreement with RadioShack, we will have access to more than 250 retail outlets to sell and distribute Sprint PCS products and services throughout our territory. We will combine the strength of these retail outlets with Sprint PCS' national sales force, which focuses on Fortune 500 companies, national inbound telemarketing sales force and electronic commerce sales platform. We also intend to offer Sprint PCS products and services through 12 of our own Sprint PCS stores and through local retailers with strong community connections. In addition, approximately 30% of the population in our territory receives their local telephone service from Sprint. This provides us with an additional established distribution channel for selling Sprint PCS products and services. We believe this combination of major national and local distribution channels provides us with a competitive advantage over other wireless providers in our territory. We have an experienced senior management team, including a former regional president of Sprint PCS. These executives have an average of more than 15 years of experience in building wireless telecommunications in the Southeast. We will execute our strategy through a fully funded business plan. We believe that the net proceeds from our concurrent offerings of common stock and senior subordinated discount notes, together with our proposed vendor equipment financing, will completely fund capital expenditures, including our PCS network build-out, operating losses, working capital requirements and other cash needs through 2002, at which point we expect to have achieved break-even operating cash flow. Sprint PCS has invested $44.6 million to purchase the PCS licenses in our territory and incurred additional expenses to remove microwave signals from the licensed spectrum, a process generally referred to as microwave clearing. We are licensed to use the Sprint and Sprint PCS brands royalty-free during our entire affiliation with Sprint PCS. We also receive access to Sprint PCS' national marketing support and distribution programs and are entitled to buy network and subscriber equipment and handsets at the same discounted rates offered by vendors to Sprint PCS based on its large volume purchases. Under our management agreement with Sprint PCS, Sprint PCS will retain 8% of collected service revenues and we are entitled to receive 92%. We are entitled to 100% of revenues from roaming and subscriber equipment sales. Under the agreements with Sprint PCS, we also have the option to purchase back office services from Sprint PCS at cost reflecting Sprint PCS' economies of scale. 2 The Offering Common Stock Offered........ 6,666,667 shares Common Stock to be Outstanding After the Offering.................... 11,857,613 shares Use of Proceeds............. We will use the net proceeds of the offering to fund capital expenditures, including the build- out of our PCS network, operating losses, working capital and repayment of existing debt and for general corporate purposes. Proposed Nasdaq National Market Symbol.............. "PCSA" Risk Factors................ See "Risk Factors" beginning on page 5 for a discussion of the material factors that you should consider before purchasing shares of common stock. Unless otherwise indicated, the share information in this prospectus excludes: . up to 1,000,000 shares that may be issued to the underwriters to cover over-allotments. See "Underwriting." . 1,185,761 shares of common stock reserved for issuance under our 1999 Stock Option Plan. See "Management--1999 Stock Option Plan." . 243,001 shares of common stock issuable upon the exercise of outstanding exercisable warrants. See "Certain Transactions." This summary of the offering includes, as of May 18, 1999, 969,313 shares of common stock issuable upon the consummation of this offering due to the conversion of outstanding promissory notes. See "Certain Transactions." All references to shares of common stock in this prospectus reflect a 39,134- for-1 split of our common stock which is effective as of July 9, 1999. The closing of our offering of common stock and our completion of a concurrent offering of senior subordinated discount notes, under a separate prospectus, are conditioned on each other. The Concurrent Senior Subordinated Discount Notes Offering Issuer...................... AirGate PCS, Inc. Securities Offered.......... $ million aggregate principal amount at maturity of % senior subordinated discount notes, due 2009. We will issue the senior subordinated discount notes at a price to investors that will yield gross proceeds to us of approximately $150.0 million. 3 Maturity Date............... , 2009. Change of Control........... If we experience a change of control, holders of our senior subordinated discount notes will have the right to require us to repurchase our senior subordinated discount notes at a price equal to 101% of their accreted value or the principal amount, as applicable, together with accrued and unpaid interest, if any, to the date of repurchase. Restrictive Covenants....... The indenture governing the senior subordinated discount notes will contain covenants that, among other things, will limit our ability and the ability of our subsidiary and our future subsidiaries to: .incur additional indebtedness or issue preferred stock; . pay dividends, redeem capital stock or make other restricted payments or investments; .create liens on assets; .merge, consolidate or dispose of assets; .enter into certain transactions with affiliates; and .enter into sale and leaseback transactions. 4 RISK FACTORS You should carefully consider the following risk factors in addition to the other information contained in this prospectus before purchasing the common stock we are offering. Risks Particular to AirGate The termination of our affiliation with Sprint PCS would severely restrict our ability to conduct our business Our ability to offer Sprint PCS products and services and our PCS network's operation are dependent on our agreements with Sprint PCS being renewed and not terminated. Each of these agreements can be terminated for breach of any material terms. The non-renewal or termination of any Sprint PCS agreement would have a material adverse effect on our financial condition and results of operations. We are dependent on Sprint PCS' ability to perform its obligations under the Sprint PCS agreements. Failure of Sprint PCS to perform its obligations under the Sprint PCS agreements could have a material adverse effect on our financial condition and results of operations. If Sprint PCS does not complete the construction of its nationwide PCS network, we may not be able to attract and retain customers Sprint PCS' network may not provide nationwide coverage to the same extent as its competitors which could adversely affect our ability to attract and retain customers. Sprint PCS is creating a nationwide PCS network through its own construction efforts and those of its affiliates. Today, Sprint PCS does not offer PCS services on its own network in every city in the United States that is served by other wireless carriers that compete with Sprint PCS. Sprint PCS has entered into, and anticipates entering into, affiliation agreements similar to ours with companies in other territories pursuant to its nationwide PCS build-out strategy. Our results of operations are dependent on Sprint PCS' national network and, to a lesser extent, on the networks of its other affiliates. Sprint PCS and its affiliate program are subject, to varying degrees, to the economic, administrative, logistical, regulatory and other risks described in this prospectus. Sprint PCS' and its other affiliates' PCS operations may not be successful. We do not have an operating history and our success is dependent on our ability to manage anticipated rapid growth Our performance as a PCS provider will depend on our ability to manage successfully the network build-out process, implement operational and administrative systems, expand our base of 12 employees as of June 30, 1999 and train and manage our employees, including engineering, marketing and sales personnel. We have completed our PCS network design and are commencing construction of our PCS network. Based on our build-out plan, we do not expect to launch commercial PCS operations until the first quarter of 2000. We will require expenditures of significant funds for the development, construction, testing and deployment of our PCS network before commencement of commercial PCS operations. These activities are expected to place significant demands on our managerial, operational and financial resources. The inability to use Sprint PCS' back office services and third party vendors' back office systems could disrupt our business Our operations could be disrupted if Sprint PCS is unable to maintain and expand its back office services such as customer activation, billing and customer care, or to efficiently outsource those services and systems through third party vendors. The rapid expansion of Sprint PCS' business is expected to continue to pose a significant challenge to its internal support systems. Additionally, 5 Sprint PCS has relied on third-party vendors for a significant number of important functions and components of its internal support systems and may continue to rely on these vendors in the future. We depend on Sprint PCS' willingness to continue to offer such services to us and to provide these services at competitive costs. Our services agreement with Sprint PCS provides that, upon nine months' prior written notice, Sprint PCS may elect to terminate any such service beginning January 1, 2002. If Sprint PCS terminates a service for which we have not developed a cost-effective alternative, our financial condition and results of operations could be adversely affected. If we fail to complete the build-out of our PCS network, Sprint PCS may terminate our management agreement, and we would no longer be able to offer Sprint PCS services A failure to meet our build-out requirements for any one of the individual markets in our territory, or to meet Sprint PCS' technical requirements, would constitute a breach of our management agreement with Sprint PCS that could lead to its termination. If the management agreement is terminated, we will no longer be able to offer Sprint PCS products and services. Our agreements with Sprint PCS require us to build our PCS network in accordance with Sprint PCS' technical and coverage requirements. These agreements also require that we provide network coverage to a specified percentage, ranging from 39% to 86%, of the population within each of the 20 markets which make up our territory by specified dates. We have substantial debt which we may not be able to service Our ability to make payments on our debt depends upon our future operating performance, which is subject to general economic and competitive conditions and to financial, business and other factors, many of which we cannot control. After completing the senior subordinated discount notes offering, we will have a substantial amount of long-term debt. As of March 31, 1999, after giving effect to the common stock offering, the senior subordinated discount notes offering, and the conversion of $5.3 million of convertible notes, our outstanding long-term debt would have consisted of the following: .approximately $5.0 million of vendor equipment financing; .$7.7 million of unsecured debt from a third party; and .$150.0 million of senior subordinated discount notes. In addition, in June 1999, we issued a secured promissory note to a vendor for an additional $5.0 million and expect to be provided $3.5 million in additional vendor financing after July 1, 1999 and prior to the closing of our concurrent offerings of common stock and senior subordinated discount notes. The indenture governing the senior subordinated discount notes will permit us to incur additional debt, subject to certain limitations. Under our current business plan, we expect to incur substantial additional debt before achieving break-even operating cash flow, including $143.5 million of additional borrowings under our proposed vendor equipment financing. The substantial amount of our debt will have a number of important consequences for our operations, including the following: . we may not have sufficient funds to pay interest on, and principal of, our debt (including the senior subordinated discount notes); . we will have to dedicate a substantial portion of any cash flow from operations to the payment of interest on, and principal of, our debt, which will reduce funds available for other purposes; . we may not be able to obtain additional financing for currently unanticipated capital requirements, capital expenditures, working capital requirements and other corporate purposes; 6 . some of our debt, including borrowings under our vendor equipment financing, will be at variable rates of interest, which could result in higher interest expense in the event of increases in market interest rates; . due to the liens on substantially all of our assets and the pledges of stock of our subsidiary and future subsidiaries that secure our senior debt, lenders may control our assets or our subsidiaries' assets upon a default; and . our ability to adjust to changing market conditions and to withstand competitive pressures could be limited, and we may be vulnerable to additional risk in the event of a downturn in general economic conditions or our business. If we do not meet all of the conditions required under our vendor equipment financing documents, we may not be able to draw down all of the funds we anticipate receiving from our vendor equipment financing We have received $10.0 million to date from our vendor. The remaining $143.5 million which we expect to receive in the future is subject at each funding date to several conditions, including the following: . no material adverse change in our business; and . the absence of a default under our loan documents. If we do not meet these conditions at each funding date, the lenders may not lend any or all of the remaining amounts and if other sources of funds are not available, we may not be in a position to complete the build-out of our PCS network. If we do not have sufficient funds to complete our network build-out, we may be in breach of our management agreement with Sprint PCS and in default under our vendor equipment financing and senior subordinated discount notes. These defaults, in turn, would have a material adverse effect on our financial condition and results of operations. If we lose the right to install our equipment on wireless towers owned by other carriers or fail to obtain zoning approval for our cell sites, we may have to rebuild our network We expect more than 85% of our cell sites to be collocated on facilities shared with one or more wireless providers. We will collocate over 150 of these sites on facilities owned by one wireless carrier. If our master collocation agreement with that carrier were to terminate, we would have to find new sites, and if the equipment had already been installed we might have to rebuild that portion of our network. Some of the cell sites are likely to require us to obtain zoning variances or other local governmental or third party approvals or permits. We may also have to make changes to our radio frequency design as a result of difficulties in the site acquisition process. We may have difficulty in obtaining infrastructure equipment required in order to meet our network construction deadlines; Sprint PCS vendor discounts may be discontinued, which could increase our equipment costs If we are not able to acquire the equipment required to build our PCS network in a timely manner, we may be unable to provide wireless communications services comparable to those of our competitors or to meet the requirements of our agreements with Sprint PCS, either of which may materially adversely affect our financial condition and results of operations. The demand for the equipment that we require to construct our PCS network is considerable, and manufacturers of this equipment could have substantial order backlogs. Accordingly, the lead time for the delivery of this 7 equipment may be long. Some of our competitors purchase large quantities of communications equipment and may have established relationships with the manufacturers of this equipment. Consequently, they may receive priority in the delivery of this equipment. In addition, we intend to purchase our infrastructure equipment under Sprint PCS' vendor agreements that include volume discounts. If Sprint PCS were unable to continue to obtain vendor discounts for its affiliates, the loss of vendor discounts could increase our equipment costs and have a material adverse effect on our financial condition and results of operation. The failure of our consultants and contractors to perform their obligations may delay construction of our network The failure by any of our vendors, consultants or contractors to fulfill their contractual obligations to us could materially delay construction of our PCS network which could materially adversely affect our financial condition and results of operations. We have retained an equipment vendor and other consultants and contractors to assist in the design and engineering of our systems, construct cell sites, switch facilities and towers, lease cell sites and deploy our PCS network systems. Conflicts with Sprint PCS may not be resolved in our favor Conflicts between us and Sprint PCS may arise and as Sprint PCS owes us no duties except as set forth in the management agreement, these conflicts may not be resolved in our favor. The conflicts and their resolution may harm our business. For example, Sprint PCS prices its national plans based on its own objectives and could set price levels that may not be economically sufficient for our business. In addition, Sprint PCS could decide to not renew the management agreement which would not be in our best interest or the interest of our shareholders. There may be other conflicts such as the setting of the price we pay for back office services and the focus of Sprint PCS' management and resources. In addition, our lenders may have contractual rights with Sprint PCS pursuant to which Sprint PCS may, upon an event of default under AirGate's vendor equipment financing documentation and an acceleration of the amounts due thereunder, purchase our obligations under our vendor equipment financing and obtain the rights of a senior lender. To the extent Sprint PCS purchases these obligations, Sprint PCS' interests as a creditor could conflict with ours. Sprint PCS' rights as a senior lender would enable it to exercise rights with respect to our assets and continuing relationship with Sprint PCS in a manner not otherwise permitted under our agreements with Sprint PCS. See "The Sprint PCS Agreements--Consent and Agreement." Certain provisions of our agreements with Sprint PCS may diminish the valuation of our company Provisions of our agreements with Sprint PCS could adversely effect the valuation of our company, thereby, among other things, adversely affecting the market prices of our securities and our ability to raise additional capital necessary to complete our network build-out. Under our agreements with Sprint PCS, subject to the requirements of applicable law, there are circumstances under which Sprint PCS may purchase our operating assets or capital stock for 72% or 80% of the "entire business value" of our company, as defined in our management agreement with Sprint PCS. In addition, Sprint PCS also must approve a change of control of our ownership and consent to any assignment of our agreements with Sprint PCS and has been granted a right of first refusal if we decide to sell our operating assets. As further described herein and in our agreements with Sprint PCS, we are also subject to a number of restrictions on the transfer of our business including the prohibition on selling our company or our operating assets to a number of identified and as yet to be identified competitors 8 of Sprint PCS or Sprint. These and other restrictions in our agreements with Sprint PCS may limit the saleability and/or reduce the value a buyer may be willing to pay for our business and may operate to reduce the "entire business value" of our company. We may not be able to compete with larger, more established businesses offering similar products and services Our ability to compete will depend, in part, on our ability to anticipate and respond to various competitive factors affecting the telecommunications industry, including new services that may be introduced, changes in consumer preferences, demographic trends, economic conditions and discount pricing strategies by competitors. We will compete in our territory with two cellular providers, both of which have an infrastructure in place and have been operational for a number of years. They have significantly greater financial and technical resources than we do, could offer attractive pricing options and may have a wider variety of handset options. We expect that existing cellular providers will upgrade their systems and provide expanded, digital services to compete with the Sprint PCS products and services that we intend to offer. These wireless providers require their customers to enter into long-term contracts, which may make it more difficult for us to attract customers away from them. Sprint PCS generally does not require its customers to enter into long-term contracts, which may make it easier for other wireless providers to attract Sprint PCS customers away from Sprint PCS. We will also compete with several PCS providers and other existing communications companies in our territory. In addition, our competitive position and success could be materially adversely affected by competitive difficulties experienced by Sprint PCS. Our services may not be broadly used and accepted by consumers PCS systems have a limited operating history in the United States. The extent of potential demand for PCS in our markets cannot be estimated with any degree of certainty. Our inability to establish and successfully market PCS services could have a material adverse effect on our financial condition and results of operations. The technology we use has limitations and could become obsolete We intend to employ digital wireless communications technology selected by Sprint PCS for its nationwide network. Code division multiple access, known as CDMA, technology is a relatively new technology. CDMA may not provide the advantages expected by Sprint PCS. If another technology becomes the preferred industry standard, we may be at a competitive disadvantage and competitive pressures may require Sprint PCS to change its digital technology which, in turn, may require us to make changes at substantially increased costs. We may not be able to respond to such pressures and implement new technology on a timely basis, or at an acceptable cost. If CDMA technology becomes obsolete at some time in the future and we or Sprint PCS are unable to change to an alternative technology in a cost-effective manner, it could materially and adversely effect our financial condition and results of operations. If Sprint PCS customers are not able to roam instantaneously or efficiently onto other wireless networks, prospective customers could be deterred from subscribing for our Sprint PCS services The Sprint PCS network operates at a different frequency and uses or may use a different technology than many analog cellular and other digital systems. To access another provider's analog cellular or digital system, a Sprint PCS customer is required to utilize a dual-band/dual-mode handset compatible with that provider's system. Generally, because dual-band/dual-mode handsets incorporate two radios rather than one, they are more expensive and are larger and heavier than single-band/single-mode handsets. The Sprint PCS network does not allow for call hand-off between 9 the Sprint PCS network and another wireless network, thus requiring a customer to end a call in progress and initiate a new call when leaving the Sprint PCS network and entering another wireless network. In addition, the quality of the service provided by a network provider during a roaming call may not approximate the quality of the service provided by Sprint PCS. The price of a roaming call may not be competitive with prices of other wireless companies for roaming calls, and Sprint PCS customers may not be able to use Sprint PCS advanced features, such as voicemail notification, while roaming. Non-renewal or revocation by the FCC of the Sprint PCS licenses would significantly harm our business FCC licenses to provide PCS services are subject to renewal and revocation. Sprint PCS' licenses in our territory will expire in 2007 but may be renewed for additional ten year terms. There may be opposition to renewal of Sprint PCS' licenses upon their expiration and the Sprint PCS licenses may not be renewed. The FCC has adopted specific standards to apply to PCS license renewals. Failure by Sprint PCS to comply with these standards in our territory could cause revocation or forfeiture of the Sprint PCS licenses for our territory or the imposition of fines on Sprint PCS by the FCC. We depend on our officers and skilled employees due to our complex business The loss of one or more key officers could have a material adverse effect on us. Our business is managed by a small number of executive officers. We believe that our future success will also depend in large part on our continued ability to attract and retain highly qualified technical and management personnel. We believe that there is and will continue to be intense competition for qualified personnel in the PCS equipment and services industry as the PCS market continues to develop. We may not be successful in retaining our key personnel or in attracting and retaining other highly qualified technical and management personnel. We intend to, but do not currently, maintain "key man" life insurance for some of our executive officers or other employees. We may not achieve or sustain operating profitability or positive cash flow from operating activities We expect to incur significant operating losses and to generate significant negative cash flow from operating activities until 2002 while we develop and construct our PCS network and build our customer base. If and when we start to provide services to customers, our operating profitability will depend upon many factors, including, among others, our ability to market our services, achieve our projected market penetration and manage customer turnover rates. If we do not achieve and maintain operating profitability and positive cash flow from operating activities on a timely basis, we may not be able to meet our debt service requirements. We may need more capital than we currently project to build out our PCS network The build-out of our PCS network will require substantial capital. Additional funds would be required in the event of significant departures from the current business plan, unforeseen delays, cost overruns, unanticipated expenses, regulatory changes, engineering design changes and other technological risks. Due to our highly leveraged capital structure, additional financing may not be available or, if available, may not be obtained on a timely basis and on terms acceptable to us or within limitations permitted under our existing debt covenants. Failure to obtain additional financing, should the need for it develop, could result in the delay or abandonment of our development and expansion plans and would have a material adverse affect on our financial condition and results of operations. 10 Unauthorized use of our PCS network could disrupt our business We will likely incur costs associated with the unauthorized use of our PCS network, including administrative and capital costs associated with detecting, monitoring and reducing the incidence of fraud. Fraud impacts interconnection costs, capacity costs, administrative costs, fraud prevention costs and payments to other carriers for unbillable fraudulent roaming. Our agreements with Sprint PCS, and our certificate of incorporation and bylaws include provisions that may discourage a change of control transaction and which may affect the rights of holders of our common stock Our agreements with Sprint PCS restrict our ability to sell our operating assets and capital stock. Generally, Sprint PCS must approve a change of control of our ownership and consent to any assignment of our agreements with Sprint PCS. The agreements also give Sprint PCS a right of first refusal if we decide to sell our operating assets to a third party. These restrictions, among other things, could discourage, delay or make more difficult any sale of our operating assets or capital stock. This could have a material adverse effect on the value of the senior subordinated discount notes or our common stock and could reduce the price of our company in the event of a sale. Provisions of our certificate of incorporation and bylaws could also operate to discourage, delay or make more difficult a change in control of our company. See "Description of Capital Stock." We face risks relating to the year 2000 issue If our systems, the systems of our vendors, consultants and contractors, or the systems of Sprint and Sprint PCS and their vendors, consultants and contractors, are not year 2000 compliant or are unable to recover from system interruptions which may result from the year 2000 date change, our business could be materially adversely affected. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Impact of Year 2000 Issue on the Operations and Financial Condition of AirGate." Industry Risks A high rate of customer turnover may negatively impact our business The PCS industry has experienced a higher rate of customer turnover as compared to cellular industry averages. The rate of customer turnover may be the result of several factors, including network coverage; reliability issues such as blocked calls, dropped calls and handset problems; non-use of phones; change of employment; non-use of customer contracts, affordability; customer care concerns and other competitive factors. Our strategy to reduce customer turnover may not be successful. Price competition and other competitive factors could also cause increased customer turnover. A high rate of customer turnover could have a material adverse effect on our competitive position and results of operations. Technological development could negatively impact our business The wireless telecommunications industry is experiencing significant technological change, as evidenced by the increasing pace of digital upgrades in existing analog wireless systems, evolving industry standards, ongoing improvements in the capacity and quality of digital technology, shorter development cycles for new products and enhancements and changes in end-user requirements and preferences. There is also uncertainty as to the extent of customer demand as well as the extent to which airtime and monthly recurring charges may continue to decline. As a result, our future prospects and those of the industry, and the success of PCS and other competitive services, remain uncertain. Also, alternative technologies may develop for the provision of services to customers that may provide wireless telecommunications services or alternative services superior to PCS. 11 Government regulation could adversely affect our business The licensing, construction, operation, sale and interconnection arrangements of wireless telecommunications systems are regulated to varying degrees by the FCC, the Federal Aviation Administration, generally referred to as the FAA, and, depending on the jurisdiction, state and local regulatory agencies. Adverse decisions regarding these regulatory requirements could negatively impact Sprint PCS' operations and our cost of doing business. The Sprint PCS agreements reflect an affiliation that the parties believe meets the FCC requirements for licensee control of licensed spectrum. If the FCC were to determine that our agreements with Sprint PCS need to be modified to increase the level of licensee control, we have agreed with Sprint PCS to use our best efforts to modify the agreements as necessary to cause the agreements to comply with applicable law and to preserve to the extent possible the economic arrangements set forth in the agreements. If the agreements cannot be modified, the agreements may be terminated pursuant to their terms. Measures that would require "hands free" use of cellular phones while operating motor vehicles have been proposed or are being considered by the legislatures in various states outside our territory. State legislatures within our territory may consider such state legislation in the future. Although no state has enacted a law barring the use of mobile phones, some states have passed legislation governing the use of cellular phones while driving automobiles. We cannot predict the success of the proposed laws concerning "hands free" car phone use or the effect on usage of mobile phones as a result of publicity regarding such laws. In addition, more restrictive measures or measures aimed at wireless services companies as opposed to users may be proposed or passed in state legislatures in the future. The proliferation of such legislation could materially adversely affect us. Use of hand-held phones may pose health risks Media reports have suggested that certain radio frequency emissions from wireless handsets may be linked to various health problems, including cancer, and may interfere with various electronic medical devices, including hearing aids and pacemakers. Concerns over radio frequency emissions may discourage use of wireless handsets or expose us to potential litigation, which could have a material adverse effect on our financial condition and results of operations. Risks Relating to the Offering Our current management and directors will continue to control our management and affairs Upon completion of this offering, our current management and directors will beneficially own approximately 42% of our outstanding common stock and will beneficially own approximately 39% if the underwriters' over-allotment option is exercised in full. Consequently, such persons, as a group, may be able to control the outcome of matters submitted for stockholder action including the election of members to our board of directors and the approval of significant change in control transactions. This may have the effect of delaying or preventing a change in control. See "Management" and "Principal Stockholders." An active market for the common stock may not develop An active or liquid trading market in our common stock may not develop upon completion of this offering, or if it does develop, it may not continue. The initial public offering price of our 12 common stock will be determined through our negotiations with the underwriters and may be higher than the market price of common stock after this offering. See "Underwriting" for a discussion of the factors to be considered in determining the initial public offering price. The price of our common stock may be volatile The market price of our common stock could be subject to significant fluctuations in response to variations in quarterly operating results, announcements of technological innovations or new products and services by us or our competitors, our failure to achieve operating results consistent with securities analysts' projections, the operating and stock price performance of other companies that investors may deem comparable to us and other events or factors. Factors such as announcements of the introduction of new or enhanced services or related products by us or our competition, announcements of joint development efforts or corporate partnerships in the wireless telecommunications market, market conditions in the technology, telecommunications and other emerging growth sectors, and rumors relating to us or our competitors may also have a significant impact on the market price of our common stock. The stock market has experienced extreme price volatility. Under these market conditions, stock prices of many emerging growth and development stage companies have often fluctuated in a manner unrelated or disproportionate to the operating performance of such companies. Since we are a development stage company, our common stock may be subject to greater price volatility than the stock market as a whole. Purchasers in this offering will experience dilution The initial public offering price is substantially higher than the net tangible book value per share of the outstanding common stock will be immediately after the offering. Any common stock you purchase in the offering will have a post-offering net tangible book value per share of $6.97 less than the price you paid for the share, assuming an initial public offering price of $15.00 per share, the midpoint of the range set forth on the cover page of this prospectus. See "Dilution." Possible future sales of our common stock by management and other affiliates could cause the market price of our common stock to decrease A substantial number of shares of our common stock could be sold into the public market after this offering. The occurrence of such sales, or the perception that such sales could occur, could materially and adversely affect our stock price and could impair our ability to obtain capital through an offering of equity securities. The shares of common stock being sold in this offering will be freely transferable under the securities laws immediately after issuance, except for any shares sold to our "affiliates." All of our stockholders, members of our senior management and our directors have agreed pursuant to written "lock-up" agreements that, for a period of 180 days from the date of this prospectus, they will not, among other things, sell their shares. As a result, upon the expiration of the lock-up agreements 180 days after the date of this prospectus, an additional shares of our common stock will be eligible for sale subject, in most cases, to volume and other restrictions under federal securities laws. See "Shares Eligible for Future Sale." We do not intend to pay dividends, and you may not receive a return on investment without selling shares We do not anticipate paying any cash dividends on our common stock in the foreseeable future. Instead, we intend to retain future earnings to fund our growth. Therefore, you will not receive a return on your investment in our common stock without selling your shares. 13 FORWARD-LOOKING STATEMENTS This prospectus contains statements about future events and expectations, which are "forward-looking statements." Any statement in this prospectus that is not a statement of historical fact may be deemed to be a forward-looking statement. These statements include: . forecasts of growth in the number of consumers using PCS services; . statements regarding our plans for and costs of the build-out of our PCS network; . statements regarding our anticipated revenues, expense levels, liquidity and capital resources and projection of when we will launch commercial PCS service and achieve break-even operating cash flow; . statements regarding our preparedness for the year 2000 date change; and . other statements, including statements containing words such as "anticipate," "believe," "plan," "estimate," "expect," "seek," "intend" and other similar words that signify forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Specific factors that might cause such a difference include, but are not limited to: . our dependence on our affiliation with Sprint PCS; . the need to successfully complete the build-out of our PCS network; . our lack of operating history and anticipation of future losses; . our dependence on Sprint PCS' back office services; . potential fluctuations in our operating results; . our potential need for additional capital; . our potential inability to expand our services and related products in the event of substantial increases in demand for these services and related products; . our competition; and . our ability to attract and retain skilled personnel. See additional discussion under "Risk Factors" beginning on page 5. 14 USE OF PROCEEDS The net proceeds to be received from the sale of the common stock we are offering, after deducting underwriting discounts and commissions and estimated offering expenses are expected to be approximately $92.0 ,million, or approximately $106.0 million if the underwriters' over-allotment option is exercised in full, assuming an initial public offering price of $15.00 per share, the midpoint of the range set forth on the cover page of this prospectus. We intend to use the net proceeds from the common stock offering and the senior subordinated discount notes offering, together with the proposed vendor equipment financing, to fund: . capital expenditures, including the build-out of our PCS network; . operating losses; and . working capital requirements. Pending such uses, we expect to invest the net proceeds from the sale of the common stock in short-term investment grade securities which will earn interest. As of March 31, 1999, we had borrowings of $5.0 million payable to a vendor. In addition, on June 8, 1999, we borrowed an additional $5.0 million from this vendor and we expect to borrow an additional $3.5 million from the vendor from July 1, 1999 to the closing of our concurrent offerings of common stock and senior subordinated discount notes. Accordingly, we expect to have borrowed approximately $13.5 million under the proposed vendor equipment financing at the completion of this offering which will be incorporated into the proposed vendor equipment financing. The foregoing discussion represents our best estimate of the allocation of the net proceeds of this offering based upon our current plans. Actual expenditures may vary substantially from these estimates and we may find it necessary or advisable to reallocate the net proceeds within the above- described categories or to use portions thereof for other purposes. DIVIDEND POLICY We intend to retain our future earnings, if any, to fund the development and growth of our business and, therefore, do not anticipate paying any cash dividends in the foreseeable future. Our future decisions concerning the payment of dividends on the common stock will depend upon our results of operations, financial condition and capital expenditure plans, as well as such other factors as the board of directors, in its sole discretion, may consider relevant. In addition, our existing indebtedness restricts, and we anticipate our future indebtedness may restrict, our ability to pay dividends. 15 CAPITALIZATION The following table sets forth the cash and cash equivalents and our actual capitalization: . as of March 31, 1999; and . as adjusted to reflect the conversion of $5,315,000 in convertible notes to 681,410 shares of common stock; the sale in the common stock offering of 6,666,667 shares of common stock at an initial offering price of $15.00 per share, the midpoint of the range set forth on the cover of the common stock prospectus, less underwriting discounts and commissions and estimated offering expenses of $8.0 million; the sale of $150.0 million gross proceeds of % senior subordinated discount notes due 2009 in the senior subordinated discount notes offering, less aggregate underwriting discounts and commissions and estimated offering expenses of $6.3 million; and the completion of the proposed vendor equipment financing, including the payment of origination fees and other fees and expenses of $4.9 million.
As of March 31, 1999 --------------------- Actual As Adjusted -------- ----------- (In thousands) (Unaudited) Cash and cash equivalents................................ $ 447 $231,297 ======== ======== Short-term debt: Notes payable(1)........................................ $ 11,465 $ 1,150 Long-term debt: Vendor equipment financing(2)........................... -- 5,000 % senior subordinated discount notes due 2009........ -- 150,000 Other long-term debt(3)................................. 7,700 7,700 -------- -------- Total long-term debt.................................... 7,700 162,700 -------- -------- Stockholders' equity (deficit): Preferred stock, par value $.01 per share; 5,000,000 shares authorized; no shares issued and outstanding.... -- -- Common stock, par value $.01 per share, 25,000,000 shares authorized; 3,913,416 shares outstanding, actual; 11,261,493 outstanding as adjusted(4)(5)....... 39 112 Additional paid-in capital.............................. 6,265 103,507 Accumulated deficit..................................... (13,235) (13,235) -------- -------- Total stockholders' equity (deficit)................... (6,931) 90,384 -------- -------- Total capitalization................................. $ 769 $253,084 ======== ========
- -------------------- (1) Actual includes $5.0 million in a secured promissory note payable to the vendor, which will be incorporated into the proposed vendor equipment financing at the closing of this offering. Actual and as adjusted include a $1.0 million credit facility with a bank and $5.5 million of notes payable to affiliates. (2) The $5.0 million of vendor equipment financing shown under the as-adjusted column reflects the incorporation of the $5.0 million note payable to the vendor as of March 31, 1999 into the proposed vendor equipment financing in connection with the closing of the concurrent offerings. In addition, between April 1, 1999 and the closing, we expect to borrow an additional $8.5 million from a vendor, which will also be incorporated into the proposed vendor equipment financing at the closing. Accordingly, we expect to have approximately $13.5 million outstanding under the proposed vendor equipment financing at the completion of this offering. (3) Other long-term debt includes current maturities and consists of a promissory note issued to a third party in connection with our acquisition of certain site acquisition and engineering costs. (4) Shares of common stock outstanding reflect a 39,134-for-one stock split. (5) Excludes 1,185,761 shares of our common stock reserved for issuance under our 1999 Stock Option Plan and warrants currently outstanding for 243,001 shares. At or prior to the offering, it is anticipated that we will grant options to purchase approximately shares of our common stock pursuant to the 1999 Stock Option Plan. 16 DILUTION Our net tangible book value at March 31, 1999, was $(6,930,512) or $(1.77) per share of common stock. Net tangible book value per share represents the amount of total tangible assets less total liabilities, divided by the number of shares outstanding. After giving effect to the sale in this offering of 6,666,667 shares of common stock at an assumed initial public offering price of $15.00 per share, the midpoint of the range set forth on the cover of this prospectus, and the effect of the conversion of $5,315,000 in convertible notes into 681,410 shares of common stock upon the closing of this offering and the receipt of proceeds therefrom, and after deducting underwriting discounts and commissions and estimated offering expenses of $8.0 million, our as-adjusted net tangible book value as of March 31, 1999 would have been approximately $90,384,000, or $8.03 per share. This represents an immediate dilution of $6.97 per share to new investors purchasing shares of common stock in the offering and an immediate increase in net tangible book value to existing stockholders of $9.80 per share. The following table illustrates the per share dilution:
Assumed initial public offering price per share.............. $15.00 Net tangible book value per share as of March 31, 1999....... $(1.77) Increase in net tangible book value per share attributable to the offering and the conversion of notes payable to common stock....................................................... 9.80 ------ As adjusted net tangible book value per share after the offering and conversion of notes payable.................... 8.03 ------ Dilution per share to new investors.......................... $ 6.97 ======
The following table summarizes, on an as-adjusted basis as of March 31, 1999, the number of shares of common stock purchased, the total consideration paid and the average price per share paid by our existing stockholders and by new investors purchasing shares of common stock in the offering, assuming an offering price of $15.00 per share, the midpoint of the range set forth on the cover page of this prospectus, before the deduction of underwriting discounts and commissions and estimated offering expenses of $8.0 million payable by us:
Shares Purchased Total Consideration Average ------------------ -------------------- Price Number Percent Amount Percent Per Share Existing stockholders...... 4,594,826 41% $ 10,026,000 9% $ 2.18 New investors.............. 6,666,667 59 100,000,000 91 15.00 ---------- --- ------------ --- ------ Total.................... 11,261,493 100% $110,026,000 100 $ 9.77 ========== === ============ === ======
The foregoing tables assume no exercise of the underwriters' over-allotment option and no exercise of outstanding stock options and warrants. See "Management-- 1999 Stock Option Plan" and "Management--Employment Agreements." 17 SELECTED FINANCIAL DATA The selected financial data presented below under the captions "Statement of Operations Data" and "Balance Sheet Data" for, and as of the end of, the period from inception, June 15, 1995, to December 31, 1995 is derived from the unaudited consolidated financial statements of AirGate PCS, Inc. and subsidiaries and predecessors. The selected financial data presented below under the captions "Statement of Operations Data" and "Balance Sheet Data" for, and as of the end of, each of the years in the three-year period ended December 31, 1998, are derived from the consolidated financial statements of AirGate PCS, Inc. and subsidiaries and predecessors, which consolidated financial statements have been audited by KPMG LLP, independent certified public accountants. The selected financial data should be read in conjunction with the consolidated financial statements for the three-year period ended December 31, 1998, the related notes and the independent auditors' report, which contains an explanatory paragraph that states that our recurring losses from operations and working capital and accumulated deficit raise substantial doubt about our ability to continue as a going concern, appearing elsewhere in this prospectus. The consolidated financial statements and the selected financial data do not include any adjustments that might result from the outcome of that uncertainty. The selected unaudited financial data presented below as of March 31, 1999 and for the three-month periods ended March 31, 1998 and 1999, are derived from our unaudited consolidated financial statements included elsewhere in this prospectus. The unaudited consolidated financial statements include all adjustments, consisting of normal recurring accruals, that management considers necessary to a fair presentation of financial position and results of operations. Operating results for the three months ended March 31, 1999 are not necessarily indicative of the results that may be expected for the entire year ending December 31, 1999.
From June 15, 1995 For the Three-Month (Inception) to Periods Ended December 31, For the Years Ended December 31, March 31, -------------- ---------------------------------- -------------------- 1995 1996 1997 1998 1998 1999 -------------- ---------- ---------- ---------- --------- --------- (In thousands except per share data) Statement of Operations Data: Operating expenses: General and administrative........ $ 1,458 $ 1,252 $ 1,101 $ 2,597 $ 149 $ 369 Depreciation and amortization.......... 18 19 998 1,204 374 467 --------- ---------- ---------- ---------- --------- --------- Operating loss......... (1,476) (1,271) (2,099) (3,801) (523) (836) Interest expense....... (217) (582) (817) (1,391) (417) (744) --------- ---------- ---------- ---------- --------- --------- Net loss............... $ (1,693) $ (1,853) $ (2,916) $ (5,192) $ (940) $ (1,580) ========= ========== ========== ========== ========= ========= Other Data: Pro forma net loss per share of common stock(1).............. $ -- $ -- $ -- $ (1.01) $ -- $ (0.30) ========= ========== ========== ========== ========= ========= Adjusted common shares outstanding .......... -- -- -- 4,943,479 -- 4,943,479 ========= ========== ========== ========== ========= ========= Ratio of losses to fixed charges(2)...... (6.8) (2.18) (2.57) (2.73) (1.25) (1.12) ========= ========== ========== ========== ========= =========
18
As of December 31, As of March 31, 1999 ---------------------------------- ----------------------- 1995 1996 1997 1998 Actual As Adjusted(3) ------- ------- ------- ------- ------- -------------- (In thousands) (In thousands) Balance Sheet Data: Cash and cash equivalents........... $ 256 $ 6 $ 147 $ 2,296 $ 447 $231,297 Total assets........... 21,643 2,043 13,871 15,450 14,784 261,684 Long-term debt(4)...... -- -- 11,745 7,700 7,700 162,700 Stockholders' equity (deficit)............. (1,272) (3,025) (1,750) (5,350) (6,931) 90,384
- --------------------- (1) The computation of historical earnings per share has been omitted because such information is not meaningful. (2) The ratio of losses to fixed charges is computed by dividing fixed charges into loss before taxes plus fixed charges. Fixed charges consist solely of interest expense. On this basis, losses before fixed charges for the period from June 15, 1995 (inception) to December 31, 1995, for the years ended December 31, 1996, 1997 and 1998, and for the three months ended March 31, 1998 and 1999 were not adequate to cover fixed charges by $1,476,000, $1,271,000, $2,099,000, $3,801,000, $523,000 and $836,000, respectively. (3) As adjusted Balance Sheet Data reflects the conversion of convertible notes to 681,410 shares of common stock, the sale in the common stock offering of 6,666,667 shares of common stock at an initial offering price of $15.00 per share, the midpoint of the range set forth on the cover of this prospectus, less underwriting discounts and commissions and estimated offering expenses of $8.0 million and the concurrent sale of $150.0 million of gross proceeds of % senior subordinated discount notes due 2009 in the senior subordinated discount notes offering, less aggregate underwriting discounts and commissions and estimated offering expenses of $6.3 million and the completion of the proposed vendor equipment financing, including the payment of origination fees and other estimated fees and expenses of $4.9 million. (4) Includes current maturities. 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the consolidated financial statements and the related notes included elsewhere in this prospectus. The discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from the results anticipated in these forward-looking statements as a result of factors including, but not limited to, those under "Risk Factors" and elsewhere in this prospectus. Overview On July 22, 1998, we entered into a management agreement with Sprint PCS whereby we became the Sprint PCS affiliate with the exclusive right to provide 100% digital, 100% PCS services under the Sprint and Sprint PCS brand names in our territory in the southeastern United States. We are a development stage company and have not generated any revenues to date. We have completed our PCS network design and are commencing construction of our PCS network. Our territory includes a contiguous area with a resident population of approximately 6.8 million covering almost the entire state of South Carolina, including Charleston, Columbia, and Greensville-Spartanburg; parts of North Carolina, including Asheville, Wilmington and Hickory; and the eastern Georgia cities of Augusta and Savannah. We believe that our territory is important to Sprint PCS' strategy of providing PCS service nationwide. Sprint PCS paid $44.6 million for the PCS licenses in our territory and incurred additional expenses for microwave clearing. In addition, we expect to purchase our network and subscriber equipment under Sprint PCS' vendor contracts at costs that reflect its volume discounts. Our agreements with Sprint PCS enable us to provide PCS service to customers in our territory using Sprint PCS' retail distribution agreements with national retailers such as Circuit City, Office Depot and Best Buy and an exclusive PCS distribution agreement with RadioShack. Under our management agreement with Sprint PCS, we are entitled to receive 92%, and Sprint PCS is entitled to retain 8%, of collected service revenues from customers in our territory. We are entitled to 100% of revenues collected from the sale of handsets and accessories, on revenues received when Sprint PCS customers from a different territory make a wireless call on our PCS network, and on roaming revenues from non-Sprint PCS customers. In addition, for specified fees, we may purchase certain back office services, including customer activation, billing and customer care, directly from Sprint PCS. We will purchase these services from Sprint PCS at a cost which reflects Sprint PCS' economies of scale. We expect that the outsourcing of these services will enable us to reduce capital expenditures for administrative purposes and to operate with fewer employees than other wireless providers. Through March 31, 1999, we have acquired $7.7 million of capitalized network assets from Sprint PCS and incurred $6.7 million of capital expenditures related to the build-out of our PCS network. To date, we have completed the radio frequency design, network design and substantial site acquisition and cell site engineering. As a result of the progress made on our PCS network build-out, we expect to be able to launch commercial PCS operations in the first quarter of 2000. We expect to extend our coverage during the balance of 2000 and to substantially complete the build-out of our PCS network by the end of 2000 covering approximately 74% of the population in our territory. We expect to continue to fill in coverage in 2001. From inception (June 1995) through August 1998, our operating activities were focused on developing a PCS business in the southeastern United States, including the purchase of four PCS 20 licenses from the FCC. During this period we did not generate any revenues and, as a result, have incurred operating losses since inception. The operating results during this period are not indicative of the anticipated results of operations which we expect to achieve, following commencement of commercial operations, as a Sprint PCS affiliate. Results of Operations Prospective Income Statements Revenues. Under our management agreement with Sprint PCS, we are entitled to receive 92% of collected service revenues from customers in our territory. For financial reporting purposes, we will record 100% of collected service revenues along with an expense equal to 8% of collected service revenues which Sprint PCS is entitled to retain under our management agreement. In addition to collected service revenues, we will generate revenues from the sale of handsets and accessories and from roaming services provided to customers traveling onto our PCS network. Sprint PCS is not entitled to retain any of these revenues. We will make an appropriate accrual of bad debt expense on a monthly basis. Through our marketing efforts, we will seek to distinguish our service offerings on the basis of the quality of digital PCS services and extensive wireless coverage our subscribers will receive through the Sprint PCS national network. We believe that the Sprint and Sprint PCS brand names and quality of digital PCS service, coupled with Sprint PCS' established customer care and simplified billing, will build customer loyalty and limit customer turnover, thereby increasing revenues and margins. Wireless providers that have offered poor or spotty coverage, inferior voice quality, unresponsive customer care or confusing billing formats suffer higher than average customer turnover rates. Accordingly, we will only launch service in a particular market after comprehensive and reliable coverage and service can be maintained in that market. In addition, we will use the Sprint PCS billing platform and rate plans which are designed to offer simple and understandable options. Specifically, the Sprint PCS Free and Clear rate plans offer bundled minute options that include local, long distance and roaming on the entire Sprint PCS network. Operating Expenses. We expect our operating expenses will principally include sales and marketing, network operations and general and administrative expenses. Sales and marketing expenses relate to our indirect distribution channels, sales representatives, sales support personnel, our retail stores, advertising programs and equipment costs and subsidies paid to third party retailers to sell our handsets. We expect that our cost for each additional customer will be higher in the initial years of operation and decline as our sales and marketing expenses are distributed over a greater customer base and costs and subsidies of handsets decline. We will benefit from the use of the Sprint and Sprint PCS brand names, Sprint PCS national advertising and other marketing programs. We will not pay Sprint PCS a marketing service fee. Our costs of handsets and accessories will reflect Sprint PCS' volume discounts. Network operations expenses include cell site collocation lease costs, utilities, switch maintenance, switch site leases, engineering personnel, backhaul and interconnect charges. We will also be charged roaming fees by Sprint PCS and other wireless carriers when our customers make a wireless call on networks outside our territory. More than 85% of our cell sites will be collocated, which will result in higher cell site lease expenses. These higher lease expenses will be offset in part by certain operating expense savings resulting from collocation. Collocation will also substantially 21 reduce our capital expenditures and time to market. Collocation is the ability to locate existing antennas and other transmission equipment on existing towers or other existing structures. Collocation has the following three primary benefits: . allows us to avoid the costs of building the tower and buying or leasing the land; . allows us to more quickly install antennas than if we had to build the tower ourselves; and . allows us to avoid any zoning challenges that could prohibit use of the location for a cell site since we will use existing towers. On collocation sites we also are able to avoid paying the costs of maintenance that is borne by the owner of the tower. This results in higher cell lease expenses, but lower operating costs. We will purchase a full suite of back office services from Sprint PCS. . These services will be provided by Sprint PCS in the same manner and with the same standards of care that Sprint PCS uses in conducting its own business. . Initially, the charges for these services, which are based on Sprint PCS' cost and reflect their economies of scale, will be lower than if we provided these services ourselves. . In addition, we expect that, by using these established services, our capital expenditures and demands on our management's time in connection with back office services will be lower than if we developed and provided the services ourselves. We will have access to these services until at least December 31, 2001. Because of the economic benefits to us, we will initially purchase: .customer billing and collections; .customer care; .subscriber activation, including credit verification; .handset logistics; .network operations control center monitoring; .national platform interconnectivity; .voice mail; .directory assistance and operator services; .long distance; .roaming fees and roaming clearinghouse fees; and .inter-service area fees. As indicated above, Sprint PCS will retain 8% of collected service revenues. We will record this affiliation fee as an operating expense. We will also incur certain general and administrative expenses relating to corporate overhead, including salaries and other benefits. Historical Income Statements From June 15, 1995 (inception) to December 31, 1997: From inception, June 15, 1995, through December 31, 1997, our operating activities were focused on developing a PCS business which included the purchase of four FCC PCS licenses. During this period, we incurred total cumulative expenses of $6.5 million. These expenses related to salaries and benefits, professional fees, interest expense, depreciation and amortization of the FCC 22 PCS licenses. All costs of start-up and organizational activities have been expensed or incurred in accordance with AICPA Statement of Position 98-5. For the year ended December 31, 1998: In July 1998, we signed a series of agreements with Sprint PCS to operate as the exclusive affiliate of Sprint PCS in certain markets in the southeastern United States. As a part of these agreements, we were given the right to market Sprint PCS' products and services in exchange for building, constructing and managing a PCS network that will support the wireless service offerings of Sprint PCS in our territory. In October 1998, AirGate PCS, Inc. was formed and all operations related to the affiliation with Sprint PCS were transferred to it and its subsidiaries. The FCC PCS licenses will not be used in our continuing operations as a Sprint PCS affiliate and, therefore, have been excluded from the financial statements of AirGate PCS, Inc. During 1998, we focused on consummating our affiliation with Sprint PCS. Expenses incurred for these purposes totaled $5.1 million for salaries and benefits, professional fees, interest expense depreciation and amortization. Capital outlays in 1998 amounted to $12.9 million. Included in this amount were $7.7 million of capitalized network assets which we purchased from Sprint PCS which include radio frequency and engineering design data, site acquisition materials and construction equipment. We also incurred $5.1 million of capital expenditures related to the build-out of our PCS network. For the three-month period ended March 31, 1999: From December 31, 1998 through March 31, 1999, we were focused on raising capital to continue our PCS network build-out. We incurred expenses of $1.6 million during the three-month period ended March 31, 1999. These expenses consisted of salaries and benefits, professional fees, interest expense and depreciation and amortization expense primarily related to our network build out. We incurred capital expenditures of $1.6 million related to the continued build-out of our PCS network. Liquidity and Capital Resources Since inception, our activities have consisted principally of raising capital, participating in PCS license auctions, consummating and supporting our agreements with Sprint PCS, completing the initial design of our PCS network and adding to our management team. We have relied on the proceeds from equity and debt financing, rather than revenues, as our primary sources of capital. Specifically, operations during this development phase have been funded through equity infusions by Weiss Peck & Greer PCS Partners and Maxicom LLC as well as convertible notes issued to the various venture capital funds of Weiss, Peck & Greer Venture Partners and JAFCO America Ventures, Inc. These notes will convert into common stock concurrently with this offering. In addition, we issued a secured promissory note to a vendor for $10.0 million in June 1999 which will be incorporated into our anticipated vendor equipment financing prior to the consummation of this offering. Completion of our PCS network will require substantial capital. Our build-out plan includes the installation of three switches and over 500 cell sites by the end of the fourth quarter of 2000. In addition, we will construct 12 company- owned Sprint PCS stores and develop other administrative systems. Currently, we estimate that the capital requirements to achieve our goals, including repayment of debt, operating losses and working capital for the period from July 1, 1999 through the end of 2002, will total approximately $345.7 million. The actual funds required to build out our PCS network and fund operating losses and working capital needs may vary materially from these estimates, and additional funds could be required in the event of unforeseen delays, cost overruns, unanticipated expenses, engineering design changes and other technological risks. 23 Currently, we have no sources of revenue to meet our anticipated capital requirements. We expect the primary sources of funding to be the proceeds provided by this offering and the concurrent senior subordinated discount notes offering together with the proposed vendor equipment financing. Concurrently with this offering, we are offering for sale senior subordinated discount notes which will be issued in an aggregate principal amount and with an interest rate sufficient to generate gross proceeds of approximately $150.0 million. The aggregate accreted value of the senior subordinated discount notes will increase from $150.0 million at issuance at a rate of % compounded semi- annually to a final accreted value equal to their aggregate principal amount of $ million at the end of year five. After year five, we are required to pay cash interest on the senior subordinated discount notes. The senior subordinated discount notes will be secured by a senior subordinated pledge of the capital stock of our future, direct subsidiaries and a pledge of intercompany notes payable to us, will be guaranteed by our subsidiary and will be subordinate in right of payment with our existing and future senior indebtedness. We are currently in negotiations with a vendor to provide financing for the purchase of radios, switching and related equipment and services for the development of our PCS network. The vendor has proposed vendor equipment financing in the amount of $153.5 million to purchase equipment, repay capitalized interest and cover approved working capital costs. Borrowings under the vendor equipment financing are expected to be secured by a first priority lien over all of our assets and the assets of our subsidiary and future subsidiaries, and a pledge of the capital stock of our subsidiary and future subsidiaries. The facility is expected to contain financial and other covenants customary for the wireless industry. As of March 31, 1999, we had $5.0 million of borrowings outstanding under a secured promissory note payable to a vendor. In addition, we borrowed an additional $5.0 million in June 1999 from the vendor and expect to borrow an additional $3.5 million from the vendor from July 1, 1999 to the closing of our concurrent offerings of common stock and senior subordinated discount notes. At closing, the entire $13.5 million of borrowings will be incorporated into the proposed $153.5 million vendor equipment financing. We believe that the net proceeds from this offering and from the concurrent offering of senior subordinated discount notes, together with the proposed vendor equipment financing, will provide us with sufficient funds to complete our PCS network build-out and fund operating losses and working capital requirements through 2002, at which point we expect to have achieved break-even operating cash flow. If we expand more rapidly than currently anticipated, or if our working capital needs exceed our current expectations, we will need to raise additional equity or debt capital. We cannot be sure that we will be able to obtain the additional financing to satisfy our cash requirements or to implement our growth strategy on acceptable terms or at all. If we cannot obtain such financing on terms acceptable to us, we may be forced to curtail our planned business expansion and may be unable to fund our ongoing operations. Impact of Year 2000 Issue on the Operations and Financial Condition of AirGate The year 2000 issue arises as the result of computer programs having been written, and systems having been designed, using two digits rather than four to define the applicable year. Consequently, such software has the potential to recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. We believe that our computer systems and software are year 2000 compliant. To the extent that we implement our own computer systems and software in the future, we will assess year 2000 compliance prior to their implementation. We have not incurred any costs relating to year 2000 24 compliance. In the process of designing and constructing our PCS network, we have entered into material agreements with several third-party vendors. We rely on them for all of our important operating, computer and non-information technology systems. We are therefore highly dependent on Sprint PCS and other vendors for remediation of their network elements, computer systems, software applications and other business systems. We will purchase critical back office services from Sprint PCS, and our network infrastructure equipment will be contractually provided by a third party vendor with whom we have a material relationship. If either Sprint PCS or this third party vendor fail to become year 2000 compliant, our ability to commence operations may be materially delayed. We have contacted our third party vendors and believe that they will be year 2000 compliant. However, we have no contractual or other right to compel compliance by them. We do not expect to commence operations until the first quarter of 2000. Because of our reliance on third-party vendors, we believe that the impact on us of issues relating to year 2000 compliance, if any, would be a delay in our launching commercial PCS operations and not a disruption in service. We, therefore, have not developed a contingency plan and do not expect to do so. Quantitative and Qualitative Disclosure About Market Risk We are exposed to market risks that are inherent in our financial instruments. These instruments arise from transactions entered into in the normal course of business. We are subject to interest rate risk on our vendor equipment financing and any future financing requirements. Our fixed rate debt will consist primarily of the accreted balance of the senior subordinated discount notes. Our variable rate debt will consist of borrowings made under the proposed vendor equipment financing. The following table presents the estimated future outstanding long-term debt at the end of each year and future required annual principal payments for each year then ended associated with senior subordinated discount notes, proposed vendor equipment financing and other long-term debt based on our projected level of long-term indebtedness :
Years ending December 31, ------------------------------------------------ 1999 2000 2001 2002 2003 Thereafter (Dollars in thousands) Senior subordinated discount notes......... $159,276 $179,585 $202,483 $228,332 $257,481 $ -- Fixed interest rate (1).................... 12.00% 12.00% 12.00% 12.00% 12.00% 12.00% Principal payments...... -- -- -- -- -- 290,351 Proposed vendor equipment financing.... 13,500 55,500 121,679 152,994 150,969 -- Variable interest rate (2).................... 9.25% 9.25% 9.25% 9.25% 9.25% 9.25% Principal payments...... -- -- -- 506 2,025 150,969 Other long-term debt (3).................... 5,775 1,925 -- -- -- -- Fixed interest rate .... 14.00% 14.00% 14.00% -- -- -- Principal payments...... 1,925 3,850 1,925 -- -- --
- --------------------- (1) Assumed interest rate for senior subordinated discount notes, which will be paid in full in 2009. (2) Interest rate on proposed vendor equipment financing equals the London Interbank Offered Rate ("LIBOR") +3.75%. LIBOR is assumed to equal 5.5% for all periods presented. (3) Other long-term debt consists of a promissory note payable issued to a third party in connection with our acquisition of certain site acquisition and engineering costs. 25 Our primary market risk exposure relates to: .the interest rate risk on long-term and short-term borrowings, .our ability to refinance our senior subordinated discount notes at maturity at market rates; and . the impact of interest rate movements on our ability to meet interest expense requirements and meet financial covenants. We expect to manage the interest rate risk on our outstanding long-term and short-term debt through the use of fixed and variable rate debt and interest rate swaps. While we cannot predict our ability to refinance existing debt or the impact interest rate movements will have on our existing debt, we continue to evaluate our financial position on an ongoing basis. Inflation Management believes that inflation has not had, and will not have, a material adverse effect on our results of operations. 26 INDUSTRY BACKGROUND Wireless communications systems use a variety of radio frequencies to transmit voice and data. Broadly defined, the commercial wireless communication industry includes one-way radio applications, such as paging or beeper services, and two-way radio applications, such as cellular, PCS and enhanced specialized mobile radio, known as ESMR, networks. Historically, each application has been licensed and operates in a distinct radio frequency block. In the commercial wireless communication industry there are two principal services licensed by the FCC for transmitting two-way, real time voice and data signals: "cellular" and "PCS." Cellular, which uses the 800 MHz frequency block, is the predominant form of commercial wireless voice communications service used by subscribers today. Cellular systems are analog-based, but over the last several years cellular operators have started to deploy digital service in the 800 MHz frequency block. Digital services have been deployed, as a complement to the analog based services, in most of the major metropolitan markets. Analog-based systems send signals in which the transmitted signal resembles the input signal, the caller's voice, while in digital systems the input is coded into a binary form before the signal is transmitted. In addition, ESMR networks may provide up to 15 MHz of spectrum for interconnected two-way real time voice and data services. In 1993, the FCC allocated the 1900 MHz frequency block of the radio spectrum for PCS. PCS differs from traditional analog cellular telephone service principally in that PCS systems operate at a higher frequency and employ advanced digital technology. Digital systems convert voice or data signals into a stream of digits that permit a single radio channel to carry multiple simultaneous transmissions. Digital systems also achieve greater frequency reuse than analog systems resulting in greater capacity than analog systems. This enhanced capacity, along with enhancements in digital protocols, allows digital-based wireless technologies, whether using PCS or cellular frequencies, to offer new and enhanced services, such as greater call privacy and more robust data transmission features, such as "mobile office" applications including facsimile, electronic mail and connecting notebook computers with computer/data networks. Since the introduction of commercial cellular service in 1983, the wireless communications industry has experienced dramatic growth. The number of wireless subscribers for cellular, PCS and ESMR has increased from an estimated 340,213 at the end of 1985 to over 69 million as of December 31, 1998, according to the Cellular Telecommunications Industry Association ("CTIA"), an international association for the wireless industry. The following chart illustrates the annual growth in U.S. wireless communication customers for cellular, PCS and ESMR through December 31, 1998.
Year Ended December 31, ------------------------------------------------------ 1992 1993 1994 1995 1996 1997 1998 Wireless Industry Statistics(1) Total service revenues (in billions).......... $ 7.8 $ 10.9 $ 14.2 $ 19.1 $ 23.6 $ 27.5 $ 33.1 Wireless subscribers at end of period (in millions).............. 11.0 16.0 24.1 33.8 44.0 55.3 69.2 Subscriber growth....... 46.0% 45.1% 50.8% 40.0% 30.4% 25.6% 25.1% Average monthly revenues per subscriber......... $68.68 $61.49 $56.21 $51.00 $47.70 $42.78 $39.43
- --------------------- Source: Cellular Telecommunications Industry Association. (1) Reflects domestic commercially operational cellular, ESMR and PCS providers. 27 Paul Kagan Associates, Inc., an independent media and telecommunications association, estimates that the number of wireless users will increase to approximately 137 million and 169 million by 2002 and 2005, respectively. This growth is driven largely by a substantial projected increase in PCS users, who are forecast to account for approximately 34% and 42% of total users in 2002 and 2005, respectively, representing a significant increase over the approximately 10% of total wireless customers using PCS as of the end of 1998. Paul Kagan Associates, Inc. projects total wireless industry penetration, defined as the number of wireless subscribers nationwide divided by total United States population, will grow from an estimated 25.3% in 1998 to 60.6% in 2008. We believe that a significant portion of the predicted growth in the consumer market for wireless telecommunications will result from anticipated declines in costs of service, increased functional versatility, and increased awareness of the productivity, convenience and privacy benefits associated with the services offered by PCS providers. PCS providers are the first direct wireless competitors of cellular providers to offer all-digital mobile networks. We also believe that the rapid growth in the use of notebook computers and personal digital assistants, combined with emerging software applications for delivery of electronic mail, fax and database searching, will contribute to the growing demand for wireless service. Wireless communications systems, whether PCS or cellular, are divided into multiple geographic coverage areas, known as "cells." In both PCS and cellular systems, each cell contains a transmitter, a receiver and signaling equipment, known as the "cell site." The cell site is connected by microwave or landline telephone circuits to a switch that uses computers to control the operation of the cellular or PCS communications system for the entire service area. The system controls the transfer of calls from cell to cell as a subscriber's handset travels, coordinates calls to and from handsets, allocates calls among the cells within the system and connects calls to the local landline telephone system or to a long distance carrier. Wireless communications providers establish interconnection agreements with local exchange carriers and interexchange carriers, thereby integrating their system with the existing landline communications system. Because the signal strength of a transmission between a handset and a cell site declines as the handset moves away from the cell site, the switching office and the cell site monitor the signal strength of calls in progress. When the signal strength of a call declines to a predetermined level, the switching office may "hand off" the call to another cell site where the signal strength is stronger. Wireless digital signal transmission is accomplished through the use of various forms of "air interface protocols." The FCC has not mandated a universal air interface protocol for PCS systems. PCS systems operate under one of three principal air interface protocols, CDMA, TDMA or GSM. TDMA and GSM are both time division multiple access systems but are incompatible with each other. CDMA is a code division multiple access system and is incompatible with both GSM and TDMA. Accordingly, a subscriber of a system that utilizes CDMA technology is unable to use a CDMA handset when traveling in an area not served by CDMA-based PCS operators, unless the customer carries a dual-band/dual-mode handset that permits the customer to use the analog cellular system in that area. The same issue would apply to users of TDMA or GSM systems. All of the PCS operators now have dual- or tri-mode handsets available to their customers. Until digital networks become fully built-out, these handsets will be necessary for a certain segment of the subscriber base. Sprint PCS' network uses CDMA technology, which is generally regarded as the most efficient and advanced of the protocols in use. We believe that CDMA provides several benefits over existing 28 technologies, including higher voice quality, increased security from intercepted signals, and greater network capacity and flexibility: . The CDMA voice-coder currently employs a 13 kilobits voice-coder, while TDMA networks use an 8 kilobits voice-coder. The forward error correction in the GSM systems allows only about two-thirds of the transmitted information to be protected whereas the CDMA technology uses the forward error correction for all transmitted information. Higher coding rates and better error correction correlate to higher voice quality in a wireless network. . Unlike other analog and digital technologies, CDMA reuses the same frequency at each site. This makes the deployment of a CDMA network more efficient and flexible from a planning and spectrum reuse standpoint. Because of its frequency reuse capability, CDMA will support greater network call capacity as well. . CDMA supports soft-handoff which allows wireless calls to be "handed- over" from cell site to cell site without "breaking" or muting the audio associated with the wireless call. Soft-handoff also allows for greater stability in maintaining the wireless call during the hand-off process. . The digital characteristics of the CDMA technology allow it to support advanced features such as short messaging services, calling number identification and wireless data interconnection. See "Business--CDMA Technology." 29 BUSINESS Overview We are the exclusive Sprint PCS affiliate in our territory in the Southeast and the second largest Sprint PCS affiliate in the United States based on the total population of our territory. Under long-term agreements with Sprint PCS, we will exclusively market PCS services under the Sprint and Sprint PCS brand names. As a Sprint PCS affiliate, we will offer the same 100% digital, 100% PCS products and services that have made Sprint PCS the fastest growing wireless company in the United States. Our network will be built to meet or exceed the high standards for technical and service quality established by Sprint PCS. We will use Sprint PCS' established back office services to handle customer activation, billing and customer care. The customer effectively will see our products and services as those of Sprint PCS. We will benefit from Sprint PCS' national advertising campaigns and will have access to major national retailers for distribution under existing Sprint PCS contracts. We plan to launch commercial PCS service in the first quarter of 2000 with initial coverage to over 1.5 million residents, and expect to offer service to more than 5.0 million residents, or 74% of the population in our territory, by the end of the fourth quarter of 2000. Our territory has a resident population of more than 6.8 million and covers 20 contiguous markets in one of the fastest growing regions in the United States. The territory covers almost the entire state of South Carolina, including Charleston, Columbia and Greenville-Spartanburg, parts of North Carolina, including Asheville, Wilmington and Hickory, and the eastern Georgia cities of Augusta and Savannah. Our territory is contiguous to important Sprint PCS markets which are already operational, including Atlanta, Georgia; Charlotte and Raleigh, North Carolina; Norfolk, Virginia; and Knoxville, Tennessee. In addition to serving the resident population of these markets, we will generate roaming revenue from visitors to our territory who will use our PCS network for seamless national Sprint PCS services. Our territory welcomes over 27 million visitors each year to popular vacation and tourist destinations, which include Myrtle Beach, Charleston and Hilton Head Island, South Carolina, the Outer Banks of North Carolina; and Savannah, Georgia. Under existing Sprint PCS agreements with national third-party retailers, including distribution agreements with Circuit City, Office Depot and Best Buy and an exclusive PCS distribution agreement with RadioShack, we will have access to more than 250 retail outlets to sell and distribute Sprint PCS products and services throughout our territory. We will combine the strength of these retail outlets with Sprint PCS' national sales force focused on Fortune 500 companies, national inbound telemarketing sales force and electronic commerce sales platform. We also intend to offer Sprint PCS products and services through 12 of our own stores and through local retailers with strong community connections. In addition, approximately 30% of the population in our territory receives their local telephone service from Sprint. This provides us with an additional established distribution channel for our Sprint PCS products and services. We believe the combination of these national and local distribution channels provides us with a competitive advantage over other wireless providers in our territory. Sprint PCS has invested $44.6 million to purchase the PCS licenses in our territory and incurred additional expenses for microwave clearing. We are licensed to use the Sprint and Sprint PCS brand names royalty-free during our entire affiliation with Sprint PCS. We also receive access to Sprint PCS' national marketing support and distribution programs and are entitled to buy network and 30 subscriber equipment and handsets at the same discounted rates offered by vendors to Sprint PCS based on its large volume purchases. Under our management agreement with Sprint PCS, Sprint PCS will retain 8% of collected service revenues and we are entitled to receive 92%. We are entitled to 100% of revenues from roaming and subscriber equipment sales from customers in our territory. Under the agreements, we also have the option to purchase back office services from Sprint PCS at costs reflecting their economies of scale. Sprint PCS Sprint Corporation is a diversified telecommunications service provider whose principal activities include long distance service, local service, wireless telephony products and services, product distribution and directory publishing activities, and other telecommunications activities, investments and alliances. Sprint PCS, a wholly-owned subsidiary of Sprint, operates the only 100% digital, 100% PCS wireless network in the United States with licenses to provide service nationwide using a single frequency and a single technology. The Sprint PCS network uses CDMA technology nationwide. Sprint launched its first commercial PCS service in the United States in November 1995. Since then, Sprint PCS has experienced rapid customer growth, providing service to 3.35 million customers as of March 31, 1999. In the fourth quarter of 1998, Sprint PCS added 836,000 new subscribers, the largest single quarter of customer growth ever reported by a wireless provider in the United States. In the first quarter of 1999, Sprint PCS added 763,000 new wireless subscribers, the second largest quarter ever recorded by a wireless carrier in the United States. As of March 31, 1999, Sprint PCS, together with its affiliated companies, operated PCS systems within the United States and its territories covering 170 million people in more than 280 metropolitan markets. The following table, showing the quarterly end-of-period subscriber data for Sprint PCS, illustrates Sprint PCS' subscriber growth from the beginning of 1997 to the end of the first quarter of 1999.
1997 1998 1999 ----------------------- ----------------------- ----- Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 (in thousands) Total Subscribers......... 192 347 570 887 1,114 1,370 1,750 2,586 3,350
Sprint PCS currently provides nationwide PCS service through a combination of: .operating its own digital network in major metropolitan areas; .strategic affiliations with other companies, primarily in and around smaller metropolitan areas; . roaming on analog cellular networks of other providers using dual-band, dual-mode handsets; and .roaming on digital PCS networks of other CDMA-based providers. We are the second largest affiliate of Sprint PCS and will provide Sprint PCS services in key cities contiguous to current and future Sprint PCS markets. Our territory connects to Sprint PCS markets including Atlanta, Georgia; Charlotte and Raleigh, North Carolina; Norfolk, Virginia; and Knoxville, Tennessee. The build-out of our territory will significantly extend Sprint PCS' coverage in the Southeast and we believe is important to its nationwide strategy. 31 Competitive Strengths Benefits of the Sprint PCS Affiliation Our strategic affiliation with Sprint PCS provides us with many business, operational and marketing advantages including the following: Exclusive provider of Sprint PCS products and services. We are the exclusive provider of Sprint PCS' 100% digital, 100% PCS products and services in our territory. We will provide these products and services exclusively under the Sprint and Sprint PCS brand names. Strong brand recognition and national advertising support. We will benefit from the strength and the reputation of the Sprint and Sprint PCS brands. Sprint PCS' national advertising campaigns and developed marketing programs will be provided to us at no additional cost under our agreements with Sprint PCS. We will offer the same strategic pricing plans, promotional campaigns and handset and accessory promotions that we believe have made Sprint PCS the fastest growing wireless service provider in the United States. Established and available distribution channels. We will have use of all the national distribution channels used by Sprint PCS. These channels include: . RadioShack stores on an exclusive basis for PCS; . other major national third-party retailers such as Best Buy, Circuit City and Office Depot; . Sprint PCS' national inbound telemarketing sales force; . Sprint PCS' national accounts sales team; and . Sprint PCS' electronic commerce sales platform. Nationwide coverage. We plan to operate our PCS network seamlessly with the Sprint PCS national network. This will provide customers in our territory with immediate nationwide roaming using Sprint PCS' network and other wireless networks with which Sprint PCS has roaming agreements. We will receive roaming revenue from the use of our PCS network by Sprint PCS customers traveling in or visiting our territory. Ability to purchase back office services from Sprint PCS. Our affiliation with Sprint PCS provides us with the option to use Sprint PCS' established back office services, including customer activation, billing and customer care. Using this option, we can accelerate the launch of our commercial PCS operations and reduce our capital expenditures and operating costs rather than establishing and operating our own systems. Sprint PCS has indicated it intends to provide these services to us at costs reflecting Sprint PCS' economies of scale. We may elect to develop our own internal capabilities to handle these functions or outsource them to a third party in the event that doing so proves to be more cost effective. Sprint PCS network design. Sprint PCS developed the initial build-out plan for our PCS network. We have based our network build-out on this design and have further enhanced it to better provide coverage for our territory. Economies of scale of a nationwide network. We will purchase our network and subscriber equipment under Sprint PCS' vendor contracts that provide for volume discounts. These discounts 32 will reduce the overall capital required to build our PCS network and will lower the cost of subscriber equipment. Sprint PCS licenses and long-term commitment. Sprint PCS has funded the purchase of the licenses covering our territory at a cost of $44.6 million and incurred additional expenses for microwave clearing. As a Sprint PCS affiliate, we did not have to fund the acquisition of the licenses thereby reducing our start-up costs. Sprint PCS also intends to enter into a consent and agreement that will limit its rights or remedies under our agreements with Sprint PCS, and including its right to terminate the agreements and withhold payments, until our vendor equipment financing and senior subordinated discount notes are satisfied in full pursuant to the terms of the consent and agreement. See "The Sprint PCS Agreements--Consent and Agreement." Other Competitive Strengths In addition to the advantages provided by our strategic affiliation with Sprint PCS, we have the following competitive strengths: Attractive market footprint. Our territory has favorable demographic characteristics for wireless communications services which we believe are important to Sprint PCS' national footprint. The 20 contiguous markets in our territory: . include approximately 6.8 million residents; . include key southeastern cities and vacation destinations such as Myrtle Beach and Hilton Head Island, South Carolina; Savannah, Georgia; and the Outer Banks of North Carolina; . have strong population growth and attractive traffic patterns; . connect important Sprint PCS markets which are already operational, including Atlanta, Georgia; Charlotte and Raleigh, North Carolina; Norfolk, Virginia; and Knoxville, Tennessee; and . are serviced by Sprint local telephone companies that cover 30% of our territory, which contribute to the market awareness of Sprint's telecommunications services and provide us with an additional distribution channel. Experienced management team. We have attracted an experienced senior management team with an average of more than 15 years of experience in building and operating telecommunications networks in the southeastern United States. . Thomas M. Dougherty, our president and chief executive officer, has more than 16 years of telecommunications experience, and is a former senior executive of Sprint PCS. As the president of a major Sprint PCS region, Mr. Dougherty was responsible for Sprint PCS market launches in eighteen major metropolitan areas with a resident population of approximately 75 million, including Chicago, Illinois; Houston, Texas; Atlanta, Georgia; and Charlotte, North Carolina. . Thomas D. Body, III, our vice president of strategic planning, has over 20 years of telecommunications experience in the Southeast. Mr. Body co- founded and operated several successful paging and cellular companies and also served as chief executive officer of MFS-Atlanta, a major fiber- optic systems provider. . W. Chris Blane, our vice president of new business development, has over 20 years of experience in telecommunications in the Southeast. Mr. Blane co-founded and operated 33 several successful paging and cellular companies including serving as a chief operating officer of American Mobilphone Paging and CellularOne of Birmingham and Montgomery, Alabama. . Robert E. Gourlay, our vice president of marketing, has 22 years of wireless telecommunications experience including 18 years with Motorola, Inc. Mr. Gourlay served as the southeastern manager of sales and operations for Motorola, Inc.'s Cellular Infrastructure Division for four years. . David C. Roberts, our vice president of engineering and network operations, has 15 years of wireless telecommunications experience, having served in various engineering and management positions with Motorola, Inc. in the Southeast. Fully financed plan. The net proceeds from this offering and from the concurrent offering of senior subordinated discount notes, together with the proposed vendor equipment financing, are expected to total approximately $374.4 million. We believe this capital will provide us with sufficient funds to complete our PCS network build-out and to fund anticipated operating losses and working capital requirements through 2002, at which point we expect to have achieved break-even operating cash flow. Business Strategy Upon the completion of our 100% digital, 100% PCS network, we intend to become a leading provider of wireless PCS services in the Southeast. We believe that the following elements of our business strategy will enable us to rapidly launch our network, distinguish our wireless service offerings from those of our competitors and compete successfully in the wireless communications marketplace. Leverage our affiliation with Sprint PCS. The benefits of our affiliation with Sprint PCS include: . Sprint PCS brand awareness and national marketing programs; . access to established Sprint PCS distribution channels and outlets; . Sprint PCS nationwide coverage; . use of Sprint PCS' back office services including customer activation, billing and customer care; . roaming revenue from Sprint PCS customers traveling onto our PCS network; . availability of discount prices for network and subscriber equipment under Sprint PCS' vendor contracts; and . use of Sprint PCS' national network control center which is responsible for continually monitoring the performance of our PCS network and providing rapid response for systems maintenance needs. Implement efficient operating structure. We intend to maximize operating efficiency by minimizing staffing and reducing costs through the purchase and use of Sprint PCS' existing back office services. For example, we will purchase billing and customer care from Sprint PCS on a per subscriber basis thereby avoiding the costly and time-consuming tasks of building our own systems. In addition, we will limit marketing costs by using Sprint PCS' national marketing concepts and programs. As the customer base in our territory grows, we may elect to develop internal systems for 34 certain back office functions such as customer activation, billing and customer care, or outsource such functions directly to third party vendors if it is more cost-effective. Execute optimal build-out plan. We are constructing a state-of-the-art, high quality, all digital PCS network. Our radio frequency design has a high density of cell sites. We believe that this cell density, together with the use of digital technology, will allow our system to handle more customers with fewer dropped calls and better clarity than our competitors. By leasing cell sites on facilities shared with one or more other wireless providers, we will be able to build our PCS network quickly. More than 85% of our leases for cell sites will be collocation leases. Our strategy is to provide service to major urban and suburban areas and the interstates and primary roads connecting these areas. We plan to initiate service only in areas where we are capable of providing population coverage comparable to or more extensive than that of our wireless competitors. Explore strategic opportunities to expand our territory in the future. Upon the successful build-out of our current territory and subject to the availability of financing, we may strategically expand our territory with a focus on the southeastern United States. Markets Our territory covers almost the entire state of South Carolina including Charleston, Columbia and Greenville-Spartanburg; portions of North Carolina including Asheville, Wilmington and Hickory; and the eastern Georgia cities of Augusta and Savannah. Sprint PCS has launched service in the major southeastern cities of Atlanta, Georgia; Knoxville, Tennessee; Norfolk, Virginia; and Charlotte and Raleigh, North Carolina. We will be the exclusive provider of Sprint PCS products and services in the markets connecting these major cities. The build-out of the network in our territory will bridge existing Sprint PCS markets. We believe connecting existing Sprint PCS markets is important to Sprint PCS' strategy to provide seamless, nationwide PCS service. Our contiguous markets with a population of 6.8 million have attractive demographic characteristics. . According to the Charleston metropolitan area Chamber of Commerce, South Carolina beaches are a major national tourism destination. Myrtle Beach, Charleston, Savannah and Hilton Head Island have over 27 million visitors annually. In addition, the Outer Banks of North Carolina is a popular vacation spot for Virginia and Washington, D.C. residents. . Our territory includes over 2,750 highway miles. Over 36 million vehicle miles are traveled daily on the 1,320 interstate miles of highway. . It is estimated that our markets will have a population growth rate 16% higher than that of the United States as a whole over the 5 years ending December 31, 2000. . There are at least 27 colleges and universities located in our territory, including the University of South Carolina and Clemson University. 35 The following table lists the location and population of each of the markets that comprise our territory under our agreements with Sprint PCS:
Territory (BTAs)* State Population (1) Greenville-Spartanburg South Carolina 853,000 Savannah Georgia 715,000 Charleston South Carolina 638,000 Columbia South Carolina 628,000 Augusta Georgia 568,000 Asheville-Hendersonville North Carolina 568,000 Anderson South Carolina 329,000 Hickory-Lenoir-Morganton North Carolina 320,000 Wilmington North Carolina 304,000 Florence South Carolina 257,000 Greenville-Washington North Carolina 241,000 Goldsboro-Kinston North Carolina 233,000 Rocky Mount-Wilson North Carolina 213,000 New Bern North Carolina 167,000 Myrtle Beach South Carolina 157,000 Sumter South Carolina 154,000 Jacksonville North Carolina 150,000 Orangeburg South Carolina 119,000 The Outer Banks North Carolina 80,000 Roanoke Rapids North Carolina 80,000 Greenwood South Carolina 73,000 --------- Total 6,847,000 =========
- --------------------- * Basic Trading Areas (1) Based on estimates compiled by Paul Kagan Associates in 1997. Network Build-Out Plan We expect to commence commercial operations in the first quarter of 2000, covering approximately 1.5 million people, or 22% of the population in our territory. By the end of the fourth quarter of 2000, we expect to be capable of providing service to more than 5.0 million residents, or 74% of the population in our territory. Our strategy is to provide service to major urban and suburban areas and to cover interstates and primary roads connecting these areas. We plan to initiate service only in areas where we are capable of providing population coverage comparable to or more extensive than that of our wireless competitors. 36 In order to complete our network build-out, we will need to acquire leasehold interests in or purchase and construct approximately 566 cell sites. The table below indicates the expected launch dates and network coverage that we expect will be operational and the population covered by those cell sites through the fourth quarter of 2000.
Expected Covered residents commercial launch Cumulative as a percentage of date by quarter Markets included covered residents total residents First quarter 2000 Anderson and Greenville- 1,535,986 22% Spartanburg, South Carolina; Asheville and Hickory, North Carolina Second and third quarters 2000 Augusta and Savannah, 4,363,458 63% Georgia; Charleston, Columbia, Myrtle Beach, and Orangeburg, South Carolina; Goldsboro, Roanoke Rapids, Rocky Mount and Wilmington, North Carolina Fourth quarter 2000 Florence, Greenwood and 5,003,320 74% Sumter, South Carolina; Greenville--Washington, Jacksonville, New Bern, and the Outer Banks, North Carolina
This build-out plan exceeds the network build-out requirements under our management agreement with Sprint PCS. We believe that the above schedule is achievable based on our management's prior experience in network build-outs, the proven digital PCS technology we will use to build our PCS network and the established standards of Sprint PCS. As of March 31, 1999, we had signed or negotiated master or generic lease agreements covering over 300 sites in our territory. We expect more than 85% of our cell sites to be collocated on facilities shared with one or more wireless providers. For sites where collocation leases are utilized, zoning, permitting and surveying approvals and licenses have already been secured thereby minimizing our start-up costs and accelerating access to the markets. Sprint PCS developed the initial build-out plan for our PCS network. We have based our network build-out on this design and have further enhanced it to better provide coverage for our territory. We have completed the radio frequency design for the entire build-out of our digital PCS network. This process includes cell site design, frequency planning and network optimization for our market. Radio frequency engineering also allocates voice channels and assigns frequencies to cell sites taking into consideration both PCS and microwave interference issues. Under the management agreement, Sprint PCS is responsible for the microwave clearing efforts and costs in our territory. All relevant microwave paths have been cleared by Sprint PCS to allow us to provide service in our territory. Our equipment vendor and Compass Telecom Services LLC will oversee the deployment of our digital PCS network. Our equipment vendor will provide the installation and optimization services for their equipment and Compass will provide project and construction services and employ local construction firms to build the cell sites. We may also hire firms to identify and obtain the required property for our PCS network. These firms will secure all zoning, permitting and surveying approvals and licenses. 37 Sources and Uses The following table highlights our projected sources and uses of capital from July 1, 1999 through December 31, 2002.
Amount (in millions) Sources: Gross proceeds from the common stock offering.................. $100.0 Gross proceeds from the senior subordinated discount notes offering(1)................................................... 150.0 Proposed vendor equipment financing(2)......................... 143.5 ------ Total sources................................................ $393.5 ====== Uses: Capital expenditures........................................... $196.7 Working capital and operating losses........................... 90.6 Debt service(3)................................................ 39.3 Fees and expenses(4)........................................... 19.1 ------ Total uses................................................... 345.7 Cash on hand at December 31, 2002............................ 47.8 ------ Total uses and cash on hand at December 31, 2002............. $393.5 ======
- --------------------- (1) The senior subordinated discount notes will be issued in an aggregate principal amount and bear a rate of interest sufficient to generate gross proceeds of approximately $150.0 million. (2) Our proposed vendor equipment financing provides for up to $153.5 million of borrowings, $5.0 million of which had been provided to us by March 31, 1999, $5.0 million of which was provided to us on June 8, 1999, and $3.5 million of which is expected to be provided to us after July 1, 1999 and prior to the closing of our concurrent offerings of common stock and senior subordinated discount notes. We expect total drawings of $143.5 million between July 1, 1999 and December 31, 2002 to fund approximately $111.5 million of equipment purchases to complete our network build-out, $27.9 million for working capital and $4.9 million for origination fees. (3) Debt service payments are composed of:
Amount (in millions) Cash interest payments............................................ $ 30.6 Repayment of third-party unsecured promissory note................ 7.7 Repayment of bank credit facility................................. 1.0 ------ Total........................................................... $ 39.3 ======
(4) Fees and expenses include underwriting discounts and commissions, estimated offering expenses and origination and other fees related to the proposed vendor equipment financing. Products and Services We will offer established Sprint PCS products and services throughout our territory. Our products and services are designed to mirror the service offerings of Sprint PCS and to integrate seamlessly with the Sprint PCS nationwide network. The wireless services that Sprint PCS currently offers in over 280 metropolitan markets, including more than 4,000 cities and communities, provide 38 customers with affordable, reliable 100% digital, 100% PCS services. The Sprint PCS service package we will offer includes the following: 100% digital wireless mobility. Our primary service is wireless mobility coverage. Our PCS network will be part of the largest 100% digital, 100% PCS network in the nation. We will offer customers in our territory enhanced voice clarity, advanced features, and simple, affordable Sprint PCS Free and Clear pricing plans. These plans include free long distance and wireless airtime minutes for use throughout the Sprint PCS network at no additional charge. Our basic wireless service includes voice mail, caller ID, enhanced call waiting, three-way calling, call forwarding, distinctive ringing and call blocking. Nationwide service. Sprint PCS customers in our territory will be able to use Sprint PCS services throughout our contiguous markets and seamlessly throughout the Sprint PCS nationwide network. Dual-band/dual-mode handsets allow roaming on wireless networks where Sprint PCS is not available. Advanced handsets. CDMA handsets weighing approximately eight ounces will offer two days of standby time and approximately four hours of talk time. We will also offer dual-band/dual-mode handsets that allow customers to make and receive calls on both PCS and cellular frequency bands and both digital or analog technology. These handsets allow roaming on cellular networks where Sprint PCS digital service is not available. All handsets will be equipped with preprogrammed features such as speed dial and last number redial, and will be sold under the Sprint and Sprint PCS brand names. Extended battery life. CDMA handsets offer significantly extended battery life relative to earlier technologies, providing two days of standby battery life. Handsets operating on a digital system are capable of saving battery life while turned on but not in use, improving efficiency and extending the handset's use. Improved voice quality. We believe the Sprint PCS CDMA technology offers significantly improved voice quality, compared to existing AMPS and TDMA networks, more powerful error correction, less susceptibility to call fading and enhanced interference rejection, all of which result in fewer dropped calls. See "--CDMA Technology" for a discussion of the reasons CDMA technology offers improved voice quality. Privacy and security. Sprint PCS provides secure voice transmissions encoded into a digital format to prevent eavesdropping and unauthorized cloning of subscriber identification numbers. Easy activation. Customers can purchase a shrink-wrapped Sprint PCS handset off the shelf at a retail location and activate their service by calling customer service, which can program the handset over the air. We believe over- the-air activation will reduce the training requirements for salespersons at the retail locations. Customer care. Sprint PCS will provide customer care services to customers in our territory under our services agreement. Sprint PCS offers customer care 24 hours a day, seven days a week. Customers can call the Sprint PCS toll-free customer care number from anywhere on the national Sprint PCS network. All Sprint PCS phones are preprogrammed with a speed dial feature that allows customers to easily reach customer care at any time. 39 In addition to these services, we may also offer wireless local loop services in our territory. Wireless local loop is a wireless substitute for the landline-based telephones in homes and businesses. We also believe that new features and services will be developed on the Sprint PCS nationwide network to take advantage of CDMA technology. As a leading wireless provider, Sprint PCS conducts ongoing research and development to produce innovative services that give Sprint PCS a competitive advantage. We intend to offer a portfolio of products and services developed by Sprint PCS to accommodate the growth in, and the unique requirements of, high speed data traffic and demand for video services. We plan to provide, when available, a number of applications for wireless data services including facsimile, Internet access, wireless local area networks and point-of-sale terminal connections. Marketing Strategy Our marketing and sales strategy will use Sprint PCS' proven strategies and developed national distribution channels that have helped generate the highest incremental wireless penetration of any cellular or PCS provider in the United States. In the fourth quarter of 1998, Sprint added 836,000 new subscribers, the largest single quarter of customer growth ever reported by a wireless provider in the United States. In the first quarter of 1999, Sprint PCS added 763,000 new wireless subscribers, the second largest quarter ever recorded by a wireless carrier in the United States. We plan to enhance Sprint PCS' proven strategies with strategies tailored to our specific territory. Use Sprint PCS' brand equity and marketing. We will feature exclusively and prominently the nationally recognized Sprint and Sprint PCS brand names in our marketing effort. From the customers' point of view, they will use our PCS network and the Sprint PCS national network seamlessly as a unified national network. We will build on Sprint PCS' national distribution channels and advertising programs. Pricing. Our use of the Sprint PCS pricing strategy will offer customers in our territory simple, easy-to-understand service plans. Sprint PCS' consumer pricing plans are typically structured with competitive monthly recurring charges, large local calling areas, service features such as voicemail, enhanced caller ID, call waiting and three-way calling, and competitive per- minute rates. Lower per-minute rates relative to analog cellular providers are possible in part because the CDMA system that both we and Sprint PCS employ has greater capacity than current analog cellular systems, enabling us to market high usage customer plans at lower prices. All of Sprint PCS' current national plans: . include minutes in any Sprint PCS market with no roaming charges; . are feature-rich and generally require no annual contracts or hidden charges; . offer a wide selection of phones to meet the needs of consumers and businesses; . provide a limited-time money back guarantee on Sprint PCS phones; and . provide the first incoming minute free. In addition, Sprint PCS' national Free and Clear plans, which offer simple, affordable plans for every consumer and business customer, include free long distance calling from anywhere on its nationwide network. Local focus. Our local focus will enable us to supplement Sprint PCS' marketing strategies with our own strategies tailored to each of our specific markets. This will include attracting local 40 businesses to enhance our distribution and drawing on our management team's experience in the southeastern United States. We will use local radio, television and newspaper advertising to sell our products and services in each of our markets. We intend to establish a large local sales force to execute our marketing strategy through 12 company-owned Sprint PCS stores and to employ a direct sales force targeted to business sales. In addition, Sprint PCS' existing agreements with national retailers provide us with access to over 250 retail locations in our territory. Sprint-owned local exchange carriers provide local telephone service to approximately 30% of the population in our territory which will provide us with an additional distribution channel through which we can market to an established base of Sprint customers. Many of these local exchange carriers have store fronts for Sprint customers to pay their bills, which we can use to sell Sprint PCS products and services. Advertising and promotions. Sprint PCS uses national as well as regional television, radio, print, outdoor and other advertising campaigns to promote its products. We benefit from this national advertising in our territory at no additional cost to us. Sprint PCS also runs numerous promotional campaigns which provide customers with benefits such as additional features at the same rate or free minutes of use for limited time periods. We are able to purchase promotional materials related to these programs from Sprint PCS at their cost. Sponsorships. Sprint PCS is a sponsor of numerous selective, broad-based national, regional and local events. These sponsorships provide Sprint PCS with brand name and product recognition in high profile events, provide a forum for sales and promotional events and enhance our promotional efforts in our territory. Bundling of services. We intend to take advantage of the complete array of communications services offered by bundling Sprint PCS services with other Sprint products, such as long distance and Internet access. Sales and Distribution Our sales and distribution plan mirrors Sprint PCS' proven multiple channel sales and distribution plan. Key elements of our sales and distribution plan consist of the following: Sprint store within a RadioShack store. Sprint has an exclusive arrangement with RadioShack to install a "store within a store," making Sprint PCS the exclusive brand of PCS sold through RadioShack stores. RadioShack has 175 stores in our territory. Other national third party retail stores. In addition to RadioShack, we will benefit from the distribution agreements established by Sprint PCS with other national retailers which currently include Best Buy, Circuit City, Office Depot, The Good Guys, Dillards, The Sharper Image, Montgomery Ward, OfficeMax, Ritz Camera and certain May Company department stores. These retailers provide an additional 75 retail stores in our territory. Sprint PCS stores. We intend to own and operate 12 Sprint PCS stores. These stores will be located in major metropolitan markets within our territory, providing us with the strong local presence and a high degree of visibility. We will train our sales representatives to be informed and persuasive advocates for Sprint PCS' services. Following the Sprint PCS model, these stores will be designed to facilitate retail sales, bill collection and customer service. National accounts and direct selling. We will participate in Sprint PCS' national accounts program. Sprint PCS has a national accounts team which focuses on the corporate headquarters of 41 Fortune 500 companies. Once a representative reaches an agreement with the corporate headquarters, we service the offices of that corporation located in our territory. Our direct sales force will target the employees of these corporations in our territory and cultivate other local business clients. Inbound telemarketing. Sprint PCS will provide inbound telemarketing sales when customers call from our territory. As the exclusive provider of Sprint PCS products and services in our market, we will use the national Sprint 1- 800-480-4PCS number campaigns that generate call-in leads. These leads are then handled by Sprint PCS' inbound telemarketing group. Electronic commerce. Sprint PCS launched an Internet site in December 1998 which contains information on Sprint PCS products and services. A visitor to Sprint PCS' Internet site can order and pay for a handset and select a rate plan. Customers visiting the site can review the status of their account, including the number of minutes used in the current billing cycle. Customers in our territory who purchase products and services over the Sprint PCS Internet site will be customers of our PCS network. CDMA Technology Sprint PCS' nationwide network and its affiliates' networks all use digital CDMA technology. CDMA technology is fundamental to accomplishing our business objective of providing high volume, high quality airtime at a low cost. We believe that CDMA provides important system performance benefits. Voice quality. CDMA systems offer more powerful error correction, less susceptibility to fading and reduced interference than analog systems. Using enhanced voice coding techniques, CDMA systems achieve voice quality that is comparable to that of the typical wireline telephone. This CDMA vocoder technology also employs adaptive equalization which filters out annoying background noise more effectively than existing wireline, analog cellular or other digital PCS phones. Greater capacity. CDMA technology allows a greater number of calls within one allocated frequency and reuses the entire frequency spectrum in each cell. CDMA systems are expected to provide capacity gains of up to seven times over the current analog system and up to three time greater than TDMA and GSM systems. We believe that, by the end of 1999, a new voice coding technology will be available for CDMA networks which is expected to increase the capacity of the system by approximately 40%. This new voice coding standard, referred to as Enhanced Variable Rate Coding, or EVRC, will allow the network to support additional capacity while maintaining the high level of voice quality associated with digital networks. We will utilize the EVRC technology throughout our PCS network to gain the capacity increases. Additional capacity improvements are expected for CDMA networks over the next two years as new third generation standards are approved and implemented that will allow for high-speed data and an even greater increase in the voice traffic capacity. CDMA technology is designed to provide flexible or "soft" capacity that permits a system operator to temporarily increase the number of telephone calls that can be handled within a cell. When capacity limitations in analog, TDMA and GSM systems are reached, additional callers in a given cell must be given a busy signal. Using CDMA technology, the system operator can allow a small degradation in voice quality to provide temporary increases in capacity. This reduces blocked calls and increase the probability of a successful cell- to-cell hand-off. 42 Soft hand-off. CDMA systems transfer calls throughout the network using a technique referred to as a soft hand-off, which connects a mobile customer's call with a new cell site while maintaining a connection with the cell site currently in use. CDMA networks monitor the quality of the transmission received by both cell sites simultaneously to select a better transmission path and to ensure that the network does not disconnect the call in one cell until it is clearly established in a new one. As a result, fewer calls are dropped compared to analog, TDMA and GSM networks which use a "hard hand-off" and disconnect the call from the current cell site as it connects with a new one. Integrated services. CDMA systems permit us to offer advanced features, including voice mail, caller ID, enhanced call waiting, three-way calling, call forwarding and paging and text-messaging. Privacy and security. One of the benefits of CDMA technology is that it combines a constantly changing coding scheme with a low power signal to enhance security and privacy. Vendors are currently developing additional encryption capabilities which will further enhance overall network security. Simplified frequency planning. Frequency planning is the process used to analyze and test alternative patterns of frequency use within a wireless network to minimize interference and maximize capacity. Currently, cellular service providers spend considerable money and time on frequency planning. Because TDMA and GSM based systems have frequency reuse constraints similar to present analog systems, frequency reuse planning for TDMA and GSM based systems is expected to be comparable to planning for the current analog systems. With CDMA technology, however, the same subset of allocated frequencies can be reused in every cell, substantially reducing the need for costly frequency reuse patterning and constant frequency plan management. Longer battery life. Due to their greater efficiency in power consumption, CDMA handsets will provide two days of standby time and approximately four hours of talk time availability. This generally exceeds the battery life of handsets using alternative digital or analog technologies. Competition We will compete in our territory with the incumbent cellular providers and new PCS providers. The cellular providers in our territory serve different geographic segments of our territory in our territory, with no cellular carrier providing complete coverage throughout our territory. Of the PCS providers, only two will provide service comparable to ours in our territory. These are BellSouth Mobility DCS and Triton PCS. Bell South Mobility DCS has deployed a PCS network that uses GSM technology. This competitor is dependent on its roaming agreements with other wireless carriers to provide service beyond its licensed areas. Triton PCS is deploying a PCS network that uses TDMA technology. Triton PCS has reported that it will market its PCS under the SunCom name and as a member of the AT&T wireless network. In addition, we compete with wireless providers using ESMR technology such as Nextel and Southern LINC, a subsidiary of The Southern Company. Our ability to compete effectively with these other providers will depend on a number of factors, including the continued success of CDMA technology in providing better call quality and clarity as compared to analog and digital cellular systems, our competitive pricing with various options suiting individual customer's calling needs, and the continued expansion and improvement of the Sprint PCS nationwide network, customer care system, and handset options. Most of our competitors are current cellular providers and joint ventures of current and potential wireless communications service providers, many of which have financial resources and customer 43 bases greater than ours. Cellular service providers have 25 MHz of spectrum and three PCS providers have 30 MHz, compared to Sprint PCS' 10 MHz licenses. Some of our competitors have established infrastructures, marketing programs, and brand names. In addition, certain competitors may be able to offer coverage in areas not served by our PCS network, or, because of their calling volumes or their affiliations with, or ownership of, wireless providers, may be able to offer roaming rates that are lower than those we offer. PCS operators will likely compete with us in providing some or all of the services available through the Sprint PCS network and may provide services that we do not. Additionally, we expect that existing cellular providers, some of whom have been operational for a number of years and have significantly greater financial and technical resources and customer bases than us, will continue to upgrade their systems to provide digital wireless communication services competitive with Sprint PCS. We also face competition from "resellers" which provide wireless service to customers but do not hold FCC licenses or own facilities. Instead, the reseller buys blocks of wireless telephone numbers and capacity from a licensed carrier and resells service through its own distribution network to the public. Thus, a reseller is both a customer of a wireless licensee's services and also a competitor of that and other licensees. The FCC requires all cellular and PCS licensees to permit resale of carrier service to a reseller. In addition, we will compete with paging, dispatch and conventional mobile telephone companies in our markets. Potential users of PCS systems may find their communications needs satisfied by other current and developing technologies. One or two-way paging or beeper services that feature voice messaging and data display as well as tone-only service may be adequate for potential customers who do not need to speak to the caller. In the future, we expect to face increased competition from entities providing similar services using other communications technologies, including satellite-based telecommunications and wireless cable systems. While some of these technologies and services are currently operational, others are being developed or may be developed in the future. Over the past several years the FCC has auctioned and will continue to auction large amounts of wireless spectrum that could be used to compete with PCS. Based upon increased competition, we anticipate that market prices for two-way wireless services generally will decline in the future. We will compete to attract and retain customers principally on the basis of services and features, the size and location of our service areas, network coverage and reliability, customer care and pricing. Our ability to compete successfully will also depend, in part, on our ability to anticipate and respond to various competitive factors affecting the industry, including new services that may be introduced, changes in consumer preferences, demographic trends, economic conditions and discount pricing strategies by competitors. Intellectual Property The Sprint diamond design logo is a service mark registered with the United States Patent and Trademark Office. The service mark is owned by Sprint. We expect, pursuant to the trademark and service mark license agreements, to use, royalty-free, the Sprint and Sprint PCS brand names and the Sprint diamond design logo and certain other service marks of Sprint in connection with marketing, offering and providing licensed services to end-users and resellers, solely within our territory. Except in certain instances, Sprint PCS has agreed not to grant to any other person a right or license to provide or resell, or act as agent for any person offering, licensed services under the 44 licensed marks. In all other instances, Sprint PCS reserves for itself and its affiliates the right to use the licensed marks in providing its services, subject to its exclusivity obligations described above, whether within or without our territory. The trademark license agreements contain numerous restrictions with respect to the use and modification of any of the licensed marks. See "The Sprint PCS Agreements--The Trademark and Service Mark License Agreements." Employees As of March 31, 1999, we employed 11 full-time employees. None of our employees are represented by a labor union. We believe that our relations with our employees are good. Properties Our principal executive offices are located at Harris Tower, 233 Peachtree Street, N.W., Suite 1700, Atlanta, Georgia 30303. We believe our property is in good operating condition and is currently suitable and adequate for our business operations. Legal Proceedings We are not aware of any pending legal proceedings against us which, individually or in the aggregate, if adversely determined, would have a material adverse effect on our financial condition or results of operations. THE SPRINT PCS AGREEMENTS The following is a summary of the material terms and provisions of the Sprint PCS agreements and the consent and agreement modifying the Sprint PCS management agreement. We have filed the Sprint PCS agreements and the consent and agreement as exhibits to the registration statement of which this prospectus is a part and urge you to review them carefully. Overview of Sprint PCS Relationship and Agreements Under long-term agreements with Sprint PCS, we will exclusively market PCS services under the Sprint and Sprint PCS brand names in our territory. The agreements with Sprint PCS require us to interface with the Sprint PCS national wireless network by building our PCS network to operate on the 10 MHz of PCS frequencies licensed to Sprint PCS in the 1900 MHz range. The Sprint PCS agreements also give us access to Sprint PCS' equipment discounts, roaming revenue from Sprint PCS customers traveling into our territory, and various other back office services. Our relationship and agreements with Sprint PCS provide strategic advantages, including avoiding the need to fund up-front spectrum acquisition costs and the costs of establishing billing and other customer services infrastructure. The management agreement has an initial term of 20 years with three 10-year renewals which will lengthen the contract to a total term of 50 years. The agreements will automatically renew for the first 10-year renewal period unless we are in material default on our obligations under the agreements. The agreements will automatically renew for two additional 10-year terms unless we or Sprint PCS provide the other with two years' prior written notice to terminate the agreements. 45 We have four major agreements with Sprint PCS (collectively the "Sprint PCS Agreements"): . the management agreement; . the services agreement; . the trademark and service mark license agreement with Sprint Communications Company, L.P.; and . the trademark and service mark license agreement with Sprint Spectrum L.P. In addition, Sprint PCS intends to enter into a consent and agreement that modifies our management agreement for the benefit of the providers of our vendor equipment financing and, in some respects, for the benefit of the holders of the senior subordinated discount notes and, in each case, the holders of any refinancing indebtedness. The Management Agreement Under our management agreement with Sprint PCS, we have agreed to: . construct and manage a network in our territory in compliance with Sprint PCS' PCS licenses and the terms of the management agreement; . distribute during the term of the management agreement, Sprint PCS products and services; . use Sprint PCS' and our own distribution channels in our territory; . conduct advertising and promotion activities in our territory; and . manage that portion of Sprint PCS' customer base assigned to our territory. Sprint PCS will supervise our PCS network operations and has the right to unconditional access to our PCS network. Exclusivity. We are designated as the only person or entity that can manage or operate a PCS network for Sprint PCS in our territory. Sprint PCS is prohibited from owning, operating, building or managing another wireless mobility communications network in our territory while our management agreement is in place and no event has occurred that would permit the agreement to terminate. Sprint PCS is permitted under our agreement to make national sales to companies in our territory and, as required by the FCC, to permit resale of the Sprint PCS products and services in our territory. If Sprint PCS decides to expand the geographic size of our build-out, Sprint PCS must provide us with written notice of the proposed expansion. We have 90 days to determine whether we will build out the proposed area. If we do not exercise this right, Sprint PCS can build out the territory or permit another third party to do so. Network build-out. The management agreement specifies the terms of the Sprint PCS affiliation, including the required network build-out plan. We have agreed to cover a specified percentage of the population at coverage levels ranging from 39% to 86% within each of the 20 markets which make up our territory by specified dates beginning by March 31, 2000 and ending on December 31, 2000. The aggregate coverage will result in network coverage of approximately 65% of the population in our territory of 6.8 million by December 31, 2000. We have agreed to operate our PCS network, if technically feasible and commercially reasonable, to provide for a seamless handoff of a call initiated in our territory to a neighboring Sprint PCS network. 46 Products and services. The management agreement identifies the products and services that we can offer in our territory. These services include, but are not limited to, Sprint PCS consumer and business products and services available as of the date of the agreement, or as modified by Sprint PCS. We are allowed to sell wireless products and services that are not Sprint PCS products and services if those additional products and services do not cause distribution channel conflicts or, in Sprint PCS' sole determination, consumer confusion with Sprint PCS' products and services. We may cross-sell services such as Internet access, handsets, and prepaid phone cards with Sprint, Sprint PCS and other Sprint PCS affiliates. If we decide to use third parties to provide these services, we must give Sprint PCS an opportunity to provide the services on the same terms and conditions. We cannot offer wireless local loop services specifically designed for the competitive local exchange market in areas where Sprint owns the local exchange carrier unless we name the Sprint- owned local exchange carrier as the exclusive distributor or Sprint PCS approves the terms and conditions. We will participate in the Sprint PCS sales programs for national sales to customers, and will pay the expenses and receive the compensation from national accounts located in our territory. We must use Sprint's long distance service which we can buy at the best prices offered to comparably situated Sprint customers. Service pricing, roaming and fees. We must offer Sprint PCS subscriber pricing plans designated for regional or national offerings, including Sprint PCS' Free and Clear plans. We are permitted to establish our own local price plans for Sprint PCS' products and services only offered in our territory, subject to Sprint PCS' approval. Sprint PCS will retain 8% of collected revenues received by Sprint PCS for Sprint PCS products and services from customers in our territory. This amount excludes roaming revenues, sales of handsets and accessories, proceeds from sales not in the ordinary course of business and amounts collected with respect to taxes. Except in the case of taxes, we will retain 100% of these revenues. Although many Sprint PCS subscribers will purchase a bundled pricing plan that allows roaming anywhere on the Sprint PCS and affiliates' network without incremental roaming charges, we will earn roaming revenues from every minute that a "foreign" subscriber's call is carried on our PCS network. We will earn revenues from Sprint PCS based on an established per minute rate for Sprint PCS' or its affiliates' subscribers roaming in our territory. Similarly, we will pay for every minute our own subscribers use the Sprint PCS nationwide network outside our territory. The analog roaming rate onto a non-Sprint PCS provider's network is set under Sprint PCS' third party roaming agreements. Advertising and promotions. Sprint PCS is responsible for all national advertising and promotion of the Sprint PCS products and services. We are responsible for advertising and promotion in our territory. Sprint PCS' service area includes the urban markets around our territory. Sprint PCS will pay for advertising in these markets. Given the proximity of those markets to ours, we expect considerable spill-over from Sprint PCS' advertising in surrounding urban markets. Program requirements. We will comply with Sprint PCS' program requirements for technical standards, customer service standards, national and regional distribution and national accounts programs. Sprint PCS can adjust the program requirements from time to time. We have the right to appeal to Sprint PCS' management adjustments which could cause an unreasonable increase in cost to us if the adjustment: (1) causes us to incur a cost exceeding 5% of the sum of our equity plus our outstanding long term debt, or (2) causes our operating expenses to increase by more than 10% on a net present value basis. If Sprint PCS denies our appeal, then we have 10 days after the denial to submit the matter to arbitration. If we do not submit the matter to arbitration within the 10-day 47 period or comply with the program adjustment, Sprint PCS has the termination rights described below. Non-competition. We may not offer Sprint PCS products and services outside our territory without the prior written approval of Sprint PCS. Within our territory we may offer, market or promote telecommunications products and services only under the Sprint PCS brands, our own brand, brands of related parties of ours or other products and services approved under the management agreement, except that no brand of a significant competitor of Sprint PCS or its related parties may be used for those products and services. To the extent we have or obtain licenses to provide PCS services outside our territory, we may not use the spectrum to offer Sprint PCS products and services without prior written consent from Sprint PCS. Inability to use non-Sprint PCS brand. We may not market, promote, advertise, distribute, lease or sell any of the Sprint PCS products and services on a non- branded, "private label" basis or under any brand, trademark or trade name other than the Sprint PCS brand, except for sales to resellers or as otherwise permitted under the trademark and service mark license agreements. Rights of first refusal. Sprint PCS has certain rights of first refusal to buy our assets upon a proposed sale of all or substantially all of our assets. Termination of management agreement. The management agreement can be terminated as a result of: . termination of Sprint PCS' PCS licenses; . an uncured breach under the management agreement; . bankruptcy of a party to the management agreement; . the management agreement not complying with any applicable law in any material respect; . the termination of either of the trademark and service mark license agreements; . our failure to obtain the financing necessary for the build-out of our PCS network and for our working capital needs. Sprint PCS has agreed that the issuance of the contemplated vendor equipment financing and the senior subordinated discount notes in addition to this offering of common stock will meet the financing requirements of the management agreement; or . the unauthorized transfer or assignment of ownership interest by certain individuals identified in the management agreement for a period of five years from the date of the management agreement, if we do not initiate immediate legal action to prevent the transfer. The termination or non-renewal of the management agreement triggers certain of our rights and those of Sprint PCS. The right of either party to require the other to purchase or sell the operating assets, as discussed below, may not be exercised, except in limited circumstances in the case of Sprint PCS, until July 22, 2000. If we have the right to terminate the management agreement because of an event of termination caused by Sprint PCS, generally we may: . require Sprint PCS to purchase all of our operating assets used in connection with our PCS network for an amount equal to at least 80% of our Entire Business Value as defined below; . if Sprint PCS is the licensee for 20 MHz or more of the spectrum on the date we terminate the management agreement, require Sprint PCS to assign to us, subject to governmental 48 approval, up to 10MHz of licensed spectrum for an amount equal to the greater of (1) the original cost to Sprint PCS of the license plus any microwave relocation costs paid by Sprint PCS or (2) 9% of our Entire Business Value; or . sue Sprint PCS for damages or submit the matter to arbitration and thereby not terminate the management agreement. If Sprint PCS has the right to terminate the management agreement because of an event of termination caused by us, generally Sprint PCS may: . require us to sell our operating assets to Sprint PCS for an amount equal to 72% of our Entire Business Value; . require us to purchase, subject to governmental approval, the licensed spectrum for an amount equal to the greater of (1) the original cost to Sprint PCS of the license plus any microwave relocation costs paid by Sprint or (2) 10% of our Entire Business Value; . take any action as Sprint PCS deems necessary to cure our breach of the management agreement, including assuming responsibility for, and operating, our PCS network; or . sue us for damages or submit the matter to arbitration and thereby not terminate the management agreement. Non-renewal. If Sprint PCS gives us timely notice that it does not intend to renew the management agreement, we may: . require Sprint PCS to purchase all of our operating assets used in connection with our PCS network for an amount equal to 80% of our Entire Business Value; or . if Sprint PCS is the licensee for 20MHz or more of the spectrum on the date we terminate the management agreement, require Sprint PCS to assign to us, subject to governmental approval, up to 10MHz of licensed spectrum for an amount equal to the greater of (1) the original cost to Sprint PCS of the license plus any microwave relocation costs paid by Sprint PCS or (2) 10% of our Entire Business Value. If we give Sprint PCS timely notice of non-renewal, or we both give notice of non-renewal, or the management agreement can be terminated for failure to comply with legal requirements or regulatory considerations, Sprint PCS may: . purchase all of our operating assets for an amount equal to 80% of our Entire Business Value; or . require us to purchase, subject to governmental approval, the licensed spectrum for an amount equal to the greater of (1) the original cost to Sprint PCS of the license plus any microwave relocation costs paid by Sprint PCS or (2) 10% of our Entire Business Value. Determination of Entire Business Value. If the Entire Business Value is to be determined, we and Sprint PCS will each select one independent appraiser and the two appraisers will select a third appraiser. The three appraisers will determine the Entire Business Value on a going concern basis using the following guidelines: . the Entire Business Value is based on the price a willing buyer would pay a willing seller for the entire on-going business; 49 . then-current customary means of valuing a wireless telecommunications business will be used; . the business is conducted under the Sprint and Sprint PCS brands and the Sprint PCS agreements; . that we own the spectrum and frequencies presently owned by Sprint PCS and subject to the Sprint PCS Agreements; and . the valuation will not include any value for the business not directly related to the Sprint PCS products and services. The rights and remedies of each party outlined in the management agreement resulting from an event of termination of the management agreement have been materially amended by the consent and agreement as discussed below. However, at such time that there is no outstanding debt covered under the consent and agreement, such amendments to the rights and remedies of each party reflected in the consent and agreement will not be in effect. Insurance. We are required to obtain and maintain with financially reputable insurers who are licensed to do business in all jurisdictions where any work is performed under the management agreement and who are reasonably acceptable to Sprint PCS, workers' compensation insurance, commercial general liability insurance, business automobile insurance, umbrella excess liability insurance and "all risk" property insurance. Indemnification. We have agreed to indemnify Sprint PCS and its directors, employees and agents and related parties of Sprint PCS and their directors, employees and agents against any and all claims against any of the foregoing arising from our violation of any law, a breach by us of any representation, warranty or covenant contained in the management agreement or any other agreement between us and Sprint PCS, our ownership of the operating assets or the actions or the failure to act of anyone employed or hired by us in the performance of any work under this agreement, except we will not indemnify Sprint PCS for any claims arising solely from the negligence or willful misconduct of Sprint PCS. Sprint PCS has agreed to indemnify us and our directors, employees and agents against all claims against any of the foregoing arising from Sprint PCS' violation of any law and from Sprint PCS' breach of any representation, warranty or covenant contained in this agreement or any other agreement between Sprint PCS and us, except Sprint PCS will not indemnify us for any claims arising solely from our negligence or willful misconduct. The Services Agreement The services agreement outlines various back office services provided by Sprint PCS and available to us at established rates. Sprint PCS can change any or all of the service rates one time in each 12 month period. Some of the available services include: billing, customer care, activation, credit checks, handset logistics, home locator record, voice mail, prepaid services, directory assistance, operator services, roaming fees, roaming clearinghouse fees, interconnect fees and inter-service area fees. Sprint PCS offers three packages of available services. Each package identifies which services must be purchased from Sprint PCS and which may be purchased from a vendor or provided in-house. Essentially, services such as billing, activation and customer care must all be purchased from Sprint PCS or none may be purchased from Sprint PCS. We have chosen to initially buy these services from Sprint PCS but may develop an independent capability with respect to these services over time. Sprint PCS may contract with third parties to provide expertise and services identical or similar to those to be made available or provided to us. We have agreed not to use the 50 services received under the services agreement in connection with any other business or outside our territory. We may discontinue use of any service upon three months' prior written notice. Sprint PCS has agreed that the services presently offered will be available until at least December 31, 2001. Sprint PCS may discontinue a service after December 31, 2001 provided that Sprint PCS provides us with nine months' prior notice. We have agreed with Sprint PCS to indemnify each other as well as officers, directors, employees and certain other related parties and their officers, directors and employees for violations of law or the services agreement except for any liabilities resulting from the indemnitee's negligence or willful misconduct. The services agreement also provides that no party to the agreement will be liable to the other party for special, indirect, incidental, exemplary, consequential or punitive damages, or loss of profits arising from the relationship of the parties or the conduct of business under, or breach of, the services agreement except as may otherwise be required by the indemnification provisions. The services agreement automatically terminates upon termination of the management agreement and neither party may terminate the services agreement for any reason other than the termination of the management agreement. The Trademark and Service Mark License Agreements We have non-transferable, royalty-free licenses to use the Sprint and Sprint PCS brand names and "diamond" symbol, and several other U.S. trademarks and service marks such as "The Clear Alternative to Cellular" and "Clear Across the Nation" on Sprint PCS products and services. We believe that the Sprint and Sprint PCS brand names and symbols enjoy a very high degree of awareness, providing us an immediate benefit in the market place. Our use of the licensed marks is subject to our adherence to quality standards determined by Sprint and Sprint PCS and use of the licensed marks in a manner which would not reflect adversely on the image of quality symbolized by the licensed marks. We have agreed to promptly notify Sprint and Sprint PCS of any infringement of any of the licensed marks within our territory of which we become aware and to provide assistance to Sprint and Sprint PCS in connection with Sprint's and Sprint PCS' enforcement of their respective rights. We have agreed with Sprint and Sprint PCS to indemnify each other for losses incurred in connection with a material breach of the trademark license agreements. In addition, we have agreed to indemnify Sprint and Sprint PCS from any loss suffered by reason of our use of the licensed marks or marketing, promotion, advertisement, distribution, lease or sale of any Sprint or Sprint PCS products and services other than losses arising solely out of our use of the licensed marks in compliance with certain guidelines. Sprint and Sprint PCS can terminate the trademark and service mark license agreements if we file for bankruptcy, materially breach the agreement or our management agreement is terminated. We can terminate the trademark and service mark license agreements upon Sprint's or Sprint PCS' abandonment of the licensed marks or if Sprint or Sprint PCS files for bankruptcy, or the management agreement is terminated. Consent and Agreement Sprint PCS intends to enter into a consent and agreement that modifies our management agreement for the benefit of the providers of vendor equipment financing and, in some respects, for the benefit of the holders of the senior subordinated discount notes and, in each case, the holders of any refinancing indebtedness (the "Consent"). The description of the Consent below reflects our current expectations of the material terms of the Consent based upon our discussions with 51 representatives of Sprint PCS and our underwriters to date. Accordingly, although the description of Consent is written as though it was complete, the provisions remain subject to change upon further negotiation of the parties to the Consent. In the event that the obligations of our vendor equipment financing are satisfied in full pursuant to the terms of the Consent, then some of the rights exercisable by the representative of the provider of our vendor equipment financing (the "Administrative Agent") on behalf of the vendor as set forth below will be exercisable by the trustee under the indenture (the "Indenture") relating to the senior subordinated discount notes (the "Trustee") on behalf of the holders of the senior subordinated discount notes. The Consent generally provides, among other things, the following: . Sprint PCS' consent to the pledge of our subsidiary stock and grant of a security interest in all our assets including the Sprint PCS Agreements; . that the Sprint PCS Agreements may not be terminated by Sprint PCS until our vendor equipment financing and senior subordinated discount notes are satisfied in full pursuant to the terms of the Consent, unless our stock or assets are sold to a purchaser who does not continue to operate the business as a Sprint PCS network which sale requires both the approval of the Administrative Agent and the consent of the holders of the senior subordinated discount notes; . a prohibition on competing Sprint PCS networks in our territory; . for Sprint PCS to maintain 10 MHz of PCS spectrum in all our markets; . for redirection of payments from Sprint PCS to the Administrative Agent under specified circumstances; . for Sprint PCS, the Administrative Agent and the Trustee to provide to each other notices of default; . the ability to appoint an interim replacement, including Sprint PCS, to operate our PCS network under the Sprint PCS Agreements after an acceleration of our vendor equipment financing or senior subordinated discount notes or an event of termination under the Sprint PCS Agreements; . the ability of the Administrative Agent, with the requisite consent of the holders of the senior subordinated discount notes, or Sprint PCS to assign the Sprint PCS Agreements and sell our assets or stock to a qualified purchaser other than a major competitor of Sprint PCS or Sprint; . the ability to purchase spectrum from Sprint PCS and sell our assets or stock to any qualified purchaser; and . the ability of Sprint PCS to purchase our assets or our debt. Consent to security interest and pledge of stock. Sprint PCS has consented to the grant of the following: . a first priority security interest in all our assets including the Sprint PCS Agreements; . a lien upon all of our assets and property including our rights under the Sprint PCS Agreements; and . a first priority security interest in the capital stock and equity interests of our subsidiary and future subsidiaries. Sprint PCS has agreed to acknowledge the grant of these security interests and to waive its right to challenge or contest the validity of the interests. 52 Agreement not to terminate Sprint PCS Agreements until debt obligations are repaid. Sprint PCS has agreed not to exercise its rights or remedies under the Sprint PCS Agreements (except its right to cure some defaults) including its right to terminate the Sprint PCS Agreements and withhold payments, other than rights of setoff, until our vendor equipment financing and senior subordinated discount notes are satisfied in full pursuant to the terms of the Consent. Sprint PCS has agreed that until our vendor equipment financing and the senior subordinated discount notes are satisfied in full pursuant to the terms of the Consent, the failure of a party related to us to pay any amount under any agreement with Sprint PCS or its related parties will not constitute a breach of the Sprint PCS Agreements. No competition until debt obligations are repaid. Sprint PCS has agreed that it will not permit any person other than AirGate or a successor manager to be a manager or operator for Sprint PCS in our territory until our vendor equipment financing and senior subordinated discount notes are satisfied in full pursuant to the terms of the Consent. Consistent with our management agreement, while the vendor equipment financing and senior subordinated discount notes are outstanding, Sprint PCS can sell PCS services through its national accounts, permit resellers and build new geographical areas within our territory for which we have chosen not to exercise our rights of first refusal. Similarly, Sprint PCS has agreed that it will not own, operate, build or manage another wireless mobility communications network in our territory unless it is permitted under the management agreement or the management agreement is terminated in accordance with the Consent, and, in each case, our senior secured debt and senior subordinated discount notes are satisfied in full pursuant to the terms of the Consent. Maintain 10 MHz of spectrum. Sprint PCS has agreed to own at least 10 MHz of PCS spectrum in our territory until the first of the following events occurs: . the obligations under the vendor equipment financing and senior subordinated discount notes are satisfied in full pursuant to the terms of the Consent; . the sale of spectrum is completed under the Consent, as discussed below; or . the sale of operating assets is completed under the Consent, as discussed below. Assignments and change of control to lenders and administrative agents. Sprint PCS has agreed not to apply the restrictions on assignment of the Sprint PCS Agreements and changes in control of our ownership to the provider of our vendor equipment financing, Administrative Agent or other parties covered by the Consent. The assignment and change of control provisions in the Sprint PCS Agreements will apply if the assignment or change of control is to someone other than the Administrative Agent or the provider of vendor equipment financing, or is not permitted under the Consent. Redirection of payments from Sprint PCS to the Administrative Agent and/or the Trustee. Sprint PCS has agreed to make all payments due from Sprint PCS to us under the Sprint PCS Agreements directly to the Administrative Agent and/or the Trustee, as the case may be, if the Administrative Agent and/or the Trustee provides Sprint PCS with notice that an event of default has occurred and is continuing under vendor equipment financing or senior subordinated discount notes. Payments to the Administrative Agent and/or the Trustee, as the case may be, would cease upon the cure of the event of default. Notice of defaults. Sprint PCS has agreed to provide to the Administrative Agent and the Trustee a copy of any written notice it sends us regarding an event of termination or an event that if not cured, or if notice is provided, would be an event of termination under the Sprint PCS Agreements. Sprint PCS also has acknowledged that notice of an event of termination under the 53 Sprint PCS Agreements constitutes an event of default under our vendor equipment financing and our senior subordinated discount notes. The Administrative Agent and the Trustee are, or will be, required to provide Sprint PCS a copy of any written notice sent to us regarding an event of default or default under our vendor equipment financing instruments and the Indenture. Right to cure. Sprint PCS and the Administrative Agent have the right, but not the obligation, to cure a default under the Sprint PCS Agreements. During the first six months as interim manager Sprint PCS' right to reimbursement of any expenses incurred in connection with the cure are subordinated to the satisfaction in full, pursuant to the terms of the Consent of the obligations under our vendor equipment financing and senior subordinated discount notes. Modification of termination rights. The Consent modifies the rights and remedies under the management agreement provided in an event of termination and grants the provider of our vendor equipment financing and holders of our senior subordinated discount notes certain rights in the event of a default under the instruments governing the senior debt or the Indenture. The rights and remedies of the provider of our vendor equipment financing and holders of our senior subordinated discount notes vary based on whether we have: . defaulted under our debt obligations but no event of termination has occurred under the management agreement; or . breached the management agreement. The Consent generally permits the appointment of a person to run our business under the Sprint PCS Agreements on an interim basis and establishes a process for sale of the business. The person designated to operate our business on an interim basis is permitted to collect a reasonable management fee. If Sprint PCS or a related party is the interim operator, the amount of the fee shall not exceed the amount of direct expenses of its employees to operate the business plus out-of-pocket expenses. Sprint PCS shall collect its fee by setoff against the amounts owed to us under the Sprint PCS Agreements with them. In the event of an acceleration of our senior debt or senior subordinated discount notes, and for up to two years thereafter, Sprint PCS shall retain only one-half of the 8% of collected revenues that it would otherwise be entitled to retain. We or the Administrative Agent, as the case may be, shall be entitled to receive the remaining one-half of the collected revenues that Sprint PCS would otherwise have retained. The amount advanced to us or the Administrative Agent shall be evidenced by an interest-bearing promissory note. The promissory note shall mature on the earlier of (1) the date a successor manager is qualified and assumes our rights and obligations under the Sprint PCS Agreements or (2) the date on which our operating assets or equity are purchased by a third party. Debt default without a management agreement breach. If we default on our obligations under our vendor equipment financing or our senior subordinated discount notes and there is no default under our management agreement with Sprint PCS, Sprint PCS has agreed to permit the Administrative Agent to elect to take any of the following actions: . allow us to continue to operate the business under the Sprint PCS Agreements; . appoint Sprint PCS to operate the business on an interim basis; or . appoint a person other than Sprint PCS to operate the business on an interim basis. Appointment by Administrative Agent of Sprint PCS or third party designee to operate business. If the Administrative Agent appoints Sprint PCS to operate the business, Sprint PCS must accept the appointment within 14 days or designate to operate the business another person who also is an affiliate of Sprint PCS or is acceptable to the Administrative Agent. Sprint PCS or its designated 54 person must agree to operate the business for up to six months. At the end of the six months, the period may be extended by the Administrative Agent for an additional six months or an additional 12 months if the aggregate population served by all of Sprint PCS' affiliates is less than 40 million. If the term is extended beyond the initial six month period, the Administrative Agent will be required to reimburse Sprint PCS or its designated person for amounts previously expended and to be incurred as interim manager to cure a default up to an aggregate amount that is equal to 5% of the sum of our stockholders' equity value plus the outstanding amount of our long term debt. Sprint PCS or its designated person is not required to incur expenses beyond this 5% limit. At the end of the initial six-month interim term, the Administrative Agent, with the requisite consent of the holders of the senior subordinated discount notes, has the right to appoint a successor to AirGate subject to the requirements set forth below. Appointment of third party by Administrative Agent to operate business. If the Administrative Agent appoints a person other than Sprint PCS to operate the business on an interim basis the third party must: . agree to serve for six months unless terminated by Sprint PCS or the Administrative Agent for cause; . meet the requirements for a successor to an affiliate and not be challenged by Sprint PCS for failing to meet these requirements within 20 days after the Administrative Agent provides Sprint PCS with information on the third party; and . agree to comply with the terms of the Sprint PCS Agreements. The third party is required to operate the Sprint PCS network in our territory but is not required to assume our existing liabilities. If the third party materially breaches the Sprint PCS Agreements, this breach will be treated as an event of default under the management agreement with Sprint PCS. Management agreement breach. If we breach the Sprint PCS Agreements and this breach causes a default under our vendor equipment financing or senior subordinated discount notes, Sprint PCS has the right to designate who will operate our business on an interim basis. Sprint PCS has the right to: . allow us to continue to operate the PCS business under the Sprint PCS Agreements if approved by the Administrative Agent; . operate our PCS business on an interim basis; or . appoint a person other than Sprint PCS that is acceptable to the Administrative Agent, which acceptance can not be unreasonably withheld and must be given for another Sprint PCS affiliate, to operate our PCS business on an interim basis. When a debt default is caused by a breach of our management agreement with Sprint PCS, the Administrative Agent only has a right to designate who will operate our business on an interim basis if Sprint PCS elects not to operate the business or designate a third party to operate the business on an interim basis. Election of Sprint PCS to serve as interim manager or designate a third party to operate business. If Sprint PCS elects to operate the business on an interim basis or designate a third party to operate the business on an interim basis, Sprint PCS or the third party may operate the business for up to six months at the discretion of Sprint PCS. At the end of the six months, the period may be extended for an additional six months or an additional 12 months if the aggregate population served 55 by us and all other affiliates of Sprint PCS is less than 40 million. If the term is extended beyond the initial six month period, the Administrative Agent will be required to reimburse Sprint PCS or its third party designee for amounts previously expended and to be incurred as interim manager to cure a default up to an aggregate amount that is equal to 5% of the sum of our shareholder's equity value plus the outstanding amount of our long term debt. Sprint PCS or its third party designee is not required to incur expenses beyond this 5% limit. At the end of the initial six-month interim term, Sprint PCS, subject to the approval of the Administrative Agent with the requisite consent of the holders of the senior subordinated discount notes, has the right to appoint a successor interim manager to operate our business. Appointment of third party by Administrative Agent to operate business. If Sprint PCS gives the Administrative Agent notice of a breach of the management agreement, the debt repayment is accelerated, and Sprint PCS does not agree to operate the business or is unable to find a designee, the Administrative Agent may designate a third party to operate the business. The Administrative Agent has this same right if Sprint PCS or the third party designated by Sprint PCS resigns and is not replaced within 30 days. The third party selected by the Administrative Agent must: . agree to serve for six months unless terminated by Sprint PCS for cause by the Administrative Agent; . meet the requirements for a successor to an affiliate and not be challenged by Sprint PCS for failing to meet the requirements within 20 days after the Administrative Agent provides Sprint PCS with information on the third party; and . agree to comply with the terms of the Sprint PCS Agreements. The third party may continue to operate the business after the six month period at the Administrative Agent's discretion, with the requisite consent of the holders of the senior subordinated discount notes, and so long as the third party continues to satisfy the requirements to be a successor to an affiliate. The third party is required to operate the Sprint PCS network in our territory, but is not required to assume our existing liabilities. Purchase and sale of operating assets. The Consent establishes a process for the sale of our operating assets in the event of a default and acceleration under our equipment vendor financing and/or senior subordinated discount notes. Sprint PCS' right to purchase on acceleration of debt. Subject to the requirements of applicable law, so long as our equipment vendor financing or senior subordinated discount notes or, in each case, refinancing indebtedness, remain outstanding, Sprint PCS has the right to purchase our operating assets or capital stock, upon notice of an acceleration of our equipment vendor financing or senior subordinated discount notes under the following terms: . in addition to the purchase price requirements of the management agreement, the purchase price must include the payment or assumption in full, pursuant to the terms of the Consent, of the vendor equipment financing and the senior subordinated discount notes; . Sprint PCS must notify the Administrative Agent and the Trustee of its intention to exercise the purchase right within 60 days of receipt of the notice of acceleration; . the Administrative Agent is prohibited for a specified period after the acceleration or until Sprint PCS rescinds its intention to purchase from enforcing its security interest if Sprint PCS has given notice of its intention to exercise the purchase right; 56 . if we receive a written offer that is acceptable to us to purchase our operating assets or capital stock within a specified period after the acceleration, Sprint PCS has the right to purchase our operating assets or our stock on terms and conditions at least as favorable to us as the offer we receive. Sprint PCS must agree to purchase the operating assets or capital stock within 14 business days of its receipt of the offer, on acceptable conditions, and in an amount of time acceptable to us; and . upon completion of the sale to Sprint PCS, the Administrative Agent must release the security interests upon satisfaction in full pursuant to the terms of the Consent of the obligations under our vendor equipment financing and the senior subordinated discount notes. If the provider of our vendor equipment financing acquires our operating assets or capital stock, Sprint PCS has the right for 60 days to notify the Administrative Agent and the Trustee that it wants to purchase the operating assets or capital stock for an amount not less than the sum of the aggregate amount paid by the provider of our vendor equipment financing for the operating assets plus an aggregate amount sufficient to satisfy in full the obligations under the vendor equipment financing and senior subordinated discount notes pursuant to the terms of the Consent. If Sprint PCS purchases the operating assets or capital stock under these provisions, the Administrative Agent must release the security interests. If the Administrative Agent receives an offer to purchase the operating assets or our capital stock, Sprint PCS has the right to purchase the operating assets or stock on terms and conditions at least as favorable as the terms and conditions in the proposed offer within 14 days of Sprint PCS' receipt of notice of the offer, and so long as the conditions of Sprint PCS' offer and the amount of time to complete the purchase is acceptable to the Administrative Agent with the requisite consent of the holders of the senior subordinated discount notes. Sale of operating assets or capital stock to third parties. If Sprint PCS does not purchase the operating assets or capital stock, following an acceleration of the vendor equipment financing, the Administrative Agent, with the requisite consent of the holders of the senior subordinated discount notes, may sell the operating assets or stock. Subject to the requirements of applicable law, the Administrative Agent, with the requisite consent of the holders of the senior subordinated discount notes, has two options: . to sell the assets or stock to an entity that meets the requirements to be our successor under the Sprint PCS Agreements; or . to sell the assets or stock to any third party, subject to specified conditions. Sale of assets or capital stock to qualified successor. Subject to the requirements of applicable law, the Administrative Agent, with the requisite consent of the holders of the senior subordinated discount notes, may sell the operating assets or capital stock and assign the agreements to entities that meet the following requirements to succeed us: . the person has not materially breached a material agreement with Sprint PCS or its related parties that has resulted in the exercise of a termination right or in the initiation of judicial or arbitration proceedings during the past three years; . the person is not named by Sprint PCS as a prohibited successor; . the person has reasonably demonstrated its credit worthiness and can demonstrate the ability to service the indebtedness and meet the requirements in the build-out plan; and . the person agrees to be bound by the Sprint PCS Agreements. 57 The Administrative Agent is required to provide Sprint PCS with information necessary to determine if a buyer meets the requirements to succeed us. Sprint PCS has 20 days after its receipt of this information to object to the qualifications of the buyer to succeed us. If Sprint PCS does not object to the buyer's qualifications, subject to the requirements of applicable law, the buyer can purchase the assets and assume our rights and responsibilities under the Sprint PCS Agreements. The Consent will remain in full force and effect for the benefit of the buyer and its lenders. The buyer also has a period to cure any defaults under our Sprint PCS Agreements. Sale of assets or capital stock to non-successor. Subject to the requirements of applicable law, the Administrative Agent, with the requisite consent of the holders of the senior subordinated discount notes, may sell our assets or stock to a party that does not meet the requirements to succeed AirGate. If such a sale is made: . Sprint PCS may terminate the Sprint PCS Agreements; . the buyer may purchase from Sprint PCS 5, 7.5 or 10 MHz of the PCS spectrum licensed to Sprint PCS in our territory under specified terms; . if the buyer controls, is controlled by or is under common control with an entity that owns a license to provide wireless service to at least 50% of the population in a basic trading area where the buyer proposes to purchase the spectrum from Sprint PCS, the buyer may only buy 5 MHz of spectrum; . the price to purchase the spectrum is equal to the sum of the original cost of the license to Sprint PCS pro rated on a population and a spectrum basis, plus the cost paid by Sprint PCS for microwave clearing in the spectrum ultimately acquired by the buyer of our assets and the amount of carrying costs attributable to the license and microwave clearing costs from the date of the Consent until the closing of the sale, based on a rate of 12% per annum; . the buyer will receive from Sprint PCS the customers with the MIN assigned to the market area covered by the purchased spectrum except for customers of national accounts and resellers; . with limited exceptions, Sprint PCS will not solicit for six months the customers transferred to the buyer with the MIN assigned to the market area; . the buyer and Sprint PCS will enter into a mutual roaming agreement with prices equal to the lesser of the most favored pricing provided by buyer to third parties roaming in the geographic area and the national average paid by Sprint PCS to third parties; and . Sprint PCS will have the right to resell buyer's wireless services at most favored nations pricing. Right to purchase debt obligations. Following the acceleration of the vendor equipment financing and until the 60-day anniversary of the filing of a petition of bankruptcy, Sprint PCS has the right to purchase the vendor equipment financing at a purchase price equal to the amount of the obligations other than interest accrued and fees and expenses that are deemed to be unreasonable. 58 DESCRIPTION OF CERTAIN INDEBTEDNESS Vendor Equipment Financing We are currently in negotiations with an equipment vendor to purchase radio, switching and related equipment and services for our PCS network. Our proposed vendor equipment financing provides for up to $153.5 million of borrowings, $5.0 million of which was provided to us by March 31, 1999, $5.0 million of which was provided to us on June 8, 1999, and $3.5 of which is expected to be provided to us after July 1, 1999 and prior to the closing of our concurrent offerings of common stock and senior subordinated discount notes. The $13.5 million borrowed from the vendor will be incorporated in the $153.5 million proposed vendor equipment financing. This offering is contingent on our securing the vendor equipment financing. The financing will be used to purchase equipment from the vendor and to cover approved working capital costs. This facility, and all additional financing provided to us by the vendor will be senior debt which will rank senior in right of payment and collateral to all other indebtedness. The vendor equipment financing is expected to be guaranteed by our subsidiary and future subsidiaries. The vendor equipment financing is expected to be available in three separate tranches in various amounts for various periods of time, subject at each funding date to several conditions, including the following: . no material adverse change in our business; and . the absence of a default under our loan documents. The principal amount of each tranche will amortize in 19 quarterly installments according to a graduated schedule. Amortization of Tranche 1 and Tranche 2 will begin 39 months from June 7, 1999, with final maturity occurring eight years from June 7, 1999. Amortization of Tranche 3 will begin 39 months from October 1, 2000, and final maturity will occur September 30, 2008. The vendor equipment financing currently is, and will be, secured by the following: . a perfected first priority lien on the assets of our present and future subsidiaries; . collateral assignment of the Sprint PCS Agreements; and . a pledge of all of the capital stock of our subsidiary and future subsidiaries. The vendor equipment financing contains various covenants that restrict the ability of our subsidiaries to: . incur additional indebtedness except for the senior subordinated discount notes and certain other limited indebtedness; . grant liens; . make guarantees; . engage in mergers, acquisitions, investments, consolidations, liquidations, dissolutions and asset sales; and . grant dividends. We expect the proposed vendor equipment financing to contain certain financing and operating covenants including, among other things: . total debt to total capitalization; . total debt to earnings before interest, taxes, depreciation and amortization, referred to as EBITDA, or adjusted EBITDA; 59 . senior debt/secured debt to total capitalization; . senior debt to EBITDA or adjusted EBITDA; . fixed charges ratios; . minimum population coverage by our PCS network; . minimum subscribers; . minimum aggregate service revenue; . secured loans to total value of the collateral; and . maximum capital expenditures. We would default on the vendor equipment financing if we: . fail to make the payments; . fail to comply with a covenant; . default on the Sprint PCS Agreements or our rights under the Sprint PCS Agreements are terminated or impaired; . default on other indebtedness; or . change control of our ownership. The vendor will receive customary fees and reimbursement of expenses. Senior Subordinated Discount Notes Concurrently with this offering of our common stock, we are offering $ million aggregate principal amount at maturity of % senior subordinated discount notes maturing in 2009. No cash interest payments will be made on the senior subordinated discount notes prior to , 2005. The aggregate accreted value of the senior subordinated discount notes will increase from $150.0 million at issuance at a rate of % per annum to a final accreted value equal to their aggregate principal amount of $ million on , 2004. Accretion will be computed on a basis of a 360-day year of twelve 30 day months, compounded semi-annually. Commencing , 2005, cash interest will be payable to holders of the senior subordinated discount notes at a rate of % per annum, semi-annually in arrears on each and . The cash interest, computed on a basis of a 360-day year of twelve 30-day months, will accrue from the most recent interest payment date or, if no interest has been paid or duly provided for, from , 2005. The senior subordinated discount notes are not subject to any sinking fund. The senior subordinated discount notes will be guaranteed by our existing subsidiary, AGW Leasing Company, Inc., and may be guaranteed by additional subsidiaries of ours in the future. In addition, pursuant to a pledge agreement, the senior subordinated discount notes will be secured by a pledge of all of the capital stock of our future, directly owned subsidiaries and all intercompany notes for money owed to us by our subsidiary and future subsidiaries. Holders of the senior subordinated discount notes will have the right to require us to repurchase all or part of the senior subordinated discount notes at a premium upon the occurrence of events constituting a change in control of AirGate. Any such repurchases would be for cash at an aggregate price of 101% of the accreted value of the senior subordinated discount notes to be repurchased, if 60 the repurchase were prior to , 2004 or, if the repurchase were on or after , 2004, at an aggregate price of 101% of the aggregate principal amount thereof plus accrued and unpaid interest thereon. Under the indenture governing the senior subordinated discount notes, a change of control includes . sale or other disposition of substantially all of our and our subsidiaries' assets; . our adoption of a plan of liquidation or dissolution; . consummation of a transaction in which a person becomes the beneficial owner of more than % of our voting stock; . continuing directors ceasing to comprise a majority of our board of directors; and . a merger or consolidation of AirGate in which our voting stock is converted into or exchanged for cash, securities or other property, unless our voting stock is converted into or exchanged for a majority of the outstanding shares of one of the other parties to the merger or consolidation. We will have the right to redeem all or part of the senior subordinated discount notes on or after , 2004 at redemption prices beginning at % in 2004 and decreasing gradually to 100% in 2007 and thereafter, in each case together with accrued and unpaid interest, if any. During the first 36 months after the senior subordinated discount note offering, we may use the net proceeds from a public equity offering to redeem up to 35% of the accreted value of the senior subordinated discount notes originally issued at a redemption price of % of the accreted value, provided that at least 65% of the accreted value of the senior subordinated discount notes originally issued remains outstanding immediately after the redemption. The indenture governing the senior subordinated discount notes will contain covenants that, among other things, will limit our ability and the ability of our subsidiary and future subsidiaries to: . pay dividends, redeem capital stock or make other restricted payments or investments; . incur additional indebtedness or issue preferred stock; . create liens on assets; . merge, consolidate or dispose of assets; . dispose of less than all of the equity in a wholly-owned subsidiary; . engage in any business other than PCS telecommunications; . enter into certain transactions with affiliates; and . enter into sale and leaseback transactions. Events of default under the senior subordinated discount notes include: . default for 30 days in the payment when due of interest on the senior subordinated discount notes; . default in payment when due of the principal of or premium, if any, on the senior subordinated discount notes; . our failure, or the failure of any of our subsidiaries, to comply with provisions of the senior subordinated discount notes indenture relating to change of control and with limitations on asset sales and restricted payments and investments; . our failure, or the failure of any of our subsidiaries, to comply with any other provisions of the indenture or the pledge agreement relating to the senior subordinated discount notes; 61 . our default, or default by any of our subsidiaries, with respect to other debt of $5.0 million or more, which default either is caused by failure to pay the principal or premium thereof or results in acceleration of the other debt; . our failure, or failure of any of our subsidiaries, to pay within 60 days a final judgment exceeding $5.0 million; . breach by us of any material representation or warranty or agreement in the pledge agreement, repudiation by us of our obligations under the pledge agreement or the unenforceability of the pledge agreement against us for any reason; . a judicial determination rendering any of the guarantees unenforceable or a guarantor's denial or disaffirmance of its obligations under the guarantee; . bankruptcy or insolvency of AirGate or any of our subsidiaries; and . the occurrence of any event that causes, or with notice or the passage of time would cause, an event of termination under the Sprint PCS Agreements. In the case of an event of default arising from certain events of bankruptcy or insolvency, all outstanding senior subordinated discount notes would become due and payable immediately. If any other event of default occurs and is continuing, the trustee for the senior subordinated discount note holders or the holders of at least 25% in principal amount of the then outstanding senior subordinated discount notes may declare the notes to be due and payable immediately. Long-Term Debt In July 1998, AirGate Wireless, LLC issued an unsecured promissory note to a third party to purchase certain site acquisition and engineering costs. At March 31, 1999, the principal amount of this unsecured promissory note was $7.7 million. The note bears interest at 14% and originally provided for quarterly payments of principal and interest beginning on March 1, 1999 and ending on December 1, 2000. The promissory note was assigned to us when our agreements with Sprint PCS were assigned from AirGate Wireless, LLC to us. In May 1999, the note was amended to provide for quarterly payments of principal and interest beginning on August 31, 1999 or the first day following the close of the first fiscal quarter of the closing of this offering and the senior subordinated discount notes in an amount equal or greater than $130 million with the final payment due on August 31, 2001. 62 MANAGEMENT Directors and Executive Officers The following table presents information with respect to our directors and executive officers.
Name Age Position Thomas M. Dougherty............. 55 Director, President and Chief Executive Officer W. Chris Blane.................. 46 Director and Vice President of New Business Development Thomas D. Body III.............. 61 Director and Vice President of Strategic Planning Robert E. Gourlay............... 45 Vice President of Marketing David C. Roberts................ 36 Vice President of Engineering and Network Operations Shelley L. Spencer.............. 36 Vice President of Law and Secretary Alan B. Catherall............... 45 Chief Financial Officer Gill Cogan...................... 46 Director Barry Schiffman................. 53 Chairman of the Board and Director
Thomas M. Dougherty joined AirGate in April 1999. Mr. Dougherty, our president and chief executive officer, has more than 16 years of experience in the telecommunications industry, and is a former senior executive of Sprint PCS. As the president of a major region for Sprint PCS, Mr. Dougherty was responsible for Sprint PCS market launches in eighteen major metropolitan areas covering approximately 75 million people, including Chicago, Illinois; Houston, Texas; Atlanta, Georgia; and Charlotte, North Carolina. Mr. Dougherty served as Executive Vice President and Chief Operating Officer of Chase Telecommunications, a personal communications services carrier, from 1996 to 1997. Mr. Dougherty served as President and Chief Operating Officer of Cook Inlet BellSouth PCS, L.P., a start-up wireless communications company, from 1995 to 1996. Prior to October 1995, Mr. Dougherty was Vice President and Chief Operating Officer of BellSouth Mobility DCS Corporation. Before entering the telecommunications industry, Mr. Dougherty held various senior marketing and operational positions with Coca-Cola. Mr. Dougherty holds a B.S. and MBA from Georgia State University. W. Chris Blane has more than twenty years of wireless telecommunications experience in the Southeast. In 1978, he founded and developed American Mobilphone Paging, Inc. In 1981, Mr. Blane was named president of Maxicom, Inc., a cellular licensee in Atlanta, Memphis, Tampa, Birmingham and Mobile. From 1984 to 1988, he served as president of Cellular One in Birmingham directing operation of the company's cellular network in the Birmingham and Montgomery MSAs. In 1989, Mr. Blane was appointed President of Metrex Corporation which constructed the first fiber optic competitive access network in Atlanta and ultimately merged with MFS Communications Co., now WorldCom. In 1995, Mr. Blane joined AirGate's affiliate, AirLink II, as it prepared for the C block PCS auction. Mr. Blane holds a B.S. degree in Architecture from Georgia Institute of Technology. Thomas D. Body, III has over twenty years of wireless telecommunications experience in the Southeast. From 1979 to 1981, he served as chief executive officer of American Mobilphone Paging, Inc. and from 1981 to 1988, as an officer and director for Maxicom, Inc., the non-wireline cellular licensee for the Atlanta, Birmingham, Memphis, Tampa and Mobile markets. As a founder and partner of CellularOne in Birmingham and Montgomery, Alabama, Mr. Body was instrumental in the design, construction, development and success of the company's cellular networks. In 1989, he was appointed chairman of Metrex Corporation where he oversaw development of the first fiber optic competitive access network in the Atlanta market, which subsequently merged with MFS Communications Co., now WorldCom. Mr. Body then served as chairman and CEO of MFS-Atlanta 63 as the company built the first large area sonet network in the country. After leaving MFS-Atlanta, he then served as a consultant to AirGate until 1994. Mr. Body joined AirGate's affiliate, AirLink II, as it prepared for the C block PCS auction. Mr. Body holds a B.B.A. degree in Real Estate/Risk Management from the University of Georgia. Robert E. Gourlay has twenty-two years of wireless communications experience in the Southeast dating to his service with Motorola in 1976. From 1976 to 1989, Mr. Gourlay served as area sales manager of Motorola's Communications division for the State of Georgia. From 1989 to 1993, Mr. Gourlay served as the southeastern manager of sales and operations for Motorola Inc.'s Cellular Infrastructure Division bearing responsibility for product sales, engineering, deployment and implementation of cellular infrastructure equipment throughout the Southeast. Mr. Gourlay was also directly involved in Motorola Inc.'s evaluation and deployment of wireless technologies including CDMA, TDMA, NAMPS, IS-41 and AMPS. In 1993 Mr. Gourlay co-founded Encompass, Inc. where he served as senior vice president and co-authored the company's business plan to enter the PCS industry via the auction process. Mr. Gourlay was instrumental in raising the initial venture capital to fund AirGate. In 1995, Mr. Gourlay joined AirGate's affiliate, AirLink II. Mr. Gourlay holds a B.S. Degree in Management Science from the University of South Carolina and an MBA from Georgia State University. David C. Roberts is a fifteen-year veteran of the wireless telecommunications industry having served in various engineering and management positions for Motorola, Inc. From 1990 to 1993, Mr. Roberts served as engineering manager for Motorola Cellular Infrastructure. In that capacity, he worked out of Motorola Inc.'s Atlanta regional office where he had overall responsibility for wireless engineering in the Southeast. In 1993 Mr. Roberts co-founded Encompass, Inc. where he served in an engineering management capacity and was instrumental in developing the company's business plan and strategy for entering the PCS industry. In 1995, Mr. Roberts joined AirGate's affiliate, AirLink II, in preparation for the C block PCS auction. Mr. Roberts holds a B.S. degree in Electrical Engineering Technology from the Southern College of Technology. Shelley L. Spencer has twelve years of legal experience, six of which were spent in private practice with the telecommunications practice of Swidler & Berlin, Chtd. From 1989 to 1995, while at Swidler & Berlin, Ms. Spencer specialized in representing wireless telecommunications companies before the FCC, Congress and in corporate structuring and commercial transactions. In 1995, Ms. Spencer joined AirGate's affiliate, AirLink II, as it prepared for the C block PCS auction. Ms. Spencer holds a B.A. from Baldwin-Wallace College and a J.D. from Georgetown University Law Center. Alan B. Catherall became AirGate's Chief Financial Officer in March 1998 under a contract between AirGate and Tatum CFO Partners. As a partner in Tatum CFO Partners since 1996, Mr. Catherall has served as chief financial officer or provided consulting services for a variety of clients. Before joining Tatum CFO Partners, Mr. Catherall was chief financial officer of Syncordia Services, a joint venture of MCI and British Telecom, from 1994 to 1996. Syncordia, founded in 1991, provided telecommunications outsourcing services to enterprises in support of their global communications. From 1989 to 1994, Mr. Catherall served as vice president of finance and administration for MCI's Business Markets Unit. In this position, Mr. Catherall had overall responsibility for all financial, real estate, procurement and administration activities. From 1988 to 1989, Mr. Catherall was vice president of finance for Lex Computer Systems, a company providing computer solutions to medium sized companies. Mr. Catherall has a B.S. in Economics from the University of Manchester and an MBA from Loyola College in Baltimore. He is a member of AICPA and the Institute of Chartered Accountants in the U.K. 64 Gill Cogan is managing partner of Weiss, Peck & Greer Venture Partners. He is a director of Electronics for Imaging, Inc., and several privately held companies. Mr. Cogan holds a BS degree in theoretical physics and an MBA from UCLA. Barry Schiffman is president, chief investment officer and member of the board of JAFCO America Ventures, Inc. Mr. Schiffman has more than 14 years of industry experience in investing in high-growth information technology companies. Prior to JAFCO, he was a general partner at Weiss, Peck & Greer Venture Partners. Mr. Schiffman holds a bachelor's degree in industrial and systems engineering from Georgia Institute of Technology and an MBA from Stanford University, Graduate School of Business. Board of Directors The seven directors comprising the board of directors are divided into three classes. Barry Schiffman and Gill Cogan constitute Class I and will stand for election at the annual meeting of stockholders to be held in 2000. The two directors who will fill the current vacancies on the board will constitute Class II and will stand for election at the annual meeting of stockholders to be held in 2001. Thomas M. Dougherty, Thomas D. Body, III and W. Chris Blane constitute Class III and will stand for election at the annual meeting of stockholders to be held in 2002. After the initial term following the offering, directors in each class will serve for a term of three years, or until his or her successor has been elected and qualified and will be compensated at the discretion of the board of directors. Executive officers are ordinarily elected annually and serve at the discretion of the board of directors. Currently there are two vacancies on the board. Simultaneous with the closing of this offering, we expect to fill the vacancies in Class II with two outside directors. We expect the outside directors to be experienced leaders in the telecommunications and business communities with direct experience managing and advising public companies. The audit committee consists of Gill Cogan, Barry Schiffman and Thomas M. Dougherty. The compensation committee consists of Gill Cogan, Barry Schiffman and Thomas D. Body, III. The audit committee is responsible for recommending to the board of directors the engagement of our independent auditors and reviewing with the independent auditors the scope and results of the audits, our internal accounting controls, audit practices and the professional services furnished by the independent auditors. The compensation committee is responsible for reviewing and approving all compensation arrangements for our officers, and is also responsible for administering the stock option plan. Compensation Committee Interlocks and Insider Participation The compensation committee during the year ended December 31, 1998, consisted of the board of directors. None of the executive officers served as a director or member of the compensation committee or other board committee performing equivalent functions of another corporation, one of whose executive officers served on our board of directors. Limitation on Liability and Indemnification Matters Our certificate of incorporation limits the liability of directors to the maximum extent permitted by Delaware law. Our certificate of incorporation provides that we shall indemnify our directors and 65 executive officers and may indemnify our other officers and employees and agents and other agents to the fullest extent permitted by law. Our certificate of incorporation also permits us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in such capacity, regardless or whether the certificate of incorporation would permit indemnification. We have entered into agreements to indemnify our directors and officers in addition to indemnification provided for in our certificate of incorporation. These agreements, among other things, indemnify our directors and officers for certain expenses, including attorneys' fees, judgments, fines and settlement amounts incurred by any such person in any action or proceeding, including any action by us or in our right, arising out of such person's services as a director or officer of ours, any subsidiary of ours, or any other company or enterprise to which the person provides services at our request. In addition, we intend to obtain directors' and officers' insurance providing indemnification for certain of our directors, officers and employees for certain liabilities. We believe that these provisions, agreements and insurance are necessary to attract and retain qualified directors and officers. At present, there is no pending litigation or proceeding involving any director, officer, employee or agent of ours where indemnification will be required or permitted. We are not aware of any threatened litigation or proceeding that might result in a claim for such indemnification. Executive Compensation The following table presents summary information with respect to the compensation paid to our Chief Executive Officer and each of our other executive officers whose salary and bonus exceeded $100,000 during the year ended December 31, 1998. Summary Compensation Table
Annual Compensation --------------------- Name and Principal Position Year Salary Thomas D. Body........................................... 1998 $ 120,000 Chief Executive Officer(1) W. Chris Blane........................................... 1998 120,000 Vice President of New Business Development Robert E. Gourlay........................................ 1998 120,000 Vice President of Marketing Shelley L. Spencer....................................... 1998 120,000 Vice President of Law and Secretary Jack R. Kimzey........................................... 1998 68,000 Chief Executive Officer(2) Edward C. Horner......................................... 1998 159,000 Chief Operating Officer(3)
- --------------------- (1) Mr. Body served as acting Chief Executive Officer from January 1998 to October 1998. (2) Mr. Kimzey served as Chief Executive Officer from October 1998 to February 1999. Mr. Kimzey resigned in February 1999. (3) Mr. Horner served as Chief Operating Officer from January 1998 to December 15, 1998. Mr. Horner resigned in December 1998. 66 Compensation of Directors Currently, we do not compensate our directors. We do reimburse directors for their expenses of attendance at board meetings. Employment Agreements We entered into an employment agreement with Thomas M. Dougherty, the Chief Executive Officer. Mr. Dougherty's employment agreement is for a five-year term and provides for an annual base salary of $180,000, with a minimum guaranteed annual increase of $20,000 over the next four years, until April 15, 2004. In addition to his base salary, Mr. Dougherty is eligible to receive an annual bonus up to 50% of his base salary. Under the employment agreement, Mr. Dougherty is entitled to an award of stock options equal to 2% of the number of fully diluted shares of common stock outstanding following this offering, subject to possible upward adjustment by the board of directors if the number of shares of the common stock authorized for issuance to employees is more than 10% of fully diluted shares of common stock. Mr. Dougherty will vest in 25% of the awarded stock options on April 15, 1999, with the remaining 75% of the options vesting in 15 equal quarterly installments beginning June 30, 2000. If Mr. Dougherty voluntarily terminates his employment prior to April 15, 2000, he will not be vested in any of the shares underlying the stock options. The exercise price of the stock options will be the fair market value of the common stock on the date of grant, whether an incentive or non-qualified stock option is selected by Mr. Dougherty. In addition, Mr. Dougherty is eligible to participate in all employee benefit plans and policies. The employment agreement provides that Mr. Dougherty's employment may be terminated with or without cause, as defined in the agreement, at any time. If Mr. Dougherty is terminated without cause, he is entitled to receive (1) six months base salary, plus one month's salary for each year employed, (2) all stock options vested on the date of termination and (3) six months of health and dental benefits. Mr. Dougherty is not entitled to any compensation or benefits upon voluntary termination or termination for cause. Under the employment agreement, Mr. Dougherty agreed to a restriction on his present and future employment. Mr. Dougherty agreed not to compete in the business of wireless telecommunications either directly or indirectly in our territory during his employment and for a period of 18 months after his employment is terminated. Pursuant to a requirement set forth in our management agreement with Sprint PCS, we intend to enter into employment agreements with W. Chris Blane, Thomas D. Body, III, Robert E. Gourlay, David C. Roberts and Shelley L. Spencer prior to or concurrently with the completion of the offering. Each of these employees may be terminated with or without cause at any time. The agreements are expected to provide that each employee, upon termination will not compete in the business of wireless telecommunications in our territory or have another primary business for a period of five years from the date of the execution of our management agreement with Sprint PCS on July 22, 1998. These employment restrictions on having another primary business will not apply when at least one-third of the corporate officers of Sprint and/or Sprint PCS terminate their employment for any reason within one year following a change of control, as defined in the management agreement. In the event that an employee is terminated without cause, we will continue to pay the employees salary for the remaining term of the agreement or until the non-compete provision expires or is waived by Sprint PCS. In addition to these agreements, we will also enter into an employment agreement with Alan B. Catherall. Under his agreement, Mr. Catherall will agree not to compete in the business of wireless telecommunications either directly or indirectly in our territory during his employment and for a period of 18 months after his employment is terminated. 67 1999 Stock Option Plan We anticipate that the 1999 Stock Option Plan will be adopted by our board of directors and stockholders. The 1999 option plan will permit the granting of both incentive stock options and nonqualified stock options to employees. The aggregate number of shares of common stock that may be issued pursuant to options granted under the 1999 option plan shall be 1,185,761, subject to adjustment in the event of certain changes in the outstanding shares of common stock. The 1999 option plan will be administered by our board of directors or by a compensation committee appointed by our board of directors, which will be authorized, subject to the provisions of the 1999 option plan, to grant awards and establish rules and regulations as it deems necessary for the proper administration of the option plan and to make whatever determinations and interpretations it deems necessary or advisable. An incentive option may not have an exercise price less than the fair market value of the common stock on the date of grant or an exercise period that exceeds ten years from the date of grant and is subject to certain other limitations which allow the option holder to qualify for favorable tax treatment. Nonqualified options may have an exercise price of less than, equal to or greater than the fair market value of the underlying common stock on the date of grant but, like incentive options, are limited to an exercise period of no longer than ten years. Options granted under the 1999 option plan will become exercisable according to a schedule. Employees who have worked for us for 12 months will be able to exercise 25% of their options at termination. This percentage will increase in five percent increments up to 100% at 57 months of employment. The exercise price of an option may be paid in cash or by check. An option will not be not transferable except by will or by the laws of descent or distribution or unless determined otherwise by our board of directors. An option granted under the 1999 option plan will terminate automatically: . 12 months after the employee's termination of employment or by reason of disability; . six months after the employee's death; . three months after an employee's voluntary termination of employment; and . upon termination of employment for cause. In the event of a change in control of AirGate where the acquiror does not assume the options or provide for substitute options, the board of directors may provide the employee with the right to exercise options, including those not exercisable at the time of the change in control. Only one-half of the options not yet vested may, however, be exercised in the event of a change in control. In the case of the liquidation or dissolution of AirGate, the board of directors may similarly provide the employee with the right to exercise all options. Noncompetition Agreement In connection with the granting of options under the 1999 option plan, each employee granted options must enter into a noncompetition agreement. These agreements provide that for so long as 68 the employee works for us, and for a period of two years after the employee's termination for any reason, the employee may not disclose in any way any confidential information. The agreements also provide that for so long as the employee works for us and for a period of 18 months after the employee's termination for any reason, the employee is prohibited from: . engaging in the same business or in a similar capacity in our territory; . soliciting business in competition with us; and . hiring any of our employees or directly or indirectly causing any of our employees to leave their employment to work for another employer. For so long as the shares underlying the options are not registered on the appropriate form with the SEC, in the event of a breach of the noncompetition agreement by an employee, we have the option to repurchase any and all shares held by the employee at the employee's exercise price. We may, at any time, pursue any other remedies provided by law or in equity. 69 PRINCIPAL STOCKHOLDERS The Amended and Restated Limited Liability Company Agreement of AirGate, LLC, the parent company of AirGate, provides that the shares of common stock of AirGate shall be distributed to the members of AirGate, LLC in proportion to each member's membership interest upon completion of AirGate's initial public offering. The following table presents certain information regarding the beneficial ownership of common stock, as of July 9, 1999 and assuming that the number of shares of AirGate common stock held by AirGate, LLC has been distributed to the members of AirGate, LLC in accordance with its limited liability company agreement, with respect to: . each person who, to our knowledge, is the beneficial owner of 5% or more of the outstanding common stock; . each of the directors; . each of the executive officers; and . all executive officers and directors as a group.
Number of Percentage of Percentage of Shares Beneficially Ownership Ownership Name and address(2) Owned(1) Prior to Offering After Offering(8) Maxicom PCS L.L.C....... 1,710,156(5) 43.7% 14.8% Weiss, Peck & Greer Venture Partners Affiliated Funds....... 1,510,572(6) 38.6 18.3(9) 555 California Street, Suite 3130 San Francisco, California 94104 JAFCO American Ventures, Inc. Affiliated Funds.. -- -- 4.9 505 Hamilton Ave, Suite 310 Palo Alto, California 94301 Robert E. Gourlay & Associates, LP......... 223,064(7) 5.7 1.9 8734 Oakthorpe Drive Charlotte, North Carolina 28277 Thomas M. Dougherty..... -- -- -- W. Chris Blane.......... 1,710,156(5) 43.7 14.8 Robert E. Gourlay....... 223,064(7) 5.7 1.9 Barry Schiffman(3)...... -- -- 4.9 Gill Cogan(4)........... 1,510,572(6) 38.6 18.3 Shelley L. Spencer...... 101,748 2.6 0.9 Thomas D. Body III...... 1,710,156(5) 43.7 14.8 David C. Roberts........ 140,883 3.6 1.2 Alan B. Catherall....... -- -- -- All executive officers and directors as a group (9 persons)...... 3,686,423 94.2 42.0
- --------------------- * Less than one percent. (1) Beneficial ownership is determined in accordance with Rule 13d-3 of the Securities Exchange Act. A person is deemed to be the beneficial owner of any shares of common stock if such person has or shares voting power or investment power with respect to such common stock, or has the right to acquire beneficial ownership at any time within 60 days of the date of the table. As used herein, "voting power" is the power to vote or direct the voting of shares and "investment power" is the power to dispose or direct the disposition of shares. (2) Except as otherwise indicated below, the address for Maxicom PCS LLC and each executive officer and director is Harris Tower 233 Peachtree Street, N.W., Suite 1700, Atlanta, Georgia 30303. (3) Mr. Schiffman's address is 505 Hamilton Avenue, Suite 310, Palo Alto, California 94301. (4) Mr. Cogan disclaims beneficial ownership of such shares held by Weiss, Peck & Greer Venture Partners Affiliated Funds except to the extent of his preliminary interest therein. Mr. Cogan's address is 555 California Street, Suite 3130, San Francisco, California 94104. (5) Maxicom PCS L.L.C. is controlled by Messrs. W. Chris Blane and Thomas D. Body III. Therefore, all shares held by Maxicom PCS L.L.C. are also included in the shares held by Messrs. Blane and Body. (6) Mr. Cogan is managing partner of Weiss, Peck & Greer Venture Partners and therefore, shares held by Weiss, Peck & Greer PCS Partners have also been included in the shares held by Mr. Cogan. (7) Mr. Gourlay is a general partner of Robert E. Gourlay & Associates, LP, and therefore, shares held by Robert E. Gourlay & Associates, LP have also been included in the shares held by Mr. Gourlay. (8) Includes the conversion of the promissory notes issued to the Weiss, Peck & Greer Venture Partners affiliated funds and the JAFCO America Ventures, Inc. affiliated funds. (9) Includes the shares of common stock underlying the warrants issued to the Weiss, Peck & Greer Venture Partners affiliated funds. 70 CERTAIN TRANSACTIONS From our inception through May 1999, we received financing from affiliates of Weiss, Peck & Greer Venture Partners and affiliates of JAFCO America Ventures, Inc. Mr. Cogan, one of our directors, is managing partner of Weiss, Peck & Greer Venture Partners. Another director, Mr. Schiffman, is President, Chief Investment Officer and a member of the board of JAFCO America Ventures, Inc. In August 1998, we issued $1.8 million of subordinated promissory notes to the Weiss, Peck & Greer Venture Partners affiliated funds. In September 1998, we issued $3.0 million of subordinated promissory notes to the JAFCO America Ventures, Inc. affiliated funds. All of these notes provided for the conversion of the notes into preferred or common stock upon the satisfaction of certain conditions or repayment of the notes one year after their issuance. Repayment of the notes was subordinated to senior secured debt we received in November 1998 from an equipment vendor. We also issued warrants to purchase the preferred stock to the Weiss, Peck & Greer Venture Partners affiliated funds and to the JAFCO America Ventures, Inc. related funds in consideration for their financing. The warrants were to be exercised on the earlier of five years from the date of issuance or an initial public offering. In March, April and May 1999, we received an additional $1.25 million of financing from the Weiss, Peck & Greer Venture Partners affiliated funds and $1.25 million of additional financing from the JAFCO America Ventures, Inc. affiliated funds pursuant to subordinated notes. In May 1999, we consolidated the promissory notes issued to the Weiss, Peck & Greer Venture Partners affiliated funds in 1998 and 1999 for a total of $3.167 million into two subordinated promissory notes that will be converted into shares of our common stock concurrently with completion of this offering at a price 48% less than the price of a share of the common stock sold in this offering. The warrants held by the Weiss, Peck & Greer Venture Partners affiliated funds were terminated. In May 1999, we issued warrants to the Weiss, Peck & Greer Venture Partners affiliated funds to purchase shares of common stock for an aggregate price of up to $2.75 million exercisable at a 25% discount to the price of a share of common stock sold in this offering. The warrants may be exercised after an initial public offering for two years from the date of grant. In May 1999, we consolidated the promissory notes issued to the JAFCO America Ventures, Inc. affiliated funds for a total of $4.394 million into subordinated promissory notes that will be converted into shares of our common stock concurrent with the completion of this offering at a price 48% less than the price of a share of common stock sold in this offering. The warrants held by the JAFCO America Ventures, Inc. affiliated funds were terminated. In connection with the issuance of these convertible notes, the warrants and Weiss, Peck & Greer Venture Partners affiliated funds' existing ownership interest, we intend to enter into registration rights agreements with the Weiss, Peck and Greer Venture Partners affiliated funds and the JAFCO America Ventures, Inc. affiliated funds. The affiliated funds of Weiss, Peck & Greer Venture Partners also have guaranteed repayment of loans made to AirGate Wireless, LLC in principal amounts of $1.0 million and $1.8 million by NationsBank and Silicon Valley Bank, respectively. The combined principal amount of these two loans is $2.8 million. The loan from NationsBank for $1.0 million has been assigned to us and will be repaid within the proceeds of this offering. The $1.8 million loan from Silicon Valley will remain at AirGate Wireless, LLC. During the year ended December 31, 1998, we made $60,000 in lease payments to Netrail, Inc., an affiliate of Maxicom PCS L.L.C. The lease related to the office space of our previous corporate headquarters and was terminated as of June 30, 1999. We believe that the terms of that lease arrangement were comparable to terms that we could have obtained with an unrelated party. 71 REGULATION OF THE WIRELESS TELECOMMUNICATIONS INDUSTRY The FCC regulates the licensing, construction, operation, acquisition and interconnection arrangements of wireless telecommunications systems in the United States. The FCC has promulgated, and is in the process of promulgating, a series of rules, regulations and policies to, among other things: . grant or deny licenses for PCS frequencies; . grant or deny PCS license renewals; . rule on assignments and/or transfers of control of PCS licenses; . govern the interconnection of PCS networks with other wireless and wireline carriers; . establish access and universal service funding provisions; . impose fines and forfeitures for violations of any of the FCC's rules; and . regulate the technical standards of PCS networks. The FCC currently prohibits a single entity from having a combined attributable interest, of 20% or greater interest in any license, in broadband PCS, cellular and SMR licenses totaling more than 45 MHz in any geographic area. Transfers and Assignments of PCS Licenses The FCC must give prior approval to the assignment of, or transfers involving, substantial changes in ownership or control of a PCS license. Non- controlling interests in an entity that holds a PCS license or operates PCS networks generally may be bought or sold without prior FCC approval. In addition, a recent FCC order requires only post-consummation notification of certain pro forma assignments or transfers of control. Conditions of PCS Licenses All PCS licenses are granted for 10-year terms conditioned upon timely compliance with the FCC's build-out requirements. Pursuant to the FCC's build- out requirements, all 30 MHz broadband PCS licensees must construct facilities that offer coverage to one-third of the population within 5 years and to two- thirds of the population within 10 years, and all 10 MHz broadband PCS licensees must construct facilities that offer coverage to at least one-quarter of the population within 5 years or make a showing of "substantial service" within that 5 year period. Rule violations could result in license revocations. The FCC also requires licensees to maintain a certain degree of control over their licenses. The Sprint PCS agreements reflect an alliance that the parties believe meets the FCC requirements for licensee control of licensed spectrum. If the FCC were to determine that our agreements with Sprint PCS need to be modified to increase the level of licensee control, the Sprint PCS agreements may be modified to cure any purported deficiency regarding licensee control of the licensed spectrum. PCS License Renewal PCS licensees can renew their licenses for additional 10 year terms. PCS renewal applications are not subject to auctions. However, under the FCC's rules, third parties may oppose renewal applications and/or file competing applications. If one or more competing applications are filed, a renewal application will be subject to a comparative renewal hearing. The FCC's rules afford PCS renewal applicants involved in comparative renewal hearings with a "renewal expectancy." The 72 renewal expectancy is the most important comparative factor in a comparative renewal hearing and is applicable if the PCS renewal applicant has: (1) provided "substantial service" during its license term; and (2) substantially complied with all applicable laws and FCC rules and policies. The FCC's rules define "substantial service" in this context as service that is sound, favorable and substantially above the level of mediocre service that might minimally warrant renewal. Interconnection The FCC has the authority to order interconnection between CMRS providers and any other common carrier. The FCC has ordered local exchange carriers to provide reciprocal compensation to CMRS providers for the termination of traffic. Using these new rules, we will negotiate interconnection agreements for the Sprint PCS network in our market area with all of the major regional Bell operating companies, GTE and several smaller independent local exchange carriers. Interconnection agreements are negotiated on a state-wide basis. If an agreement cannot be reached, parties to interconnection negotiations can submit outstanding disputes to state authorities for arbitration. Negotiated interconnection agreements are subject to state approval. Other FCC Requirements In June 1996, the FCC adopted rules that prohibit broadband PCS providers from unreasonably restricting or disallowing resale of their services or unreasonably discriminating against resellers. Resale obligations will automatically expire on November 24, 2002. The FCC is also considering whether wireless providers should be required to offer unbundled communications capacity to resellers who intend to operate their own switching facilities. The FCC also adopted rules in June 1996 that require local exchange and most CMRS carriers to program their networks to allow customers to change service providers without changing telephone numbers, which is referred to as service provider number portability. Initially, the FCC required that most CMRS providers be able to deliver calls from their networks to ported numbers anywhere in the country by December 31, 1998. The FCC also recently stayed for nine months the following number portability requirements: . CMRS providers must be able to offer their own customers number portability in their switches in the 100 largest metropolitan areas including the ability to support nationwide roaming by March 31, 2000, instead of June 30, 1999; and . carriers must request number portability capability in the 100 largest metropolitan areas by June 30, 1999, instead of September 30, 1998. In response to a CTIA petition for forbearance, the FCC has extended until November 24, 2002 the deadline to implement local number portability. Beginning in 1999, all carriers will begin contributing to the Local Number Portability fund. The FCC has adopted rules permitting broadband PCS and other CMRS providers to provide wireless local loop and other fixed services that would directly compete with the wireline services of LECs. In June 1996, the FCC adopted rules requiring broadband PCS and other CMRS providers to implement enhanced emergency 911 capabilities within 18 months after the effective date of the FCC's rules. In December 1997, the FCC revised these rules to extend the compliance deadline for phase 1 until October 1, 1998 and for phase II until October 1, 2001 for digital CMRS carriers to ensure access for customers using devices for the hearing-impaired. The FCC recently extended the 73 phase 1 compliance deadline to January 1, 1999. Further waivers of the enhanced emergency 911 capability requirements may be obtained by individual carriers by filing a waiver request. Communications Assistance for Law Enforcement Act The Communications Assistance for Law Enforcement Act, enacted in 1994 to preserve electronic surveillance capabilities authorized by Federal and state law, requires telecommunications carriers to meet certain "assistance capability requirements" by October 25, 1998. However, the FCC recently granted a blanket extension of that deadline until June 30, 2000, because CALEA compliant equipment is not yet available. CALEA provides that a telecommunications carrier meeting industry CALEA standards shall have safe harbor for purposes of compliance with CALEA. Toward the end of 1997 telecommunications industry standard-setting organizations agreed to a joint standard to implement CALEA's capability requirements, known as J-STD-025. Although we will be able to offer traditional electronic surveillance capabilities to law enforcement, it, as well as the other participants in the wireless industry, may not meet the requirements of J-STD-025 by June 30, 2000, given hardware changes that are yet to be developed and implemented by switch manufacturers. In addition, the FCC is considering petitions from numerous parties to establish and implement technical compliance standards pursuant to CALEA requirements. Other Federal Regulations Wireless systems must comply with certain FCC and FAA regulations regarding the siting, lighting and construction of transmitter towers and antennas. In addition, certain FCC environmental regulations may cause certain cell site locations to become subject to regulation under the National Environmental Policy Act. The FCC is required to implement the Act by requiring carriers to meet certain land use and radio frequency standards. Review of Universal Service Requirements The FCC and the states are required to establish a "universal service" program to ensure that affordable, quality telecommunications services are available to all Americans. Sprint PCS is required to contribute to the federal universal service program as well as existing state programs. The FCC has determined that the Sprint PCS' "contribution" to the federal universal service program is a variable percentage of "end-user telecommunications revenues." Although many states are likely to adopt a similar assessment methodology, the states are free to calculate telecommunications service provider contributions in any manner they choose as long as the process is not inconsistent with the FCC's rules. At the present time it is not possible to predict the extent of the Sprint PCS total federal and state universal service assessments or its ability to recover from the universal service fund. Partitioning; Disaggregation The FCC has modified its rules to allow broadband PCS licensees to partition their market areas and/or to disaggregate their assigned spectrum and to transfer partial market areas or spectrum assignments to eligible third parties. Wireless Facilities Siting States and localities are not permitted to regulate the placement of wireless facilities so as to "prohibit" the provision of wireless services or to "discriminate" among providers of such services. In addition, so long as a wireless system complies with the FCC's rules, states and localities are 74 prohibited from using radio frequency health effects as a basis to regulate the placement, construction or operation of wireless facilities. The FCC is considering numerous requests for preemption of local actions affecting wireless facilities siting. Equal Access Wireless providers are not required to provide equal access to common carriers for toll services. However, the FCC is authorized to require unblocked access to toll carriers subject to certain conditions. State Regulation of Wireless Service Section 332 of the Communications Act preempts states from regulating the rates and entry of commercial mobile radio service providers. However, states may petition the FCC to regulate such providers and the FCC may grant such petition if the state demonstrates that (1) market conditions fail to protect subscribers from unjust and unreasonable rates or rates that are unjustly or unreasonably discriminatory, or (2) when commercial mobile radio service is a replacement for landline telephone service within the state. To date, the FCC has granted no such petition. To the extent we provide fixed wireless service, we may be subject to additional state regulation. DESCRIPTION OF CAPITAL STOCK General The following summarizes all of the material terms and provisions of our capital stock. We have 30,000,000 shares of authorized capital stock, including 25,000,000 shares of common stock, par value $0.01 per share and 5,000,000 shares of preferred stock, par value $0.01 per share. As of July 9, 1999, there were 3,913,416 shares of common stock and no shares of preferred stock issued and outstanding. Common Stock The holders of common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders and do not have any cumulative rights. Subject to the rights of the holders of any series of preferred stock, holders of common stock are entitled to receive ratably such dividends as may be declared by the board of directors out of funds legally available therefor. Holders of shares of common stock have no preemptive, conversion, redemption, subscription or similar rights. If we liquidate, dissolve or wind up, the holders of shares of common stock are entitled to share ratably in the assets which are legally available for distribution, if any, remaining after the payment or provision for the payment of all debts and other liabilities and the payment and setting aside for payment of any preferential amount due to the holders of shares of any series of preferred stock. Preferred Stock Under our certificate of incorporation, the board of directors is authorized, subject to certain limitations prescribed by law, without further stockholder approval, from time to time to issue up to an aggregate of 5,000,000 shares of preferred stock. The preferred stock may be issued in one or more series. Each series may have different rights, preferences and designations and qualifications, 75 limitations and restrictions that may be established by our board of directors without approval from the stockholders. These rights, designations and preferences include: . number of shares to be issued; . dividend rights; . dividend rates; . right to convert the preferred shares into a different type of security; . voting rights attributable to the preferred shares; . right to set aside a certain amount of assets for payment relating to the preferred shares; and . prices to be paid upon redemption of the preferred shares or a bankruptcy type event. If our board of directors decides to issue any preferred stock, it could have the effect of delaying or preventing another party from taking control of AirGate. This is because the terms of the preferred stock would be designed to make it prohibitively expensive for any unwanted third party to make a bid for our shares. We have no present plans to issue any shares of preferred stock. Delaware Law and Certain Charter and By-Law Provisions We are subject to the provisions of Section 203 of the Delaware General Corporation Law (the "DGCL"). Subject to certain exceptions, Section 203 prohibits a publicly held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a certain period of time. That period is three years after the date of the transaction in which the person became an interested stockholder, unless the interested stockholder attained that status with the approval of the board of directors or unless the business combination is approved in a prescribed manner. A "business combination" includes certain mergers, asset sales and other transactions resulting in a financial benefit to the interested stockholder. Subject to certain exceptions, an "interested stockholder" is a person who, together with his or her affiliates and associates, owns, or owned within three years prior, 15% or more of the corporation's voting stock. Our certificate of incorporation and by-laws provide for the division of the board of directors into three classes, as nearly equal in size as possible, with each class beginning its three year term in a different year. See "Management--Board of Directors." A director may be removed only for cause by the affirmative vote of the holders of at least 80% of the voting power of all of the then-outstanding shares of capital stock entitled to vote generally for the election of directors voting together as a single class. Our by-laws will also require a stockholder who intends to nominate a candidate for election to the board of directors, or to raise new business at a stockholder meeting to give at least 90 days advance notice to the Secretary. The notice provision will require a stockholder who desires to raise new business to provide us certain information concerning the nature of the new business, the stockholder and the stockholder's interest in the business matter. Similarly, a stockholder wishing to nominate any person for election as a director will need to provide us with certain information concerning the nominee and the proposing stockholder. Our certificate of incorporation empowers our board of directors, when considering a tender offer or merger or acquisition proposal, to take into account factors in addition to potential economic benefits to stockholders. These factors may include: . comparison of the proposed consideration to be received by stockholders in relation to the then current market price of AirGate's capital stock, the estimated current value of AirGate in 76 a freely negotiated transaction and the estimated future value of AirGate as an independent entity; and . the impact of a transaction on our employees, suppliers and clients and its effect on the communities in which we operate. The provisions described above could make it more difficult for a third party to acquire control of AirGate and, furthermore, could discourage a third party from making any attempt to acquire control of AirGate. Our certificate of incorporation provides that any action required or permitted to be taken by the stockholders of AirGate may be taken only at a duly called annual or special meeting of the stockholders, and that special meetings may be called only by resolution adopted by a majority of the board of directors, or as otherwise provided in the bylaws. These provisions could have the effect of delaying until the next annual stockholders meeting stockholder actions that are favored by the holders of a majority of the outstanding voting securities. These provisions may also discourage another person or entity from making an offer to stockholders for the common stock. This is because the person or entity making the offer, even if it acquired a majority of the outstanding voting securities of AirGate, would be unable to call a special meeting of the stockholders and would further be unable to obtain unanimous written consent of the stockholders. As a result, any meeting as to matters they endorse, including the election of new directors or the approval of a merger, would have to wait for the next duly called stockholders meeting. The DGCL provides that the affirmative vote of a majority of the shares entitled to vote on any matter is required to amend a corporation's certificate of incorporation or by-laws, unless the corporation's certificate of incorporation or by-laws, as the case may be, requires a greater percentage. Our certificate of incorporation requires the affirmative vote of the holders of at least 80% of the outstanding voting stock to amend or repeal any of the provisions of the certificate of incorporation described above. The 80% vote is also required to amend or repeal any of our by-law provisions described above. The by-laws may also be amended or repealed by the board of directors. The 80% stockholder vote would be in addition to any separate vote that each class of preferred stock is entitled to that might in the future be required in accordance with the terms of any preferred stock that might be outstanding at the time any amendments are submitted to stockholders. Transfer Agent and Registrar The transfer agent and registrar for the common stock is American Stock Transfer & Trust Company. Listing Application has been made to list the shares of common stock on the Nasdaq National Market under the symbol "PCSA." SHARES ELIGIBLE FOR FUTURE SALE Prior to this offering, there has been no market for the common stock. Future sales of substantial amounts of common stock in the public market could adversely affect market prices of the common stock prevailing from time to time. Furthermore, because only a limited number of shares will be available for sale shortly after the consummation of this offering due to certain contractual and legal restrictions on resale, as described below, sales of substantial amounts of common stock in the public 77 market after the restrictions lapse could adversely affect the prevailing market price of the common stock and our ability to raise equity capital in the future. Upon completion of this offering, we will have outstanding an aggregate of 11,261,493 shares of common stock, assuming no exercise of the underwriters' over-allotment option, and no exercise of outstanding exercisable warrants for an aggregate of 243,001 shares at March 31, 1999, and based upon the number of shares outstanding as of July 9, 1999. Of these shares, all of the shares sold in this offering will be freely tradeable without restriction or further registration under the Securities Act, except that any shares purchased by our affiliates may generally only be sold in compliance with the limitations of Rule 144 described below. Sales of Restricted Shares; Options All of the shares of common stock sold in this offering will be freely tradeable under the Securities Act, unless purchased by our "affiliates," as the Securities Act defines that term. In general, under Rule 144 as currently in effect, a person or persons whose shares are aggregated, including an affiliate, who has beneficially owned restricted stock for at least one year is entitled to sell, within any three-month period, a number of such shares that does not exceed the greater of: .one percent of the then outstanding shares of common stock, or . the average weekly trading volume in the common stock during the four calendar weeks preceding the date on which notice of such sale is filed. In addition, under Rule 144(k), a person who is not an affiliate and has not been an affiliate for at least three months prior to the sale and who has beneficially owned shares of restricted stock for at least two years may resell such shares without compliance with the foregoing requirements. In meeting the one and two year holding periods described above, a holder of restricted stock can include the holding periods of a prior owner who was not an affiliate. Additional shares of common stock are available for future grants under our stock option plan. See "Management--1999 Stock Option Plan." We intend to file one or more registration statements on Form S-8 under the Securities Act to register all shares of common stock subject to outstanding stock options and common stock issuable pursuant to our stock option plans that do not qualify for an exemption under Rule 701 from the registration requirements of the Securities Act. We expect to file these registration statements as soon as practicable following the closing of this offering, and such registration statements are expected to become effective upon filing. Shares covered by these registration statements will thereupon be eligible for sale in the public markets subject to the lock-up agreements, to the extent applicable. Lock-up Agreements We and all of our current stockholders, members of senior management and directors have agreed, pursuant to the lock-up agreements that, during the period beginning from the date of this prospectus and continuing and including the date 180 days after the date of this prospectus, they will not, directly or indirectly offer, pledge, sell, contract to sell, grant any option, right or warrant to purchase, or otherwise dispose of any shares of common stock, including but not limited to any common stock or securities convertible into or exercisable or exchangeable for common stock which may be deemed to be beneficially owned in accordance with the rules and regulations of the Securities and Exchange Commission or enter into any swap or other agreement that transfers, in 78 whole or in part, the economic consequence of ownership of common stock, or make any demand for, or exercise and right with respect to, the registration of common stock or any securities convertible into or exercisable or exchangeable for common stock, without the prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation. Following the lock-up period, shares of common stock will become eligible for sale, subject to compliance with Rule 144 of the Securities Act as described above. 79 UNDERWRITING We and the underwriters named below have entered into an underwriting agreement covering the common stock to be offered in this offering. Donaldson, Lufkin & Jenrette Securities Corporation, SG Cowen Securities Corporation and The Robinson-Humphrey Company, LLC are acting as representatives of the underwriters. Each underwriter has agreed to purchase the number of shares of common stock set forth opposite its name in the following table.
Underwriters: Number of shares Donaldson, Lufkin & Jenrette Securities Corporation........ SG Cowen Securities Corporation............................ The Robinson-Humphrey Company, LLC......................... --------- Total.................................................... 6,666,667 =========
The underwriting agreement provides that if the underwriters take any of the shares set forth in the table above, then they must take all of these shares. No underwriter is obligated to take any shares allocated to a defaulting underwriter except under limited circumstances. The underwriters are offering the shares of common stock, subject to the prior sale of such shares, and when, as and if such shares are delivered to and accepted by them. The underwriters will initially offer to sell shares to the public at the initial public offering price set forth on the cover page of this prospectus. The underwriters may also sell shares to securities dealers at a discount of up to $ per share from the initial public offering price. Any such securities dealers may resell shares to certain other brokers or dealers at a further discount of up to $ per share. After the initial public offering, the underwriters may change the public offering price and other selling terms. The underwriters do not intend to confirm sales to any accounts over which they exercise discretionary authority. If the underwriters sell more shares than the total number set forth in the table above, the underwriters have the option to buy up to an additional shares of common stock from AirGate to cover such sales. They may exercise this option during the 30-day period from the date of this prospectus. If any shares are purchased with this option, the underwriters will purchase shares in approximately the same proportion as set forth in the table above. The following table shows the per share and total underwriting discounts and commissions that AirGate will pay to the underwriters. These amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase additional shares.
Paid by AirGate ------------------------- No exercise Full exercise Per share......................................... $ $ ---- ---- Total........................................... $ $ ==== ====
We estimate that the total expenses of this offering, excluding underwriting discounts and commissions, will be $ . We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act of 1993. 80 At our request, the underwriters have reserved shares of common stock for sale at the initial public offering price to directors, officers, employees and retirees of AirGate who have expressed an interest in participating in the offering. We expect these persons to purchase no more than 5% of the common stock offered in the offering. The number of shares available for sale to the general public will be reduced to the extent such persons purchase such reserved shares. The underwriters will offer unpurchased reserved shares to the general public on the same basis as the other offered shares. We and all of our current stockholders, members of senior management and directors have agreed that, for a period of 180 days from the date of this prospectus, we will not, without the prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation, do either of the following: . offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock; or . enter into any swap or other arrangement that transfers all or a portion of the economic consequences associated with the ownership of any common stock. In addition, during such period, we have also agreed not to file any registration statement with respect to, and each of our executive officers and directors and several of our shareholders have agreed not to make any demand for, or exercise any right with respect to, the registration of any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock without the prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation. Either of the foregoing transaction restrictions will apply regardless of whether a covered transaction is to be settled by the delivery of common stock or such other securities, in cash or otherwise. Application has been made to list the common stock on the Nasdaq National Market under the symbol "PCSA." In order to meet the requirements for listing the common stock on the Nasdaq National Market, the underwriters have undertaken to sell lots of 100 to a minimum of 400 beneficial owners. Other than in the United States, no action has been taken by AirGate or the underwriters that would permit a public offering of the shares of common stock included in this offering in any jurisdiction where action for that purpose is required. The shares included in this offering may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisement in connection with the offer and sale of any such shares be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of such jurisdiction. This prospectus is not an offer to sell or a solicitation of an offer to buy any shares of common stock included in this offering in any jurisdiction where that would not be permitted or legal. We expect that delivery of the shares will be made to investors on or about , 1999. The underwriters may purchase and sell shares of common stock in the open market in connection with this offering. These transactions may include short sales, stabilizing transactions and 81 purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in the offering. Stabilizing transactions consist of certain bids or purchases made for the purpose of preventing or slowing a decline in the market price of the common stock while the offering is in progress. The underwriters may also impose a penalty bid, which means that an underwriter must repay to the other underwriters a portion of the underwriting discount received by it. An underwriter may be subject to a penalty bid if the representatives of the underwriters, while engaging in stabilizing or short covering transactions, repurchase shares sold by or for the account of that underwriter. These activities may stabilize, maintain or otherwise affect the market price of the common stock. As a result, the price of the common stock may be higher than the price that otherwise might exist in the open market. If the underwriters commence these activities, they may discontinue them at any time. The underwriters may carry out these transactions on the Nasdaq National Market, in the over-the-counter market or otherwise. Donaldson, Lufkin & Jenrette Securities Corporation is also acting as underwriter under our concurrent offering of senior subordinated discount notes, for which they will receive fees customary for performing such services. In addition, we intend to engage Donaldson, Lufkin & Jenrette Securities Corporation to serve as our financial advisor in the negotiation of our proposed vendor equipment financing, for which they would receive fees customary for performing such services. Pricing of this Offering Prior to this offering, there has been no public market for our common stock. Consequently, the initial public offering price for our common stock was determined by negotiation among us and the representatives of the underwriters. Among the factors considered in determining the public offering price were: . prevailing market conditions; . our results of operations in recent periods; . the present stage of our development; . the market capitalization and stages of development of other companies which the representatives of the underwriters believe to be comparable to us; and . estimates of our business potential. 82 LEGAL MATTERS Certain legal matters in connection with the sale of the shares of common stock offered hereby will be passed upon for AirGate by Patton Boggs LLP, Washington D.C. and for the underwriters by Skadden, Arps, Slate, Meagher & Flom (Illinois), Chicago, Illinois. EXPERTS The consolidated financial statements of AirGate PCS, Inc. and subsidiaries and predecessors as of December 31, 1998 and 1997, and for each of the years in the three-year period ended December 31, 1998, have been included herein and in the registration statement in reliance upon the report of KPMG LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. The report of KPMG LLP contains an explanatory paragraph that states that AirGate has incurred recurring losses from operations and has a working capital and an accumulated deficit that raise substantial doubt about its ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of that uncertainty. AVAILABLE INFORMATION We have filed with the Securities and Exchange Commission a registration statement on Form S-1 with respect to the common stock being offered by this prospectus and the senior discount notes concurrently being offered under a separate prospectus. This prospectus does not contain all of the information set forth in the registration statement. For further information about us and the common stock, see the registration statement, and its exhibits. This prospectus contains a description of the material terms and features of all material contracts, reports or exhibits to the registration statement required to be disclosed. However, as the descriptions are summaries of the contracts, reports or exhibits, we urge you to refer to the copy of each material contract, report and exhibit attached to the registration statement. Copies of the registration statement, including exhibits, may be examined without charge in the Public Reference Section of the Securities and Exchange Commission, 450 Fifth Street, N.W. Room 1024, Washington, DC 20549, and the Securities and Exchange Commission's Regional Offices located at 500 West Madison Street, Suite 1400, Chicago, IL 60601, and 7 World Trade Center, 13th Floor, New York, NY 10048 or on the Internet at http://www.sec.gov. You can get information about the operation of the Public Reference Room by calling the Securities and Exchange Commission at 1-800-SEC-0300. Copies of all or a portion of the registration statement can be obtained from the Public Reference Section of the Securities and Exchange Commission upon payment of prescribed fees. As a result of this offering, we will become subject to the information and reporting requirements of the Securities Exchange Act of 1934 and will be required to file periodic reports, proxy statements and other information with the Securities and Exchange Commission. Such reports, proxy statements and other information may also be inspected at the offices of Nasdaq Operations, 1735 K Street, N.W., Washington, DC 20006. 83 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AIRGATE PCS, INC. AND SUBSIDIARIES AND PREDECESSORS (A Development Stage Enterprise) Independent Auditors' Report............................................. F-2 Consolidated Balance Sheets as of December 31, 1998 and 1997............. F-3 Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996..................................................... F-4 Consolidated Statements of Stockholder's Deficit for the years ended December 31, 1998, 1997 and 1996........................................ F-5 Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996..................................................... F-6 Notes to Consolidated Financial Statements............................... F-7 Unaudited Consolidated Balance Sheet at March 31, 1999................... F-20 Unaudited Consolidated Statements of Operations for the three-month periods ended March 31, 1999 and 1998................................... F-21 Unaudited Consolidated Statements of Cash Flows for the three-month periods ended March 31, 1999 and 1998................................... F-22 Notes to Unaudited Consolidated Financial Statements..................... F-23
F-1 INDEPENDENT AUDITORS' REPORT The Board of Directors AirGate PCS, Inc.: We have audited the accompanying consolidated balance sheets of AirGate PCS, Inc. and subsidiaries and predecessors (a development stage enterprise) as of December 31, 1998 and 1997, and the related consolidated statements of operations, stockholder's deficit, and cash flows for each of the years in the three-year period ended December 31, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of AirGate PCS, Inc. and subsidiaries and predecessors (a development stage enterprise) as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1998 in conformity with generally accepted accounting principles. The accompanying consolidated financial statements have been prepared assuming that AirGate PCS, Inc. and subsidiaries and predecessors (a development stage enterprise) will continue as a going concern. As discussed in note 2 to the consolidated financial statements, AirGate PCS, Inc. and subsidiaries and predecessors have incurred recurring losses from operations and have a working capital and an accumulated deficit that raise substantial doubt about their ability to continue as a going concern. Management's plans in regard to these matters are also described in note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ KPMG LLP April 28, 1999, except for note 12(g) which is as of July 9, 1999 Atlanta, Georgia F-2 AIRGATE PCS, INC. AND SUBSIDIARIES AND PREDECESSORS (a Development Stage Enterprise) CONSOLIDATED BALANCE SHEETS
As of December 31, ------------------------- 1998 1997 ------------ ----------- Assets Current assets: Cash and cash equivalents......................... $ 2,295,614 $ 146,939 Due from AirGate Wireless, LLC (note 6)........... 378,260 -- Prepaid expenses.................................. 100,333 4,713 ------------ ----------- Total current assets............................ 2,774,207 151,652 FCC licenses, net (note 5).......................... -- 13,702,577 Property and equipment, net (note 4)................ 12,545,365 16,967 Other assets........................................ 130,915 -- ------------ ----------- $ 15,450,487 $13,871,196 ============ =========== Liabilities and Stockholder's Deficit Current liabilities: Accounts payable.................................. $ 1,449,255 $ 37,883 Accrued interest.................................. 686,707 573,746 Notes payable (note 7(a))......................... 6,000,000 2,800,000 Notes payable to affiliates (note 7(b))........... 4,965,000 465,000 Current maturities of long-term debt (note 7(c)).. 3,380,523 -- ------------ ----------- Total current liabilities....................... 16,481,485 3,876,629 Long-term debt, excluding current maturities (note 7(c)).............................................. 4,319,477 11,745,066 ------------ ----------- Total liabilities............................... $ 20,800,962 $15,621,695 ------------ ----------- Stockholder's deficit (notes 8, 9 and 12): Preferred stock, par value $.01 per share; 5,000,000 shares authorized; no shares issued and outstanding...................................... $ -- $ -- Common stock, par value $.01 per share; 25,000,000 shares authorized; 3,913,416 shares issued and outstanding at December 31, 1998 ................ 39,134 -- Additional paid-in capital........................ 6,264,811 4,711,429 Accumulated deficit............................... (11,654,420) (6,461,928) ------------ ----------- Total stockholder's deficit..................... (5,350,475) (1,750,499) ------------ ----------- Commitments and contingencies (notes 7, 8, 11 and 12) Total liabilities and equity.................... $ 15,450,487 $13,871,196 ============ ===========
See accompanying notes to consolidated financial statements. F-3 AIRGATE PCS, INC. AND SUBSIDIARIES AND PREDECESSORS (a Development Stage Enterprise) CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, ------------------------------------- 1998 1997 1996 ----------- ----------- ----------- Operating expenses: General and administrative expenses.. $(2,596,534) $(1,101,054) $(1,252,027) Depreciation and amortization........ (1,203,945) (997,761) (18,965) ----------- ----------- ----------- Operating loss..................... (3,800,479) (2,098,815) (1,270,992) Interest expense....................... (1,392,013) (817,164) (582,349) ----------- ----------- ----------- Net loss........................... $(5,192,492) $(2,915,979) $(1,853,341) =========== =========== =========== Pro forma net loss per share of common stock (note 1(f))..................... $ (1.01) ===========
See accompanying notes to consolidated financial statements. F-4 AIRGATE PCS, INC. AND SUBSIDIARIES AND PREDECESSORS (a Development Stage Enterprise) CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIT
Years ended December 31, 1998, 1997, and 1996 ----------------------------------------------------------------- Common stock Additional Total ----------------------- paid-in Accumulated stockholder's Shares Amount capital deficit deficit ---------- ---------- ---------- ------------ ------------- Balance at December 31, 1995................... -- $ -- $ 420,119 $ (1,692,608) $(1,272,489) Loan conversions (note 9(b)).................. -- -- 100,710 -- 100,710 Net loss................ -- -- -- (1,853,341) (1,853,341) ---------- ---------- ---------- ------------ ----------- Balance at December 31, 1996................... -- -- 520,829 (3,545,949) (3,025,120) Loan conversions (note 9(b)).................. -- -- 4,683,544 -- 4,683,544 Cash distribution (note 9(c)).................. -- -- (492,944) -- (492,944) Net loss................ -- -- -- (2,915,979) (2,915,979) ---------- ---------- ---------- ------------ ----------- Balance at December 31, 1997................... -- -- 4,711,429 (6,461,928) (1,750,499) Formation of AirGate PCS, Inc. (note 1(a)).. 3,913,416 39,134 (39,134) -- -- Distribution of AirGate Wireless, LLC (note 9(a)).................. -- -- 1,592,516 -- 1,592,516 Net loss................ -- -- -- (5,192,492) (5,192,492) ---------- ---------- ---------- ------------ ----------- Balance at December 31, 1998................... 3,913,416 $ 39,134 $6,264,811 $(11,654,420) $(5,350,475) ========== ========== ========== ============ ===========
See accompanying notes to consolidated financial statements. F-5 AIRGATE PCS, INC. AND SUBSIDIARIES AND PREDECESSORS (a Development Stage Enterprise) CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, -------------------------------------- 1998 1997 1996 ----------- ----------- ------------ Cash flows from operating activities: Net loss.............................. $(5,192,492) $(2,915,979) $ (1,853,341) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation and amortization....... 1,203,945 997,761 18,965 (Increase) decrease in: Due from AirGate Wireless, LLC...... (378,260) -- -- FCC deposit......................... -- -- 20,000,000 Prepaid expenses.................... (95,620) (4,713) -- Other assets........................ (130,915) 2,086,869 1,039,752 Increase (decrease) in: Accounts payable.................. 1,411,372 18,495 (95,596) Accrued interest.................. 1,006,577 587,449 640,636 ----------- ----------- ------------ Net cash (used in) provided by operating activities........... (2,175,393) 769,882 19,750,416 ----------- ----------- ------------ Cash flows from investing activities: Capital expenditures................ (5,175,932) -- -- Purchase of FCC licenses............ -- (2,936,267) -- ----------- ----------- ------------ Net cash used in investing activities..................... (5,175,932) (2,936,267) -- ----------- ----------- ------------ Cash flows from financing activities: Proceeds from notes payable......... 5,000,000 2,800,000 -- Proceeds from notes payable to affiliates......................... 5,200,000 -- -- Payments on notes payable to affiliates......................... (700,000) -- (20,000,000) Cash distribution................... -- (492,944) -- ----------- ----------- ------------ Net cash provided by financing activities..................... 9,500,000 2,307,056 (20,000,000) ----------- ----------- ------------ Net increase (decrease) in cash and cash equivalents........... 2,148,675 140,671 (249,584) Cash and cash equivalents at beginning of period............................ 146,939 6,268 255,852 ----------- ----------- ------------ Cash and cash equivalents at end of period............................... $ 2,295,614 $ 146,939 $ 6,268 =========== =========== ============ Supplemental disclosure of cash flow information--cash paid for interest.. $ 1,279,052 $ 930,125 $ -- =========== =========== ============ Supplemental disclosure of noncash investing and financing activities: Assets acquired through assumption of debt: FCC licenses........................ $ -- $11,745,066 $ -- Site acquisition and engineering costs.............................. 7,700,000 -- -- Notes payable and accrued interest converted to equity................ -- (4,683,544) (100,710) Distribution of AirGate Wireless, LLC: Accrued interest.................... (893,616) -- -- Long-term debt...................... (11,745,066) -- -- FCC licenses, net................... 12,846,166 -- -- Line of credit...................... (1,800,000) -- --
See accompanying notes to consolidated financial statements. F-6 AIRGATE PCS, INC. AND SUBSIDIARIES AND PREDECESSORS (a Development Stage Enterprise) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1998 and 1997 (1) Business, Basis of Presentation and Summary of Significant Accounting Policies (a) Business and Basis of Presentation AirGate PCS, Inc. (formerly AirGate Holding, Inc.) and subsidiaries and predecessors (collectively, the "Company") were formed for the purpose of becoming a leading provider of wireless Personal Communication Services (PCS). AirGate PCS, Inc. was formed in August 1998 to become a provider of PCS services exclusively licensed to use the Sprint PCS brand name in 20 Basic Trading Area markets located in the southeastern United States. The consolidated financial statements included herein include the accounts of AirGate PCS, Inc. and its wholly owned subsidiaries (AirGate Wireless, Inc. and AGW Leasing Co., Inc.) from their formation in August 1998 and their predecessor entities (AirGate, LLC, AirGate Wireless, LLC, and AirLink II, LLC) for all periods presented, except that AirGate Wireless, LLC has been excluded effective August 4, 1998 as described below. The financial position and results of operations of these predecessor entities have been included because of common ownership and management. All significant intercompany accounts and transactions have been eliminated in consolidation. From inception through August 1998, the predecessor entities' operating activities focused on developing a PCS business in the southeastern United States. These activities included the purchase of four Federal Communications Commission ("FCC") PCS licenses. In July 1998, the Company decided to pursue a different PCS business opportunity and signed a series of agreements with SprintCom, Inc. (the "Sprint Agreements") to build, construct and manage a PCS network that will support the offering of Sprint PCS services. As a result, upon formation of AirGate PCS, Inc. in August 1998, AirGate Wireless, LLC, which consists solely of the FCC licenses and related liabilities has been removed from the consolidated financial statements because its asset and liabilities will not be included in the continuing operations of the Company. The PCS market is characterized by significant risks as a result of rapid changes in technology, increasing competition and the cost associated with the build-out of a PCS network. The Company's continuing operations are dependent upon Sprint's ability to perform is obligations under the Sprint Agreements and the ability of the Company to raise sufficient capital to fund operating losses, to meet debt service requirements, and to complete the build-out of the PCS network. Additionally, the Company's ability to attract and maintain a sufficient customer base is critical to achieving breakeven cash flow. Changes in technology, increased competition, or the inability to obtain required financing, among other factors, could have an adverse effect on the Company's financial position and results of operations. (b) Cash and Cash Equivalents For purposes of the statement of cash flows, the Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Cash and cash equivalents includes amounts on deposit with commercial banks including a money market account. (c) FCC Licenses FCC licenses are stated at cost less accumulated amortization. Amortization is provided using the straight-line method over the estimated useful lives of ten years. F-7 AIRGATE PCS, INC. AND SUBSIDIARIES AND PREDECESSORS (a Development Stage Enterprise) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 1998 and 1997 (d) Property and Equipment Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is provided using the straight-line method over the estimated useful lives of the assets. Capitalized interest on construction activity during 1998 was not material. Asset lives are as follows:
Asset Useful life ----- ----------- Site acquisition and engineering costs........................ 10 years Computer equipment............................................ 3 years Furniture, fixtures, and office equipment..................... 5 years
(e) Income Taxes Prior to the formation of AirGate PCS, Inc. in August 1998, the predecessors of AirGate PCS, Inc. were operated as limited liability companies. As a result, income taxes were passed through to and were the responsibility of the stockholders of the predecessors. The Company uses the asset and liability method of accounting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and net operating loss and tax credit carryforwards. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in the statement of operations in the period that includes the enactment date. The Company has not provided any pro forma income tax information for periods prior to August 1998 because such information would not be significant to the accompanying consolidated financial statements. (f) Pro Forma Net Loss Per Share The Company has presented pro forma net loss per share of common stock for the year ended December 31, 1998 pursuant to SEC regulations in initial public offerings. Pro forma net loss per common share is based on the weighted-average number of common shares outstanding and potential common shares, such as those from stock options and warrants and convertible debt. The Company has used the assumed initial public offering price of $15.00 per common share for purposes of computing the effects of potential common shares. Pursuant to the rules of the Securities and Exchange Commission, potential common shares issued in the previous 12 months have been included in the computation of dilutive potential common shares as if they were outstanding for the entire period, including periods where the impact of the incremental shares is antidilutive. The Company has omitted the computations of historical earnings per share because such information is not meaningful. F-8 AIRGATE PCS, INC. AND SUBSIDIARIES AND PREDECESSORS (a Development Stage Enterprise) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 1998 and 1997 The following table summarizes information relating to the calculation of pro forma net loss per share of common stock for the year ended December 31, 1998:
1998 ----------- Net loss....................................................... $(5,192,492) Assumed conversion of notes--interest expense.................. 188,472 ----------- Adjusted net loss.............................................. $(5,004,020) =========== Weighted average common shares outstanding..................... 3,913,416 Assumed conversion of convertible notes........................ 969,313 Dilutive effect of outstanding stock warrant................... 60,750 ----------- Adjusted common shares outstanding............................. 4,943,479 =========== Pro forma net loss per common share............................ $ (1.01) ===========
(g) Revenue Recognition The Company will recognize revenue as services are performed. An affiliation fee of 8% will be withheld by Sprint on collected service revenues and recorded as an operating expense. Revenues generated from the sale of handsets and accessories and from roaming services provided to customers traveling onto our PCS network are not subject to the 8% affiliation fee. (h) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of The Company accounts for long-lived assets in accordance with the provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. This Statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. (i) Use of Estimates Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent liabilities at the dates of the consolidated balance sheets and expenses during the reporting periods to prepare these consolidated financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. (j) Start-Up Activities In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities." This statement became effective January 1, 1999 and requires that costs of F-9 AIRGATE PCS, INC. AND SUBSIDIARIES AND PREDECESSORS (a Development Stage Enterprise) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 1998 and 1997 start-up activities and organization costs be expensed as incurred. The Company has expensed all costs of start-up activities and organization costs. The adoption of this statement will not have an effect on the Company's financial position or results of operations. (2) Liquidity Since inception, the Company has been engaged in preparing business plans, raising capital and planning the build-out of its PCS network. As a result, the Company has not generated any revenues and losses from inception through December 31, 1998 have amounted to $11,654,420. Despite these negative cash flows, the Company has been able to secure financing from a variety of sources to support its development to date. These sources have included both equity and debt financing. Significant amounts of additional financing will be required to build-out the PCS network and commence commercial operations. Based on the Company's current business plan, it is estimated that more than $330 million will be required to fund capital expenditures, principal payments on short and long-term debt, and losses from operations until the Company reaches breakeven cash flow. While there is no assurance that funding will be available to execute these plans, the Company is actively seeking financing and is exploring a number of alternatives in this regard. (3) Development Stage Enterprise AirGate, LLC, the first predecessor entity of the Company, was established on June 15, 1995 (inception). The Company has devoted most of its efforts to date to activities such as preparing business plans, raising capital, and planning the build-out of its PCS network. From inception through December 31, 1998, the Company has not generated any revenues and has incurred expenses of $11,654,420, resulting in an accumulated deficit during the development stage of $11,654,420 as of December 31, 1998. (4) Property and Equipment Property and equipment consists of the following at December 31, 1998 and 1997:
1998 1997 ----------- ----------- Site acquisition and engineering costs............ $12,838,340 $ -- Computer equipment................................ 74,487 48,404 Furniture, fixtures, and office equipment......... 24,572 13,063 ----------- ----------- Total property and equipment.................... 12,937,399 61,467 Less accumulated depreciation and amortization.... 392,034 44,500 ----------- ----------- Property and equipment, net..................... $12,545,365 $ 16,967 =========== ===========
(5) FCC Licenses, Net In April 1997, the Company participated in the FCC's auction of certain PCS licenses. In connection with this auction, AirGate Wireless, LLC, a predecessor to AirGate PCS, Inc., acquired F-10 AIRGATE PCS, INC. AND SUBSIDIARIES AND PREDECESSORS (a Development Stage Enterprise) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 1998 and 1997 four F Block PCS licenses for $14,681,333 consisting of $2,936,267 in cash and installment plan notes payable to the FCC of $11,745,066. These FCC licenses are being amortized using the straight-line method over an estimated useful life of 10 years. In July 1998, the Company decided to pursue a different PCS business opportunity. As a result, upon formation of AirGate PCS, Inc. in August 1998, AirGate Wireless, LLC, which consists solely of the FCC licenses and related liabilities has been removed from the consolidated financial statements because its assets and liabilities will not be included in the continuing operations of the Company. FCC licenses consist of the following at December 31, 1997:
1997 ----------- FCC licenses.................................................. $14,681,333 Less accumulated amortization................................. 978,756 ----------- FCC licenses, net........................................... $13,702,577 ===========
(6) Due From AirGate Wireless, LLC Effective August 4, 1998, AirGate Wireless, LLC, which consists solely of the FCC Licenses and related liabilities has been removed from the consolidated financial statements because its assets and liabilities will not be included in the continuing operations of the Company. The Company made interest payments totaling $378,260 related to these liabilities on behalf of AirGate Wireless, LLC subsequent to this distribution. The Company has established an amount due from AirGate Wireless, LLC which is expected to be paid with proceeds from the sale of the FCC licenses by AirGate Wireless, LLC. (7) Notes Payable and Long-Term Debt (a) Notes Payable consist of the following at December 31, 1998 and 1997:
1998 1997 ----------- ----------- Note payable to bank under revolving line of credit facility; interest at prime plus 1% due monthly (10.25% at December 31, 1997); matures on May 1, 1999; guaranteed by affiliates (note 9(a))............................................ $ -- $ 1,800,000 Note payable to bank; interest at prime plus .5% due monthly (8.25% and 9.75% at December 31, 1998 and 1997, respectively); principal due in a single payment on May 9, 1999; guaranteed by affiliates (see note 12(e))...................... 1,000,000 1,000,000 Secured promissory note, dated November 25, 1998, interest at 9.5%; interest and principal due at the earlier of: (1) the first drawdown on the proposed vendor equipment financing or (2) June 30, 1999......................................... 5,000,000 -- ----------- ----------- $ 6,000,000 $ 2,800,000 =========== ===========
In November 1998, an equipment vendor loaned $5 million to the Company under a secured promissory note. The proceeds of the loan are intended to finance the purchase of products and F-11 AIRGATE PCS, INC. AND SUBSIDIARIES AND PREDECESSORS (a Development Stage Enterprise) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 1998 and 1997 services from the vendor and to satisfy short-term working capital needs of the Company, approved by the vendor consisting of engineering, network construction, switch site improvements, network equipment and collocation expenses. The $5 million secured promissory note payable to the vendor is secured by all assets of the Company. Additionally, the Company entered into a secured equipment loan note for $10 million with the equipment vendor which may be used solely to finance the purchase of its products and services. At December 31, 1998, no amounts were outstanding related to the equipment loan note. (b) Notes Payable to Affiliates consist of the following at December 31, 1998 and 1997:
1998 1997 ----------- ----------- Notes payable to affiliates dated June 11, 1996; interest at 8%; payable based upon the occurrence of an equity financing or June 11, 1999.......... $ 150,000 $ 150,000 Notes payable to affiliates dated June 11, 1996; interest at 8%; due and payable at maturity; matures in conjunction with a merger or sale of the Company or June 11, 1999..................... -- 135,000 Note payable to an affiliate dated September 27, 1996; interest at 8%; due and payable at maturity; payable or convertible on August 8, 1998............................................. -- 180,000 Convertible promissory notes payable to affiliates dated August 8, 1998; interest at 8%; principal and interest due on September 18, 1999 (see note 12(d))........................................... 4,815,000 -- ----------- ----------- $ 4,965,000 $ 465,000 =========== ===========
The convertible promissory notes payable to affiliates have a face value of $4,815,000 at December 31, 1998 and mature at September 18, 1999, unless converted earlier. The notes are convertible into preferred or common stock at any time at the option of the holder and automatically convert upon the closing of the first equity financing in which AirGate PCS, Inc. sells shares of its equity securities for an aggregate consideration of at least $70,000,000 and at a premoney valuation of AirGate PCS, Inc. of at least $50,000,000 (see note 12(e)). In March and April 1999, the Company received an additional $1.5 million of short-term financing in the form of convertible notes from affiliates. All notes bear interest at 8%, are payable upon demand and automatically convert into shares of common stock at a 48% discount upon the Initial Public Offering of AirGate PCS, Inc. F-12 AIRGATE PCS, INC. AND SUBSIDIARIES AND PREDECESSORS (a Development Stage Enterprise) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 1998 and 1997 (c) Long-Term Debt consists of the following at December 31, 1998 and 1997:
1998 1997 ----------- ----------- FCC installment plan notes dated April 28, 1997; interest payments at 6.25% due in eight equal quarterly payments beginning July 31, 1998 and ending April 30, 2000; principal and interest payments of $469,207 are due quarterly beginning July 28, 1999 until January 28, 2007............ $ -- $11,745,066 Unsecured promissory note dated July 22, 1998; interest at 14%; principal and interest payments of $1,120,170 due quarterly commencing March 1, 1999 and ending December 1, 2000 (see note 12(f)).......................................... 7,700,000 -- ----------- ----------- Total long-term debt........................... 7,700,000 11,745,066 Less current maturities.......................... 3,380,523 -- ----------- ----------- Long-term debt, excluding current maturities... $ 4,319,477 $11,745,066 =========== ===========
As of December 31, 1998, management believes the Company is in compliance with all outstanding debt covenants. Failure of the Company to obtain additional financing during 1999 on a timely basis could result in the inability of the Company to meet its future debt service requirements. Aggregate minimum annual principal payments due on long-term debt for the next two years at December 31, 1998 are as follows:
Years ending December 31, ------------ 1999........................................................... $3,380,523 2000........................................................... 4,319,477 ---------- Total long-term debt......................................... $7,700,000 ==========
(8) Commitments (a) Lease Commitments The Company is obligated under noncancelable operating lease agreements for office space and cell sites. Future minimum annual lease payments under these noncancelable operating lease agreements for the next five years and in the aggregate are as follows:
Year ending December 31, ------------ 1999.......................................................... $ 594,736 2000.......................................................... 641,622 2001.......................................................... 612,217 2002.......................................................... 465,345 2003.......................................................... 365,422 Thereafter.................................................... 548,346 ---------- Total future minimum annual lease payments.................. $3,227,688 ==========
F-13 AIRGATE PCS, INC. AND SUBSIDIARIES AND PREDECESSORS (a Development Stage Enterprise) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 1998 and 1997 The Company made lease payments to a related party for office space. A written lease agreement does not exist; however, the payments are $6,000 per month and $60,000 was paid to this related party for the year ended December 31, 1998. The Company believes that the terms of this related party lease arrangement are comparable to terms that the Company could have obtained with an unrelated third party. Rental expense for all operating leases was $292,842, $44,134, and $24,291 for the years ended December 31, 1998, 1997, and 1996, respectively. The Company has entered into a Master Site Lease Agreement with BellSouth Personal Communications, Inc. whereby the Company has the right to lease tower space for the Company's communications and network equipment. The Company paid $100,000 in August 1998 to BellSouth for reimbursement of preparation and processing of the tower sites. In addition, the Company has paid $80,000 through December 31, 1998 in prepaid rent in order to exercise its right of first refusal to lease four tower sites. Future minimum annual lease payments under this arrangement, excluding one-time site cost reimbursements not to exceed $10,000 per site, as of December 31, 1998 are as follows: 1999............................................................. $ 80,000 2000............................................................. 80,000 2001............................................................. 80,000 2002............................................................. 80,000 2003............................................................. 80,000 Thereafter....................................................... 480,000 -------- Total future minimum annual lease payments..................... $880,000 ========
(b) Employment Commitment On April 9, 1999, the Company entered into an employment agreement with Thomas Dougherty, the Company's new president and chief executive officer. This agreement included a stock option grant, which allows Mr. Dougherty the option to purchase a total number of shares equal to 2.0% of the fully diluted common shares of AirGate PCS, Inc. The exercise price will equal the fair market value on the date of grant and the options will be awarded no later than May 31, 1999. Twenty-five percent of these options will vest on April 15, 1999, and the remaining options will vest quarterly over a five year period beginning April 15, 1999. None of these shares will vest if Mr. Dougherty voluntarily terminates his employment with the Company prior to April 15, 2000. Additionally, if the Company successfully completes an Initial Public Offering or private placement offering in which at least $50,000,000 in new equity funds are raised before April 15, 2000, the Company agrees to award an additional option to Mr. Dougherty so that, after such financing he will continue to hold stock options equal to 2% of the number of shares outstanding. F-14 AIRGATE PCS, INC. AND SUBSIDIARIES AND PREDECESSORS (a Development Stage Enterprise) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 1998 and 1997 (9) Stockholder's Deficit (a) Distribution of AirGate Wireless, LLC In July 1998, the Company decided to pursue a different PCS business opportunity. As a result, upon formation of AirGate PCS, Inc. on August 4, 1998, AirGate Wireless, LLC, which consists solely of the FCC licenses and related liabilities, has been removed from the consolidated financial statements because its assets and liabilities will not be included in the continuing operations of the Company. These assets and liabilities included the FCC licenses, net, FCC installment plan notes payable, a revolving line of credit with a commercial bank, and related accrued interest with carrying values of $12,846,166, $11,745,066, $1,800,000, and $893,616 at August 4, 1998, respectively. (b) Loan Conversions During the years ended December 31, 1997 and 1996, $4,683,544 and $110,710, respectively, of notes payable to affiliates including accrued interest were converted to additional paid-in capital in accordance with the respective terms of the note agreements. (c) Cash Distribution During the years ended December 31, 1997 and 1996, the affiliates agreed to convert an outstanding note to additional paid-in capital as described under loan conversions above. During the year ended December 31, 1997, in connection with the purchase of FCC licenses, the Company received a refund of $492,944 from the FCC which the Company paid to the affiliates in the form of a cash distribution. (d) Stock Purchase Warrants In August 1998, the Company issued stock purchase warrants to the affiliates in consideration for: (1) loans made by the affiliates to the Company which have been converted to additional paid-in capital, (2) guarantees of certain bank loans provided by the affiliates, and (3) in connection with the $4,815,000 in convertible debt financing provided by the affiliates. The warrants enabled the holders to purchase either preferred stock or common stock. The number of shares available for purchase under the terms of the warrants was based upon a predetermined formula which considered the amount of financing provided or guaranteed and the price per share received by the Company in the next financing round. The exercise price under the terms of the warrants would equal the price per share received by the Company in the next financing round and the warrants were exercisable for five years. All of these warrants were cancelled in connection with the debt consolidation described in note 12(d). The Company has not reflected the fair value of the warrants as a charge to interest expense because such amount was not significant. F-15 AIRGATE PCS, INC. AND SUBSIDIARIES AND PREDECESSORS (a Development Stage Enterprise) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 1998 and 1997 (e) Preferred Stock The Company's articles of incorporation authorize the Company's Board of Directors to issue up to 5 million shares of preferred stock without shareholder approval. The Company has no present plans to issue any preferred stock. (10) Income Taxes Prior to the formation of AirGate PCS, Inc. in August 1998, the predecessors of the Company were operated as limited liability companies. As a result, income taxes were passed through to and were the responsibility of the stockholders of the predecessors. The Company has not provided any pro forma income tax information for periods prior to August 1998 because such information would not be significant to the accompanying consolidated financial statements. The provision for income taxes includes income taxes currently payable and those deferred because of temporary differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future and any increase or decrease in the valuation allowance for deferred income tax assets. Income tax expense (benefit) for the year ended December 31, 1998 differed from the amount computed by applying the statutory U.S. Federal income tax rate of 34% to loss before income taxes as a result of the following:
1998 ----------- Computed "expected" tax expense............................. $(1,765,447) Expense related to LLC predecessors......................... 568,939 State and local income taxes, net of Federal income tax effect..................................................... (187,416) Increase in valuation allowance............................. 1,893,093 Benefit derived from contribution of tax assets............. (414,993) Other, net.................................................. (94,176) ----------- Total income tax expense (benefit)........................ $ -- ===========
The income tax effects of temporary differences that give rise to the Company's deferred income tax assets as of December 31, 1998 are as follows:
1998 ----------- Deferred income tax assets: Net operating loss carryforwards.......................... $ 302,085 Capitalized start-up costs................................ 1,381,634 Accrued expenses.......................................... 28,702 Property and equipment due to differences in depreciation and amortization......................................... 180,672 ----------- Gross deferred income tax asset......................... 1,893,093 Less valuation allowance.................................. (1,893,093) ----------- Net deferred income tax asset........................... $ -- ===========
F-16 AIRGATE PCS, INC. AND SUBSIDIARIES AND PREDECESSORS (a Development Stage Enterprise) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 1998 and 1997 In assessing the realizability of deferred income tax assets, management considers whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the projected future taxable income and tax planning strategies in making this assessment. The increase in deferred income tax assets and the increase in the valuation allowance for the net deferred income tax assets for the year ended December 31, 1998 was $1,893,093. Deferred income tax assets and liabilities are recognized for differences between the financial statement carrying amounts and the tax basis of assets and liabilities which result in future deductible or taxable amounts and for net operating loss and tax credit carryforwards. A valuation allowance has been provided because the realization of deferred income tax assets is uncertain. As of December 31, 1998, the Company has net operating loss carryforwards of approximately $750,000, which will expire in the year 2018. (11) Year 2000 The year 2000 issue arises as the result of computer programs having been written, and systems having been designed, using two digits rather than four to define the applicable year. Consequently, such software has the potential to recognize a date using the "00" as the year 1900, rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. The Company believes that its own computer systems and software are year 2000 compliant. To the extent that the Company implements its own computer systems and software in the future, the Company will assess year 2000 compliance prior to their implementation. The Company has not incurred any costs relating to the year 2000 compliance. In the process of designing and constructing its PCS network, the Company has entered into material agreements with several third- party vendors. The Company relies on these vendors for all important operating, computer and non-information technology systems. Therefore, the Company is highly dependent on Sprint PCS and other vendors for remediation of their network elements, computer systems, software applications and other business systems. The Company will purchase critical back office services from Sprint PCS such as billing, customer care, home location registration, intelligent network capabilities and directory and operator assistance. The Company's network infrastructure equipment will be contractually provided by a third- party vendor with whom the Company has a material relationship. If either Sprint PCS or this third-party vendor fail to become year 2000 compliant, the Company's ability to commence operations may be materially delayed. The Company has contacted its third-party vendors and believe that they will be year 2000 compliant. However, the Company has no contractual or other right to compel compliance by them. The Company does not expect to commence operations until the first quarter of 2000. Because of its reliance on third-party vendors, the Company believes that the impact of issues relating to year F-17 AIRGATE PCS, INC. AND SUBSIDIARIES AND PREDECESSORS (a Development Stage Enterprise) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 1998 and 1997 2000 compliance, if any, would result in a delay in launching commercial PCS operations and not a disruption in service. Therefore, the Company has not developed a contingency plan and does not expect to do so. (12) Subsequent Events (Unaudited) (a) On May 14, 1999, the Board of Directors amended the Articles of Incorporation of AirGate Holding, Inc. to change its name to AirGate PCS, Inc. and to increase the number of authorized shares of common stock from 20,000 to 20,000,000 shares and the number of authorized shares of preferred stock from 5,000 to 5,000,000 shares. (b) In May 1999, the Company received an additional $1.0 million of short- term financing in the form of convertible notes from affiliates. All notes bear interest at 8%, are payable upon demand, and automatically convert into shares of common stock at a 48% discount upon the Initial Public Offering of AirGate PCS, Inc. (c) The Company expects to file a registration statement for an equity and debt financing in May 1999. The Company has selected Donaldson, Lufkin & Jenrette ("DLJ") to lead an initial public offering to raise $100 million in equity financing and $150 million in proceeds from the issuance of senior discount notes due 2009. The Company plans to utilize the proceeds from the aforementioned offerings to build-out its PCS network, to fund the Company's anticipated operating losses while completing the network build-out, and to pay-off a $1 million note payable to bank and $7.7 million in long-term debt. (d) In May 1999, the Company consolidated the convertible notes payable to affiliates issued to the Weiss, Peck & Greer Venture Partners affiliated funds in 1998 and 1999 for a total of $3.167 million into two subordinated promissory notes that will be converted into shares of common stock concurrently with completion of the Initial Public Offering at a 48% discount upon the Initial Public Offering. The stock purchase warrants issued by the Company in August 1998 and held by the Weiss, Peck & Greer Venture Partners affiliated funds were terminated. In May 1999, the Company issued new warrants to the Weiss, Peck & Greer Venture Partners affiliated funds to purchase shares of common stock for an aggregate price of up to $2.75 million at a price 25% less than the price of a share of common stock sold in the Initial Public Offering. The warrants may be exercised for two years from the date of the Initial Public Offering. In May 1999, the Company consolidated the convertible notes payable to affiliates issued to the JAFCO America Ventures, Inc. affiliated funds in 1998 and 1999 for a total of $4.394 million into two subordinated promissory notes that will be converted into shares of common stock concurrently with the completion of the Initial Public Offering at a 48% discount upon the Initial Public Offering. The stock purchase warrants issued by the Company in August 1998 and held by the JAFCO America Ventures, Inc. affiliated funds were terminated. The notes described in the previous two paragraphs, which were issued with an "in the money" conversion feature, will be accounted for in accordance with EITF Issue 98-5. The amount F-18 AIRGATE PCS, INC. AND SUBSIDIARIES AND PREDECESSORS (a Development Stage Enterprise) NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) March 31, 1999 and 1998 (Unaudited) related to the beneficial conversion feature ($6,979,000) will be recognized as interest expense over the period from the date of issuance to the date of conversion. If the Initial Public Offering is not completed, the Company is required to repay these new convertible notes one year after their issuance, subject to the prior repayment of the senior debt. (e) On May 13, 1999, the Company obtained a loan modification agreement for its $1 million note payable to bank to extend the maturity date from May 9, 1999 to August, 9, 1999. (f) On May 12, 1999 the Company obtained a loan modification agreement to defer the initial principal and interest payment due on the Company's $7.7 million long-term debt arrangement from March 1, 1999, to August 31, 1999. (g) On July 9, 1999 the Board of Directors declared a 39,134-for-one stock split on the Company's common stock and amended the Articles of Incorporation of AirGate PCS, Inc. to increase the number of authorized shares of common stock from 20,000,000 to 25,000,000 shares. Common stock and additional paid-in capital have been restated to reflect this split. F-19 AIRGATE PCS, INC. AND SUBSIDIARIES AND PREDECESSORS (a Development Stage Enterprise) CONSOLIDATED BALANCE SHEET (Unaudited)
As of March 31, 1999 ------------ Assets Current assets: Cash and cash equivalents...................................... $ 446,669 Due from AirGate Wireless, LLC................................. 430,669 Prepaid expenses............................................... 100,000 ------------ Total current assets......................................... 977,338 Property and equipment, net...................................... 13,675,693 Other assets..................................................... 130,915 ------------ $ 14,783,946 ============ Liabilities and Stockholder's Deficit Current liabilities: Accounts payable............................................... $ 1,365,222 Accrued interest............................................... 1,184,236 Notes payable.................................................. 6,000,000 Notes payable to affiliates.................................... 5,465,000 Current maturities of long-term debt........................... 4,405,326 ------------ Total current liabilities.................................... 18,419,784 Long-term debt, excluding current maturities..................... 3,294,674 ------------ Total liabilities............................................ 21,714,458 ------------ Stockholder's deficit: Preferred stock, par value $.01 per share; 5,000,000 shares authorized; no shares issued and outstanding.................. -- Common stock, par value $.01 per share; 20,000,000 shares authorized; 3,913,416 shares issued and outstanding at March 31, 1999...................................................... 39,134 Additional paid-in capital..................................... 6,264,811 Accumulated deficit............................................ (13,234,457) ------------ Total stockholder's deficit.................................. (6,930,512) ------------ $ 14,783,946 ============
See accompanying notes to unaudited consolidated financial statements. F-20 AIRGATE PCS, INC. AND SUBSIDIARIES AND PREDECESSORS (a Development Stage Enterprise) CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
For the Three-Month Periods Ended March 31, ------------------------ 1999 1998 ----------- ----------- Operating expenses: General and administrative expenses................ $ (369,053) $ (148,726) Depreciation and amortization...................... (467,028) (374,536) ----------- ----------- Operating loss................................... (836,081) (523,262) Interest expense..................................... (743,956) (417,226) ----------- ----------- Net loss......................................... $(1,580,037) $ (940,488) =========== =========== Pro forma net loss per share of common stock......... $ (0.30) ===========
See accompanying notes to unaudited consolidated financial statements. F-21 AIRGATE PCS, INC. AND SUBSIDIARIES AND PREDECESSORS (a Development Stage Enterprise) CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For the Three-Month Periods Ended March 31, ----------------------- 1999 1998 ----------- ---------- Cash flows from operating activities: Net loss............................................. $(1,580,037) $ (940,488) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization...................... 467,028 374,536 (Increase) decrease in: Due from AirGate Wireless, LLC................... (52,409) -- Prepaid Expenses................................. 333 621 Increase (decrease) in: Accounts payable................................. (84,033) 44,666 Accrued interest................................. 497,529 196,087 ----------- ---------- Net cash used in operating activities.......... (751,589) (324,578) ----------- ---------- Cash flows from investing activities: Capital expenditures............................. (1,597,356) (13,705) ----------- ---------- Net cash used in investing activities.......... (1,597,356) (13,705) ----------- ---------- Cash flows from financing activities: Proceeds from notes payable to affiliates........ 500,000 215,000 ----------- ---------- Net cash provided by financing activities...... 500,000 215,000 ----------- ---------- Net decrease in cash and cash equivalents...... (1,848,945) (123,283) Cash and cash equivalents at beginning of period..... 2,295,614 146,939 ----------- ---------- Cash and cash equivalents at end of period........... $ 446,669 $ 23,656 =========== ========== Supplemental disclosure of cash flow information-- cash paid for interest.............................. $ 298,838 $ 221,139 =========== ==========
See accompanying notes to unaudited consolidated financial statements. F-22 AIRGATE PCS, INC. AND SUBSIDIARIES AND PREDECESSORS (a Development Stage Enterprise) NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS March 31, 1999 and 1998 (Unaudited) (1) Basis of Presentation The accompanying unaudited consolidated financial statements represent the accounts of AirGate PCS, Inc. and subsidiaries and predecessors (collectively, the "Company"). These unaudited consolidated financial statements have been prepared in accordance with instructions for preparing interim financial information and, therefore, do not include all information and footnotes necessary for a fair presentation of financial position, results of operations, and cash flows in conformity with generally accepted accounting principles. All adjustments, consisting of normal recurring accruals, which, in the opinion of management, are necessary to a fair presentation of financial position and results of operations have been included. The accompanying unaudited consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and related notes appearing elsewhere herein. (2) Development Stage Enterprise AirGate, LLC, the first predecessor entity of the Company, was established on June 15, 1995 (inception). The Company has devoted most of its efforts to date to activities such as preparing business plans, raising capital, and planning the build-out of its PCS network. From inception through March 31, 1999, the Company has not generated any revenues and has incurred expenses of $13,234,457, resulting in an accumulated deficit during the development stage of $13,234,457 as of March 31, 1999. (3) Pro Forma Net Loss Per Share The Company has presented pro forma net loss per share of common stock pursuant to SEC regulations in initial public offerings. Pro forma net loss per common share is based on the weighted-average number of common shares outstanding and potential common shares, such as those from stock options and warrants and convertible debt. The Company has used the assumed initial public offering price of $15.00 per common share for purposes of computing the effects of potential common shares. Pursuant to the rules of the Securities and Exchange Commission, potential common shares issued in the previous 12 months have been included in the computation of dilutive potential common shares as if they were outstanding for the entire period, including periods where the impact of the incremental shares is antidilutive. The Company has omitted the computations of historical earnings per share because such information is not meaningful. F-23 The following table summarizes information relating to the calculation of pro forma net loss per share of common stock for the three-month period ended March 31, 1999:
3/31/99 ----------- Net loss..................................................... $(1,580,037) Assumed conversion of notes--interest expense.............. 100,136 ----------- Adjusted net loss............................................ $(1,479,901) =========== Weighted average common shares outstanding................... 3,913,416 Assumed conversion of convertible notes...................... 969,313 Dilutive effect of outstanding stock warrants................ 60,750 ----------- Adjusted common shares outstanding........................... 4,943,479 =========== Pro forma net loss per common share.......................... (0.30) ===========
(4) Subsequent Events (a) On May 14, 1999, the Board of Directors amended the Articles of Incorporation of AirGate Holding, Inc. to change its name to AirGate PCS, Inc. and to increase the number of authorized shares of common stock from 20,000 to 20,000,000 shares and the number of authorized shares of preferred stock from 5,000 to 5,000,000 shares. (b) In May 1999, the Company received an additional $1.0 million of short- term financing in the form of convertible notes from affiliates. All notes bear interest at 8%, are payable upon demand, and automatically convert into shares of common stock at a 48% discount upon the Initial Public Offering of AirGate PCS, Inc. (c) The Company expects to file a registration statement for an equity and debit financing in May 1999. The Company has selected Donaldson, Lufkin & Jenrette to lead an initial public offerings to raise $100 million in equity financing and $150 million in proceeds from the issuance of senior discount notes due 2009. The Company plans to utilize the proceeds from the aforementioned offerings to build-out its PCS network, to fund the Company's anticipated operating losses while completing the network build-out, and to pay-off a $1 million note payable to bank and $7.7 million in long-term debt. (d) In May 1999, the Company consolidated the convertible notes payable to affiliates issued to the Weiss, Peck & Greer Venture Partners affiliated funds in 1998 and 1999 for a total of $3.167 million into two subordinated promissory notes that will be converted into shares of common stock concurrently with completion of the Initial Public Offering at a 48% discount upon the Initial Public Offering. The stock purchase warrants issued by the Company in August 1998 and held by the Weiss, Peck & Greer Venture Partners affiliated funds were terminated. In May 1999, the Company issued new warrants to the Weiss, Peck & Greer Venture Partners affiliated funds to purchase shares of common stock for an aggregate price of up to $2.75 million at a price 25% less than the price of a share of common stock sold in the Initial Public Offering. The warrants may be exercised for two years from the date of the Initial Public Offering. F-24 AIRGATE PCS, INC. AND SUBSIDIARIES AND PREDECESSORS (a Development Stage Enterprise) NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) March 31, 1999 and 1998 (Unaudited) In May 1999, the Company consolidated the convertible notes payable to affiliates issued to the JAFCO America Ventures, Inc. affiliated funds for a total of $4.394 million into two subordinated promissory notes that will be converted into shares of common stock concurrently with the completion of the Initial Public Offering at a 48% discount upon the Initial Public Offering. The stock purchase warrants issued by the Company in August 1998 and held by the JAFCO America Ventures, Inc. affiliated funds were terminated. The notes described in the previous two paragraphs, which were issued with an "in the money" conversion feature, will be accounted for in accordance with EITF Issue 98-5. The amount related to the beneficial conversion feature ($6,979,000) will be recognized as interest expense over the period from the date of issuance to the date of conversion. If the Initial Public Offering is not completed, the Company is required to repay all of these new convertible notes one year after their issuance, subject to the prior repayment of the senior debt. (e) On May 13, 1999, the Company obtained a loan modification agreement for its $1 million note payable to bank to extend the maturity date from May 9, 1999 to August 9, 1999. (f) On May 12, 1999, the Company obtained a loan modification agreement to defer the initial principal and interest payments due on the Company's $7.7 million long-term debt arrangement from March 1, 1999, to August 31, 1999. (g) On July 9, 1999 the Board of Directors declared a 39,134-for-one stock split on the Company's common stock and amended the Articles of Incorporation of AirGate PCS, Inc. to increase the number or authorized shares of common stock from 20,000,000 to 25,000,000. Common stock and additional paid-in capital have been restated to reflect this split. F-25 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- , 1999 [Logo] AirGate PCS, Inc. 6,666,667 Shares of Common Stock ----------------------------------------------- PROSPECTUS ----------------------------------------------- Donaldson, Lufkin & Jenrette SG Cowen The Robinson-Humphrey Company - -------------------------------------------------------------------------------- We have not authorized any dealer, salesperson or other person to give you written information other than this prospectus or to make representations as to matters not stated in this prospectus. You must not rely on unauthorized information. This prospectus is not an offer to sell these securities or our solicitation of your offer to buy the securities in any jurisdiction where that would not be permitted or legal. Neither the delivery of this prospectus nor any of the sales made hereunder after the date of this prospectus shall create an implication that the information contained herein or our affairs have not changed since the date hereof. Until , 1999 (25 days after the date of this prospectus), all dealers that effect transactions in these securities may be required to deliver a prospectus. This is in addition to the dealer's obligation to deliver a prospectus when acting as an underwriter in this offering or when selling previously unsold allotments or subscriptions. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ + + +We will amend and complete the information in this prospectus. Although we + +are permitted by U.S. federal securities laws to offer these securities using + +this prospectus, we may not sell them or accept your offer to buy them until + +the documentation filed with the SEC relating to these securities has been + +declared effective by the SEC. This prospectus is not an offer to sell these + +securities or our solicitation of your offer to buy these securities in any + +jurisdiction where that would not be permitted or legal. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION -- July 9, 1999 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Prospectus , 1999 [AirGate Logo] AirGate PCS, Inc. $150,000,000 % Senior Subordinated Discount Notes Due 2009 - -------------------------------------------------------------------------------- AirGate PCS, Inc.: . AirGate PCS, Inc. Harris Tower Suite 1700 233 Peachtree Street, N.W. Atlanta, Georgia 30303 (404) 525-7272 The Senior Subordinated Discount Notes: . Maturity: , 2009. . Interest Payments: We are selling the senior subordinated discount notes at a substantial discount from their principal amount at maturity, and no cash interest will accrue on the senior subordinated discount notes prior to , 2004. Thereafter, we will pay interest on and commencing , 2005. . Subsidiary Guarantees: Our existing subsidiary AGW Leasing Company, Inc. and all of our future restricted subsidiaries will unconditionally guarantee the senior subordinated discount notes on a senior subordinated basis. . Security: The senior subordinated discount notes are secured by a pledge of all the capital stock of our future, directly owned subsidiaries and all intercompany notes for money owed to us by our subsidiary and future subsidiaries. These pledges will be subordinate to pledges under our senior debt. Per Note Total Price................................................... % $
This investment involves risk. See "Risk Factors" beginning on page 4. - -------------------------------------------------------------------------------- Neither the SEC nor any state securities commission has determined whether this prospectus is truthful or complete. Nor have they made, nor will they make, any determination as to whether anyone should buy these securities. Any representation to the contrary is a criminal offense. - -------------------------------------------------------------------------------- Donaldson, Lufkin & Jenrette Paribas Corporation Alternate Senior Subordinated Discount Notes Pages TABLE OF CONTENTS
Page Prospectus Summary............... 1 Risk Factors..................... 4 Forward-looking Statements....... Use of Proceeds.................. Capitalization................... Selected Financial Data.......... Management's Discussion and Analysis of Financial Condition and Results of Operations....... Industry Background.............. Business......................... The Sprint PCS Agreements........ Description of Certain Indebted- ness............................ Management.......................
Page Principal Stockholders.......... Certain Transactions............ Regulation of the Wireless Telecommunications Industry.... Description of Senior Subordinated Discount Notes.... 8 United States Federal Income Tax Consequences................... 49 Underwriting.................... 53 Legal Matters................... 54 Experts......................... Available Information........... Index to Consolidated Financial Statements..................... F-1
---------------- The prospectus includes product names, trade names and trademarks of other companies. Alternate Senior Subordinated Discount Notes Pages The Offering Issuer...................... AirGate PCS, Inc. Securities Offered.......... $ million aggregate principal amount at maturity of % senior subordinated discount notes, due 2009. We will issue the senior subordinated discount notes at a price to investors that will yield gross proceeds to us of approximately $150.0 million. Maturity Date............... , 2009. Accretion................... The aggregate accreted value of the senior subordinated discount notes will increase from $150.0 million at issuance at a rate of %, compounded semi-annually, to a final accreted value equal to their aggregate principal amount of $ million at , 2004. Interest Rate............... The senior subordinated discount notes will accrue interest at the rate of % per annum, payable semi-annually in cash in arrears on each and , commencing , 2005. Subsidiary Guarantees....... The senior subordinated discount notes will be guaranteed on a senior subordinated basis by our current subsidiary, AGW Leasing Company, Inc., and all of our future restricted subsidiaries. See "Description of Senior Subordinated Discount Notes--Brief Description of the Senior Subordinated Discount Notes and the Guarantees-- The Guarantees" and "Description of Senior Subordinated Discount Notes--Subsidiary Guarantees." Ranking..................... The senior subordinated discount notes will be: . subordinated in right of payment to all of our existing and future senior indebtedness; . equal in right of payment to all of our existing and future senior subordinated indebtedness; and . senior in right of payment to any existing and future subordinated indebtedness of AirGate. The guarantees will be unsecured obligations of the guarantors and will be: . subordinated in right of payment to any existing and future senior indebtedness of each guarantor; . equal in right of payment to such guarantor's existing and future senior subordinated indebtedness; and . senior in right of payment to any existing and future subordinated indebtedness of such guarantor. See "Description of Senior Subordinated Discount Notes--Brief Description of the Senior Subordinated Discount Notes and the Guarantees." 1 Alternate Senior Subordinated Discount Notes Pages Security.................... The senior subordinated discount notes will be secured by: . a pledge of the capital stock of all of our future, direct subsidiaries; and . a pledge of all intercompany notes payable to us. The pledge to secure the senior subordinated discount notes is junior to the pledge to secure our senior debt. See "Description of Senior Subordinated Discount Notes--Security." Optional Redemption......... On or after , 2004, we may redeem all or part of the senior subordinated discount notes at redemption prices set forth under "Description of Senior Subordinated Discount Notes--Optional Redemption," together with accrued and unpaid interest, if any, to the date of redemption. During the first 36 months after the offering of the senior subordinated discount notes, we may use the net proceeds from a public equity offering to redeem up to 35% of the accreted value of the senior subordinated discount notes originally issued at a redemption price of % of the accreted value as of the date of redemption, provided that at least 65% of the accreted value of the senior subordinated discount notes originally issued remains outstanding immediately after the redemption. See "Description of Senior Subordinated Discount Notes--Optional Redemption." Change of Control........... If we experience a change of control, we will be required to make an offer to repurchase your senior subordinated discount notes at a price equal to 101% of the accreted value, if before , 2004, or 101% of the aggregate principal amount thereafter, as applicable, together with accrued and unpaid interest, if any, to the date of repurchase. See "Description of Senior Subordinated Discount Notes--Repurchase at the Option of Holders--Change in Control." Restrictive Covenants....... The indenture governing the senior subordinated discount notes will contain covenants that, among other things, will limit our ability and the ability of our subsidiary and certain of our future subsidiaries to: . incur additional indebtedness or issue preferred stock; . pay dividends, redeem capital stock or make other restricted payments or investments; . create liens on assets; 2 Alternate Senior Subordinated Discount Notes Pages . merge, consolidate or dispose of assets; . enter into certain transactions with affiliates; and . enter into sale and leaseback transactions. See "Description of Senior Subordinated Discount Notes--Selected Covenants." Original Issue Discount..... The senior subordinated discount notes are being issued with original issue discount for U.S. federal income tax purposes. Thus, although interest will not be payable on the senior subordinated discount notes prior to , 2005, holders will be required to include original issue discount amounts in gross income for U.S. federal income tax purposes over the term of the senior subordinated discount notes in advance of receipt of cash payments to which such income is attributable. See "United States Federal Income Tax Consequences." Use of Proceeds............. We will use: . the proceeds from the sale of the senior subordinated discount notes; . the proceeds from the concurrent sale of our common stock; and . financing provided by a vendor for the following: . capital expenditures, including the build- out of our PCS network; . working capital requirements; . funding operating losses; and . general corporate purposes. See "Use of Proceeds." Concurrent Equity Offering.................... The closing of the offering of the senior subordinated discount notes and our concurrent initial public offering of shares of common stock, under a separate prospectus, resulting in $100.0 million of gross proceeds, assuming the midpoint of the range set forth on the cover page of the prospectus relating to the common stock, are conditioned on each other. Risk Factors Investment in the senior subordinated discount notes involves a high degree of risk. See "Risk Factors" beginning on page 4 for a discussion of the material factors which should be considered by prospective investors in evaluating an investment in the senior subordinated discount notes. 3 Alternate Senior Subordinated Discount Notes Pages RISK FACTORS Investment in the senior subordinated discount notes involves a high degree of risk. In addition to the other information in this prospectus, the following factors should be considered carefully in evaluating an investment in the senior subordinated discount notes. The cautionary statements set forth below and elsewhere in this prospectus should be read in conjunction with accompanying forward-looking statements included under "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business" and elsewhere herein. Risks Related to the Offering Because the senior subordinated discount notes are subordinate to other debt that encumbers our assets, you may not be fully repaid if we become insolvent If we become insolvent, we may not have sufficient assets to make payments on amounts due on any or all of the senior subordinated discount notes or the subsidiary guarantees. The right to payment on the senior subordinated discount notes will be subordinate to all of our existing and future senior debt. Similarly, each subsidiary guarantee of the senior subordinated discount notes will be subordinate to all existing and future senior debt of the applicable guarantor. If we become bankrupt, liquidate, dissolve, reorganize or undergo a similar proceeding, our or such guarantor's assets will be available to pay obligations on the senior subordinated discount notes or the applicable guarantee only after all outstanding senior debt of such party has been paid in full. In addition, an event of a default under our senior debt may prohibit us and the guarantors of the senior subordinated discount notes from paying the senior subordinated discount notes or the guarantees of the senior subordinated discount notes. As of March 31, 1999, our outstanding vendor equipment financing, which constitutes senior debt, was $5.0 million. In addition, in June 1999, we issued a secured promissory note to this vendor for an additional $5.0 million and expect to borrow an additional $3.5 million between July 1999 and the closing of our common stock offering and the offering of the senior subordinated discount notes. Although the indenture governing the senior subordinated discount notes will limit the amount of debt we and our subsidiary and certain of our future subsidiaries may incur, we expect to incur substantial additional senior debt after July 1999, including $143.5 million of additional borrowings in vendor equipment financing. See "Description of Senior Subordinated Discount Notes" and "Description of Certain Indebtedness." Because the subsidiary guarantees will be unsecured, you may not be fully repaid under the guarantees if we become insolvent Because the guarantees of the senior subordinated discount notes will be unsecured, if we become insolvent, you may be repaid only after our senior debt is satisfied. Our senior debt is secured by liens on substantially all of our assets and those of our subsidiary and future subsidiaries. If we were to default on our senior debt, the lenders could foreclose on the collateral regardless of any default with respect to the senior subordinated discount notes. These assets would first be used to repay in full all amounts outstanding under our senior debt. Our agreements with Sprint PCS and the infrastructure equipment used in our network creates the value of our assets. These assets are highly specialized and, taken individually, have limited marketability, particularly as a result of some of the provisions in our agreements with Sprint PCS. Therefore, in a foreclosure sale, these assets are likely to be sold as an entirety, and the lender may not realize enough money to satisfy all senior debt. 4 Alternate Senior Subordinated Discount Notes Pages Holders of our senior debt will control enforcement of the pledge agreement of any of our subsidiaries' stock, and their interests may be different from yours The holders of the senior debt are given the exclusive right to control all decisions relating to the enforcement of remedies under the pledge agreement of the stock of our current and future subsidiaries. As a result, you will not be able to force a sale of the collateral securing the senior subordinated discount notes or otherwise independently pursue the remedies of a secured creditor under the pledge agreement. Our senior debtholders may have interests that are different from yours and our senior debtholders may elect not to pursue their remedies under the pledge agreement at a time when it would be advantageous for you to do so. Federal and state statutes may allow courts to void the guarantees of the senior subordinated discount notes Although the guarantees of the senior subordinated discount notes provide you with a direct claim against the assets of the applicable guarantor, creditors of a bankrupt guarantor may challenge the guarantee. If a challenge to a guarantee were upheld, then the applicable guarantee would be invalid and unenforceable, junior to all creditors, including trade creditors, of that guarantor. The creditors of a bankrupt guarantor could challenge a guarantee on the grounds that the guarantee constituted a fraudulent conveyance under bankruptcy law. If a court were to rule that the guarantee did constitute a fraudulent conveyance, then the court could void the obligations under the guarantee or subordinate the guarantee to other debt of the guarantor or take other action detrimental to holders of the senior subordinated discount notes. In addition, any of the guarantees could be subject to the claim that, since the guarantee was incurred for our benefit, and only indirectly for the benefit of our subsidiary that provided the guarantee, the obligations of the applicable guarantor were incurred for less than fair consideration. Our debt instruments contain provisions and requirements that could limit our ability to pursue borrowing opportunities The restrictions to be contained in the indenture governing the senior subordinated discount notes, and the restrictions contained in our senior debt, may limit our ability to implement our business plan, finance future operations, respond to changing business and economic conditions, secure additional financing, if needed, and engage in opportunistic transactions. Our senior debt also will restrict our ability and the ability of our subsidiary and our future subsidiaries to do the following: . create liens; . make certain payments, including payments of dividends and distributions in respect of capital stock; . consolidate, merge and sell assets; . engage in certain transactions with affiliates; and . fundamentally change our business. In addition, our senior debt will require us to maintain certain ratios, including: . leverage ratios . an interest coverage ratio; and . a fixed charges ratio 5 Alternate Senior Subordinated Discount Notes Pages and to satisfy certain tests, including tests relating to: . minimum covered population; . minimum number of subscribers to our services; and . minimum aggregate service revenue per subscriber. We may not satisfy the financial ratios and tests under our senior debt due to events that are beyond our control. If we fail to satisfy any of the financial ratios and tests, we could be in default under our senior debt, which could result in our being unable to make payments on the senior subordinated discount notes. Because the senior subordinated discount notes will be issued with original issue discount, you will have to include interest in your taxable income before you receive cash The senior subordinated discount notes will be issued at a substantial discount from their principal amount at maturity. Original issue discount, i.e., the difference between the stated redemption price at maturity of the senior subordinated discount notes, including all cash payments of principal and interest, and the issue price of the senior subordinated discount notes, will accrue from the issue date of the senior subordinated discount notes and will be included in your gross income for federal income tax purposes before you receive the cash payment of such interest. United States federal income tax law may postpone or limit our deduction of interest or original issue discount. See "United States Federal Income Tax Consequences." The bankruptcy laws may reduce your claim in the event of our insolvency If a bankruptcy case were commenced by or against us under the United States Bankruptcy Code after the issuance of the senior subordinated discount notes, your claim with respect to the principal amount of the senior subordinated discount notes may be limited to an amount equal to the sum of the initial offering price and that portion of the original issue discount that is not deemed to constitute unmatured interest for purposes of the United States Bankruptcy Code. Any original issue discount that had not amortized as of the date of the bankruptcy filing could constitute unmatured interest for purposes of the United States Bankruptcy Code. To the extent that the United States Bankruptcy Code differs from the Internal Revenue Code in determining the method of amortization of original issue discount, you may recognize taxable gain or loss upon payment of your claim in bankruptcy. If an event constituting a change in control of AirGate occurs, we may be unable to fulfill our obligation to purchase your senior subordinated discount notes Our senior debt prohibits us from purchasing any of the senior subordinated discount notes before their stated maturity. Under the indenture governing the senior subordinated discount notes, upon a change in control we will be required to make an offer to repurchase all of the senior subordinated discount notes. In the event we become subject to a change in control at a time when we are prohibited from purchasing the senior subordinated discount notes, we may seek the consent of the holders of our senior debt to purchase the senior subordinated discount notes or attempt to refinance the debt that contains the prohibition. If we do not obtain a consent or repay the senior debt, our failure to purchase the tendered senior subordinated discount notes would constitute an event of default under the indenture, which would in turn result in a default under the senior debt. Even if we obtain the consent, we cannot assure you that we will have sufficient resources to repurchase the senior subordinated discount notes following the change in control. 6 Alternate Senior Subordinated Discount Notes Pages The senior subordinated discount notes may not have an active market and the price may be volatile, so you may be unable to sell your senior subordinated discount notes at the price you desire We cannot ensure that a liquid market will develop for the senior subordinated discount notes, that you will be able to sell your senior subordinated discount notes at a particular time or that the prices that you receive when you sell will be favorable. Prior to this offering, there has been no public market for the senior subordinated discount notes. The underwriters have told us that they intend to make a market in the senior subordinated discount notes, but they are not obliged to do so. The underwriters may discontinue any marketmaking in the senior subordinated discount notes at any time in their sole discretion. Future trading prices of the senior subordinated discount notes will depend on many factors, including our operating performance and financial condition, prevailing interest rates and the market for similar securities. 7 Alternate Senior Subordinated Discount Notes Pages DESCRIPTION OF SENIOR SUBORDINATED DISCOUNT NOTES You can find the definitions of many of the terms used in this description under the subheading "Certain Definitions." In this description, the word "AirGate" refers only to AirGate PCS, Inc. and not to any of its Subsidiaries. AirGate will issue the senior subordinated discount notes under an Indenture (the "Indenture") among itself, the Guarantors and as trustee (the "Trustee"). The terms of the senior subordinated discount notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (the "Trust Indenture Act"). The Indenture will be qualified as an indenture under the Trust Indenture Act. The Pledge Agreement referred to under the subcaption "Security" also defines the terms of the pledges that will be made in connection with the senior subordinated discount notes. The following description is a summary of the material provisions of the Indenture and the Pledge Agreement. We urge you to read the Indenture and the Pledge Agreement because they define your rights as a holder of these senior subordinated discount notes. We have filed copies of the Indenture and the Pledge Agreement as exhibits to the registration statement which includes this prospectus. Brief Description of the Senior Subordinated Discount Notes and the Guarantees The Senior Subordinated Discount Notes These senior subordinated discount notes: . are general obligations of AirGate; . are secured by a senior subordinated pledge of the capital stock of AirGate's future, directly owned Subsidiaries and all Intercompany Notes for money owed to AirGate by its Subsidiaries; . are subordinated in right of payment to all existing and future Senior Debt of AirGate; . are equal in right of payment to all existing and future senior subordinated indebtedness of AirGate; . are senior in right of payment to any existing and future subordinated indebtedness of AirGate; and . are unconditionally guaranteed on a senior subordinated basis by the Guarantors. The senior subordinated discount notes will be effectively subordinated to all liabilities of AirGate's Subsidiaries. The Guarantees These senior subordinated discount notes are guaranteed by AGW Leasing Company, Inc. and all future restricted subsidiaries. The Guarantees of these senior subordinated discount notes: . are general obligations of each Guarantor; . are subordinated in right of payment with all existing and future Senior Debt of such Guarantor; and . are equal in right of payment to such Guarantor's existing and future senior subordinated Indebtedness; and . are senior in right of payment to any existing and future subordinated Indebtedness of each Guarantor. Assuming we had completed the offering of these senior subordinated discount notes and applied the net proceeds as intended, as of , 1999, AirGate and the Guarantors would 8 Alternate Senior Subordinated Discount Notes Pages have had total Senior Debt of approximately $ million. The Indenture will permit us and the Guarantors to incur additional Senior Debt. As of the date of the Indenture, all of our Subsidiaries will be "Restricted Subsidiaries." However, under the circumstances described below under the subheading "Selected Covenants--Designation of Restricted and Unrestricted Subsidiaries," we will be permitted to designate Subsidiaries meeting particular requirements as "Unrestricted Subsidiaries." Unrestricted Subsidiaries will not be subject to many of the restrictive covenants in the Indenture. Unrestricted Subsidiaries will not guarantee these senior subordinated discount notes. Principal, Maturity and Interest AirGate will issue senior subordinated discount notes with a maximum aggregate principal amount of $ million. AirGate will issue senior subordinated discount notes in denominations of $1,000 and integral multiples of $l,000. The senior subordinated discount notes will mature on , 2009. Cash interest will not accrue on the senior subordinated discount notes prior to , 2005, and will be payable at a rate of % per annum, semi-annually in arrears on each and , commencing , 2005 to holders of record of such senior subordinated discount notes at the close of business on the and next preceding the Interest Payment Date (each a "Regular Record Date"). Cash interest will accrue from the most recent Interest Payment Date to which interest has been paid or duly provided for or, if no interest has been paid or duly provided for, from , 2004. Cash interest will be computed on a basis of a 360-day year of twelve 30-day months. Accretion of original issue discount will be computed on a basis of a 360-day year of twelve 30 day months, compounded semi-annually. Certain of AirGate's existing and proposed debt agreements restrict the ability of AirGate's Subsidiaries to pay dividends to enable AirGate to pay interest on the senior subordinated discount notes. The senior subordinated discount notes are not subject to any sinking fund. Methods of Receiving Payments on the Senior Subordinated Discount Notes If a Holder has given wire transfer instructions to AirGate, AirGate will make all principal, premium and interest payments on those senior subordinated discount notes in accordance with those instructions. All other payments on these senior subordinated discount notes will be made at the office or agency of the Paying Agent and Registrar within the City and State of New York unless AirGate elects to make interest payments by check mailed to the Holders at their address set forth in the register of Holders. Paying Agent and Registrar for the Senior Subordinated Discount Notes The Trustee will initially act as Paying Agent and Registrar. AirGate may change the Paying Agent or Registrar without prior notice to the Holders of the senior subordinated discount notes, and AirGate or any of its Subsidiaries may act as Paying Agent or Registrar. Transfer and Exchange A Holder may transfer or exchange senior subordinated discount notes in accordance with the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and AirGate may require a Holder to pay any taxes 9 Alternate Senior Subordinated Discount Notes Pages and fees required by law or permitted by the Indenture. AirGate is not required to transfer or exchange any senior subordinated discount note selected for redemption. Also, AirGate is not required to transfer or exchange any senior subordinated discount note for a period of 15 days before a selection of senior subordinated discount notes to be redeemed. The registered Holder of a senior subordinated discount note will be treated as the owner of it for all purposes. Guarantees The Guarantors will jointly and severally guarantee AirGate's obligations on a senior subordinated basis under these senior subordinated discount notes. Each Guarantee will be: (1) subordinated in right of payment to any existing and future Senior Indebtedness of each Guarantor; (2) equal in right of payment to such Guarantor's existing and future senior subordinated Indebtedness; and (3) senior in right of payment to any existing and future subordinated Indebtedness of such Guarantor. The obligations of each Guarantor under its Guarantee will be limited as necessary to prevent that Guarantee from constituting a fraudulent conveyance under applicable law. See "Risk Factors--Risks Related to the Offering--Federal and state statutes may allow courts to void the senior subordinated discount notes and guarantees of the senior subordinated discount notes." A Guarantor may not sell or otherwise dispose of all or substantially all of its assets, or consolidate with or merge with or into another Person, whether or not such Guarantor is the surviving Person, unless: (1) immediately after giving effect to that transaction, no Default or Event of Default exists; and (2) either: (a) the Person acquiring the property in any such sale or disposition or the Person formed by or surviving any such consolidation or merger assumes all the obligations of that Guarantor pursuant to a supplemental indenture satisfactory to the Trustee; or (b) the Net Proceeds of such sale or other disposition are applied in accordance with the applicable provisions of the Indenture. The Guarantee of a Guarantor will be released: (1) in connection with any sale or other disposition of all or substantially all of the assets of that Guarantor, including by way of merger or consolidation, if AirGate applies the Net Proceeds of that sale or other disposition, in accordance with the applicable provisions of the Indenture; or (2) in connection with any sale of all of the capital stock of a Guarantor, if AirGate applies the Net Proceeds of that sale in accordance with the applicable provisions of the Indenture; or (3) if AirGate designates any Restricted Subsidiary that is a Guarantor as an Unrestricted Subsidiary. See "--Repurchase at the Option of Holders--Asset Sales." Security The senior subordinated discount notes will be secured by: (1) a pledge of the Capital Stock of all of the future direct Subsidiaries of the Company; and (2) a pledge of all Intercompany Notes payable to AirGate. 10 Alternate Senior Subordinated Discount Notes Pages AirGate, representatives of the holders of Senior Debt, the Trustee and the Collateral Agent will enter into a Pledge Agreement defining the terms of the pledges that secure these senior subordinated discount notes and the Senior Debt. These pledges will secure the payment and performance when due of all of the Obligations of AirGate under the Senior Debt and all Obligations of AirGate under the Indenture and these senior subordinated discount notes as provided in the Pledge Agreement. The security interest created by the Pledge Agreement in favor of the Trustee will be junior to the security interest in favor of Senior Debt. The Pledge Agreement provides that the holders of Senior Debt will be entitled to control virtually all decisions relating to the exercise of remedies under the Pledge Agreement. As a result, the holders of senior subordinated discount notes will not be able to force a sale of Collateral or otherwise exercise many of the remedies available to a secured creditor without the concurrence of the holders of Senior Debt. See "Risk Factors--Risks Related to the Offering--Holders of our senior debt will control enforcement of the pledge agreement, and their rights may be different from yours." So long as no Default or Event of Default shall have occurred and be continuing, and subject to certain terms and conditions, AirGate will be entitled to receive all cash dividends, interest and other payments made upon or with respect to the Collateral pledged by AirGate, other than payments of principal with respect to Intercompany Notes, which will be required to be pledged to the Trustee, and to exercise any voting and other consensual rights pertaining to the Collateral pledged by AirGate. Upon the occurrence and during the continuance of a Default or Event of Default, (1) all rights of AirGate to exercise such voting or other consensual rights shall cease, and all such rights shall become vested in the Collateral Agent, which, to the extent permitted by law, shall have the sole right to exercise such voting and other consensual rights; (2) all rights of AirGate to receive all cash dividends, interest and other payments made upon or with respect to the Collateral will cease and such cash dividends, interest and other payments will be paid to the Collateral Agent; and (3) the Collateral Agent may sell the Collateral or any part thereof in accordance with the terms of the Pledge Agreement. All funds distributed under the Pledge Agreement and received by the Collateral Agent for the benefit of the Holders of the senior subordinated discount notes will be distributed by the Collateral Agent in accordance with the provisions of the Indenture. The Collateral Agent will determine the circumstances and manner in which the Collateral shall be disposed of, including, but not limited to, the determination of whether to release all or any portion of the Collateral from the Liens created by the Pledge Agreement and whether to foreclose on the Collateral following a Default or Event of Default. The Collateral Agent will follow any instructions given to it by the representative of the holders of Senior Debt. The pledges will be released: (1) upon the full and final payment and performance of all Obligations of AirGate under the Indenture and the senior subordinated discount notes; and (2) if the Capital Stock of any Subsidiary pledged to secure these senior subordinated discount notes is sold, the Net Proceeds from that sale are applied in accordance with the terms of the covenant entitled "Asset Sales" and the Collateral Agent receives from AirGate an Officers' Certificate and an opinion of counsel that those Net Proceeds have been or will be so applied. 11 Alternate Senior Subordinated Discount Notes Pages Optional Redemption During the first 36 months after the Issue Date, AirGate may on any one or more occasions redeem up to 35% of the Accreted Value of the senior subordinated discount notes originally issued under the Indenture at a redemption price of % of the Accreted Value thereof, with the net cash proceeds of one or more Public Equity Offerings; provided that (1) at least 65% of the Accreted Value of senior subordinated discount notes originally issued under the Indenture remains outstanding immediately after the occurrence of such redemption, excluding senior subordinated discount notes held by AirGate and its Subsidiaries; and (2) the redemption must occur within 45 days of the date of the closing of such Public Equity Offering. Except pursuant to the preceding paragraph, the senior subordinated discount notes will not be redeemable at AirGate's option prior to , 2004. After , 2004, AirGate may redeem all or a part of these senior subordinated discount notes upon not less than 30 nor more than 60 days' notice, at the redemption prices, expressed as percentages of principal amount at maturity thereof, set forth below plus accrued and unpaid interest thereon, if any, to the applicable redemption date, if redeemed during the twelve-month period beginning on of the years indicated below:
Percentage of principal amount Year at maturity ---- ---------------- 2004........................ % 2005........................ % 2006........................ % 2007 and thereafter......... 100.00%
Repurchase at the Option of Holders Change of Control If a Change of Control occurs, each Holder of senior subordinated discount notes will have the right to require AirGate to repurchase all or any part, equal to $1,000 or an integral multiple thereof, of that Holder's senior subordinated discount notes pursuant to the Change of Control Offer. In the Change of Control Offer, AirGate will offer a Change of Control Payment in cash equal to 101% of the Accreted Value of senior subordinated discount notes repurchased on any purchase date prior to , 2004 or 101% of the aggregate principal amount thereof, plus accrued and unpaid interest thereon, if any, to the date of purchase if on or after , 2004. Within ten days following any Change of Control, AirGate will mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase senior subordinated discount notes on the Change of Control Payment Date specified in such notice, pursuant to the procedures required by the Indenture and described in such notice. AirGate will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the senior subordinated discount notes as a result of a Change of Control. On the Change of Control Payment Date, AirGate will, to the extent lawful: (1) accept for payment all senior subordinated discount notes or portions thereof properly tendered pursuant to the Change of Control Offer; 12 Alternate Senior Subordinated Discount Notes Pages (2) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all senior subordinated discount notes or portions thereof so tendered; and (3) deliver or cause to be delivered to the Trustee the senior subordinated discount notes so accepted together with an Officers' Certificate stating the aggregate principal amount or Accreted Value, as applicable, of senior subordinated discount notes or portions thereof being purchased by AirGate. The Paying Agent will promptly mail to each Holder of senior subordinated discount notes so tendered the Change of Control Payment for such senior subordinated discount notes, and the Trustee will promptly authenticate and mail or cause to be transferred by book entry to each Holder a new Note equal in principal amount to any unpurchased portion of the senior subordinated discount notes surrendered, if any; provided that each such new Note will be in a principal amount of $1,000 or an integral multiple thereof. Prior to complying with any of the provisions of this "Change of Control" covenant, but in any event within 90 days following a Change of Control, AirGate will either repay all outstanding Senior Debt or obtain the requisite consents, if any, under all agreements governing outstanding Senior Debt to permit the repurchase of senior subordinated discount notes required by this covenant. AirGate will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. The provisions described above that require AirGate to make a Change of Control Offer following a Change of Control will be applicable regardless of whether or not any other provisions of the Indenture are applicable. Except as described above with respect to a Change of Control, the Indenture does not contain provisions that permit the Holders of the senior subordinated discount notes to require that AirGate repurchase or redeem the senior subordinated discount notes in the event of a takeover, recapitalization or similar transaction. AirGate's outstanding Senior Debt currently prohibits AirGate from purchasing any senior subordinated discount notes, and also provides that certain change of control events with respect to AirGate would constitute a default under the agreements governing the Senior Debt. Any future credit agreements or other agreements relating to Senior Debt to which AirGate becomes a party may contain similar restrictions and provisions. In the event a Change of Control occurs at a time when AirGate is prohibited from purchasing senior subordinated discount notes, AirGate could seek the consent of its senior lenders to the purchase of senior subordinated discount notes or could attempt to refinance the borrowings that contain such prohibition. If AirGate does not obtain such a consent or repay such borrowings, AirGate will remain prohibited from purchasing senior subordinated discount notes. In such case, AirGate's failure to purchase tendered senior subordinated discount notes would constitute an Event of Default under the Indenture which would, in turn, constitute a default under such Senior Debt. In such circumstances, the subordination provisions in the Indenture would likely restrict payments to the Holders of senior subordinated discount notes. AirGate will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by AirGate and purchases all senior subordinated discount notes validly tendered and not withdrawn under such Change of Control Offer. 13 Alternate Senior Subordinated Discount Notes Pages The definition of Change of Control includes a phrase relating to the sale, lease, transfer, conveyance or other disposition of "all or substantially all" of the assets of AirGate and its Subsidiaries taken as a whole. Although there is a limited body of case law interpreting, the phrase "substantially all," there is no precise established definition of the phrase under applicable law. Accordingly, the ability of a Holder of senior subordinated discount notes to require AirGate to repurchase such senior subordinated discount notes as a result of a sale, lease, transfer, conveyance or other disposition of less than all of the assets of AirGate and its Subsidiaries taken as a whole to another Person or group may be uncertain. Asset Sales AirGate will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless: (1) AirGate, or the Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets or Equity Interests issued or sold or otherwise disposed of; (2) such fair market value is determined by AirGate's Board of Directors and evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee; and (3) at least 85% of the consideration therefor received by AirGate or such Restricted Subsidiary is in the form of cash. For purposes of this provision, each of the following shall be deemed to be cash: (a) any liabilities, as shown on AirGate's or such Restricted Subsidiary's most recent balance sheet, of AirGate or any Restricted Subsidiary, other than contingent liabilities and liabilities that are by their terms subordinated to the senior subordinated discount notes or any Guarantee, that are assumed by the transferee of any such assets pursuant to a customary novation agreement that releases AirGate or such Restricted Subsidiary from further liability; and (b) any securities, senior subordinated discount notes or other obligations received by AirGate or any such Restricted Subsidiary from such transferee that are contemporaneously, subject to ordinary settlement periods, converted by AirGate or such Restricted Subsidiary into cash, to the extent of the cash received in that conversion. Within 180 days after the receipt of any Net Proceeds from an Asset Sale, AirGate may apply such Net Proceeds at its option: (1) to repay Senior Debt; (2) to acquire all or substantially all of the assets of, or a majority of the Voting Stock of, another Permitted Business which becomes part of, or which is or becomes, a Restricted Subsidiary; (3) to make a capital expenditure in assets that are used or useful in a Permitted Business; or (4) to acquire other long-term assets that are used or useful in a Permitted Business. Pending the final application of any such Net Proceeds, AirGate may temporarily reduce revolving credit borrowings or otherwise invest such Net Proceeds in any manner that is not prohibited by the Indenture. 14 Alternate Senior Subordinated Discount Notes Pages Any Net Proceeds from Asset Sales that are not applied or invested as provided in the preceding paragraph will constitute Excess Proceeds. When the aggregate amount of Excess Proceeds exceeds $5.0 million, AirGate will make an Asset Sale Offer to all Holders of senior subordinated discount notes and all holders of other Indebtedness that is pari passu with the senior subordinated discount notes containing provisions similar to those set forth in the Indenture with respect to offers to purchase or redeem with the proceeds of sales of assets to purchase the maximum principal amount of senior subordinated discount notes and such other pari passu Indebtedness that may be purchased out of the Excess Proceeds. The offer price in any Asset Sale Offer will be equal to 100% of principal amount, or Accreted Value, as applicable, plus accrued and unpaid interest, if any, to the date of purchase, and will be payable in cash. If any Excess Proceeds remain after consummation of an Asset Sale Offer, AirGate may use such Excess Proceeds for any purpose not otherwise prohibited by the Indenture. If the aggregate principal amount of senior subordinated discount notes and such other pari passu Indebtedness tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, the Trustee shall select the senior subordinated discount notes and such other pari passu Indebtedness to be purchased on a pro rata basis. Upon completion of each Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero. Selection and Notice If less than all of the senior subordinated discount notes are to be redeemed at any time, the Trustee will select senior subordinated discount notes for redemption as follows: (1) if the senior subordinated discount notes are listed, in compliance with the requirements of the principal national securities exchange on which the senior subordinated discount notes are listed; or (2) if the senior subordinated discount notes are not so listed, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate. No senior subordinated discount notes of $1,000 or less shall be redeemed in part. Notices of redemption shall be mailed by first class mail at least 30 but not more than 60 days before the redemption date to each Holder of senior subordinated discount notes to be redeemed at its registered address. Notices of redemption may not be conditional. If any senior subordinated discount note is to be redeemed in part only, the notice of redemption that relates to that senior subordinated discount note shall state the portion of the principal amount thereof to be redeemed. A new senior subordinated discount note in principal amount equal to the unredeemed portion of the original senior subordinated discount note will be issued in the name of the Holder thereof upon cancellation of the original senior subordinated discount note. Senior subordinated discount notes called for redemption become due on the date fixed for redemption. On and after the redemption date, interest ceases to accrue on senior subordinated discount notes or portions of them called for redemption. Selected Covenants Limitation on Restricted Payments AirGate shall not, directly or indirectly, (1) declare or pay any dividend on, or make any distribution to the holders of, any shares of its Equity Interests, other than dividends or distributions payable solely in its Equity Interests, other than Disqualified Stock, or in options, warrants or other rights to purchase any such Equity Interests, other than Disqualified Stock; (2) purchase, redeem or otherwise acquire or retire for value, or permit any Restricted Subsidiary to, directly or indirectly, purchase, redeem or otherwise acquire or retire for 15 Alternate Senior Subordinated Discount Notes Pages value, other than value consisting solely of Equity Interests of AirGate that is not Disqualified Stock or options, warrants or other rights to acquire such Equity Interests that is not Disqualified Stock, any Equity Interests of AirGate, including options, warrants or other rights to acquire such Equity Interests; (3) redeem, repurchase, defease or otherwise acquire or retire for value, or permit any Restricted subsidiary to, directly or indirectly, redeem, repurchase, defease or otherwise acquire or retire for value, other than value consisting solely of Equity Interests of AirGate that is not Disqualified Stock or options, warrants or other rights to acquire such Equity Interests that is not Disqualified Stock, prior to any scheduled maturity, scheduled repayment or scheduled sinking fund payment, any Indebtedness that is subordinate, whether pursuant to its terms or by operation of law, in right of payment to the senior subordinated discount notes; or (4) make, or permit any Restricted Subsidiary, directly or indirectly, to make, any Restricted Investment; (each of the foregoing actions set forth in clauses (1) through (4), other than any such action that is a Permitted Investment, being referred to as a "Restricted Payment") unless, at the time of such Restricted Payment, and after giving effect thereto, (a) no Default or Event of Default shall have occurred and be continuing; (b) AirGate would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to clause (a) of the covenant described below under the caption "--Limitation on Incurrence of Indebtedness and Issuance of Preferred Stock"; and (c) after giving effect to such Restricted Payment on a pro forma basis, the aggregate amount of all Restricted Payments made on or after the Closing Date shall not exceed (i) the amount of (x) the Operating Cash Flow of AirGate after December 31, 200 through the end of the latest full fiscal quarter for which consolidated financial statements of AirGate are available preceding the date of such Restricted Payment, treated as a single accounting period, less (y) % of the cumulative Consolidated Interest Expense of AirGate after December 31, 200 through the end of the latest full fiscal quarter for which consolidated financial statements of AirGate are available preceding the date of such Restricted Payment treated as a single accounting period, plus (ii) the aggregate net proceeds, including the fair market value of property other than cash, as determined: (A) in the case of any property other than cash with a value less than $ million, by the Board of Directors, whose good-faith determination shall be conclusive and as evidenced by a Board Resolution, or (B) in the case of any property other than cash with a value equal to or greater than $ million, by an accounting, appraisal or investment banking firm of national standing and evidenced by a written opinion of such firm, received by AirGate from the issuance and sale, other than to a Restricted Subsidiary, on or after the Closing Date of shares of its Equity Interests other than Disqualified 16 Alternate Senior Subordinated Discount Notes Pages Stock, or any options, warrants or other rights to purchase such Equity Interests, other than Disqualified Stock, other than shares of Equity Interests or options warrants or other rights to purchase Equity Interests or shares issuable upon exercise thereof, plus (iii) the aggregate net proceeds, including the fair market value of property other than cash, as determined: (A) in the case of any property other than cash with a value less than $ million, by the Board of Directors, whose good-faith determination shall be conclusive and as evidenced by a Board Resolution, or (B) in the case of any property other than cash with a value equal to or greater than $ million, by an accounting, appraisal or investment banking firm of national standing and evidenced by a written opinion of such firm, received by AirGate from the issuance or sale, other than to a Restricted Subsidiary, after the Closing Date of any Equity Interests of AirGate, other than Disqualified Stock, or any options, warrants or other rights to purchase such Equity Interests, other than Disqualified Stock, upon the conversion of, or exchange for, Equity Interests of AirGate or a Restricted Subsidiary. The foregoing limitations in this "Limitation on Restricted Payments" covenant do not limit or restrict the making of any Permitted Investment, and a Permitted Investment shall not be counted as a Restricted Payment for purposes of clause (c) above. In addition, so long as no Default or Event of Default shall have occurred and be continuing, the foregoing limitations do not prevent AirGate from: (1) paying a dividend on Equity Interests of AirGate within 60 days after the declaration thereof if, on the date when the dividend was declared, AirGate could have paid such dividend in accordance with the provisions of the Indenture; (2) repurchasing Equity Interests of AirGate, including options, warrants or other rights to acquire such Equity Interests, from former employees or directors of AirGate or any Subsidiary thereof for consideration not to exceed $ million in the aggregate in any fiscal year; provided that any unused amount in any 12 month period may be carried forward to one or more future periods; provided further that the aggregate amount of all such repurchases made pursuant to this clause (2) does not exceed $ million in the aggregate; (3) the redemption, repurchase, defeasance or other acquisition or retirement for value of Indebtedness that is subordinated in right of payment to the senior subordinated discount notes, including premium, if any, and accrued and unpaid interest, with the proceeds of, or in exchange for: (a) the proceeds of a capital contribution or a substantially concurrent offering of, shares of Equity Interests, other than Disqualified Stock, of AirGate or options, warrants or other rights to acquire such Equity Interests, or (b) Indebtedness that is at least as subordinated in right of payment to the senior subordinated discount notes, including premium, if any, and accrued and unpaid interest, as the Indebtedness being purchased, with Restricted Payments pursuant to this clause not being counted as Restricted Payments for purposes of clause (c) above; (4) the repurchase, redemption or other acquisition of Equity Interests of AirGate, or options, warrants or other rights to acquire such Equity Interests, in exchange for, or out of the 17 Alternate Senior Subordinated Discount Notes Pages proceeds of a capital contribution or a substantially concurrent offering of, shares of Common Stock, other than Disqualified Stock, of AirGate or options, warrants or other rights to acquire such Equity Interests; or (5) other Restricted Payments not to exceed $ million in the aggregate at any time outstanding, with Restricted Payments pursuant to this clause not being counted as Restricted Payments for purposes of clause (c) above. In addition, if any Person in which an Investment is made, which Investment constitutes a Restricted Payment when made, thereafter becomes a Restricted Subsidiary, all such Investments previously made in such Person shall no longer be counted as Restricted Payments for purposes of calculating the aggregate amount of Restricted Payments pursuant to clause (c) of the second preceding paragraph or the aggregate amount of Investments pursuant to clause (3)(a) of the immediately preceding paragraph, in each case to the extent such Investments would otherwise be so counted. For purposes of clause (c)(3) above, the net proceeds received by AirGate from the issuance or sale of its Equity Interests either upon the conversion of, or exchange for, Indebtedness of AirGate or any Restricted Subsidiary shall be deemed to be an amount equal to (a) the sum of (1) the principal amount or Accreted Value, whichever is less of such Indebtedness on the date of such conversion or exchange and (2) the additional cash consideration, if any, received by AirGate upon such conversion or exchange, less any payment on account of fractional shares, minus (b) all expenses incurred in connection with such issuance or sale. In addition, for purposes of clause (c)(3) above, the net proceeds received by AirGate from the issuance or sale of its Equity Interests upon the exercise of any options or warrants of AirGate or any Restricted Subsidiary shall be deemed to be an amount equal to (a) the additional cash consideration, if any, received by AirGate upon such exercise, minus (b) all expenses incurred in connection with such issuance or sale. For purposes of this "Limitation on Restricted Payments" covenant, if a particular Restricted Payment involves a noncash payment, including a distribution of assets, then such Restricted Payment shall be deemed to be an amount equal to the cash portion of such Restricted Payment, if any, plus an amount equal to the fair market value of the noncash portion of such Restricted Payment, as determined by the Board of Directors, whose good-faith determination shall be conclusive and evidenced by a Board Resolution. Not later than the date of making any Restricted Payment, AirGate shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by this "Limitation on Restricted Payments" covenant were computed, together with a copy of any fairness opinion or appraisal required by the Indenture. The amount of any Investment outstanding at any time shall be deemed to be equal to the amount of such Investment on the date made, less the return of capital, repayment of loans and return on capital, including interest and dividends, in each case, received in cash, up to the amount of such Investment on the date made. Limitation on Incurrence of Indebtedness and Issuance of Preferred Stock AirGate shall not, and shall not permit any Restricted Subsidiary to, incur any Indebtedness, including Acquired Debt, other than Permitted Indebtedness, and AirGate shall not issue any Disqualified Stock unless immediately after giving effect to the incurrence of such Indebtedness or the issuance of such Disqualified Stock and the receipt and application of the net proceeds therefrom, 18 Alternate Senior Subordinated Discount Notes Pages including, without limitation, the application or use of the net proceeds therefrom to repay Indebtedness or make any Restricted Payment, the Consolidated Debt to Annualized Operating Cash Flow Ratio would be less than to 1.0. So long as no Default shall have occurred and be continuing or would be caused thereby, the first paragraph of this covenant will not prohibit the incurrence of any of the following, items of Indebtedness (collectively, "Permitted Debt"): (1) the incurrence by AirGate and its Subsidiaries of Existing Indebtedness; (2) the incurrence by AirGate and the Guarantors of Indebtedness represented by the senior subordinated discount notes and the Guarantees; (3) the incurrence by AirGate and its Subsidiaries of Indebtedness under one or more Vendor Financing Facilities, provided that the aggregate principal amount of all Indebtedness outstanding under all Vendor Financing Facilities does not exceed $ million; (4) the incurrence by AirGate and any Guarantor of Indebtedness under Credit Facilities; provided that the aggregate principal amount of all Indebtedness of AirGate and the Guarantors outstanding under all Credit Facilities after giving effect to such incurrence does not exceed an amount equal to $ million less (a) the aggregate amount of all repayments of term Indebtedness under a Credit Facility that have been made by AirGate or any of its Restricted Subsidiaries since the date of the Indenture and (b) the aggregate amount of all Net Proceeds of Asset Sales applied by AirGate or any of its Subsidiaries since the date of the Indenture to repay revolving credit Indebtedness under a Credit Facility pursuant to the covenant described above under the caption "-- Repurchase at the Option of Holders--Asset Sales"; (5) the incurrence by AirGate or any of its Restricted Subsidiaries of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case, incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property, plant or equipment used in the business of AirGate or such Restricted Subsidiary, in an aggregate principal amount not to exceed $ million at any time outstanding; (6) the incurrence by AirGate or any of its Restricted Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace, Indebtedness, other than intercompany Indebtedness, that was permitted by the Indenture to be incurred under the first paragraph of this covenant or clauses (2), (5) or (10) of this paragraph; (7) the incurrence by AirGate or any of its Restricted Subsidiaries of intercompany Indebtedness between or among AirGate and any of its Wholly Owned Restricted Subsidiaries that are Guarantors; provided, however, that: (a) if AirGate or any Guarantor is the obligor on such Indebtedness, such Indebtedness must be expressly subordinated to the prior payment in full in cash of all Obligations with respect to the senior subordinated discount notes, in the case of AirGate, or the Guarantee of such Guarantor, in the case of a Guarantor; and (b) (1) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than AirGate or a Wholly Owned Restricted Subsidiary thereof and (2) any sale or other transfer of any such Indebtedness to a Person that is not either AirGate or a Wholly Owned Restricted Subsidiary thereof, 19 Alternate Senior Subordinated Discount Notes Pages shall be deemed, in each case, to constitute an incurrence of such Indebtedness by AirGate or such Restricted Subsidiary, as the case may be, that was not permitted by this clause (7); (8) the incurrence by AirGate or any of its Restricted Subsidiaries of Hedging Obligations that are incurred for the purpose of fixing or hedging interest rate risk with respect to any floating rate Indebtedness that is permitted by the terms of this Indenture to be outstanding; (9) the guarantee by AirGate or any of the Guarantors of Indebtedness of AirGate or a Restricted Subsidiary of AirGate that was permitted to be incurred by another provision of this covenant; (10) the incurrence by AirGate or any of its Restricted Subsidiaries of additional Indebtedness in an aggregate principal amount, or accreted value, as applicable, at any time outstanding, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (10), not to exceed $10.0 million; (11) the incurrence by AirGate's Unrestricted Subsidiaries of Non-Recourse Debt; provided, however, that if any such Indebtedness ceases to be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be deemed to constitute an incurrence of Indebtedness by a Restricted Subsidiary of AirGate that was not permitted by this clause (11); and (12) the accrual of interest, accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms, and the payment of dividends on Disqualified Stock in the form of additional shares of the same class of Disqualified Stock. For purposes of determining compliance with this "Limitation on Incurrence of Indebtedness and Issuance of Preferred Stock" covenant, in the event that an item of proposed Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (1) through (12) above, or is entitled to be incurred pursuant to the first paragraph of this covenant, AirGate will be permitted to classify such item of Indebtedness on the date of its incurrence in any manner that complies with this covenant. No Senior Subordinated Debt No Guarantor will incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is subordinate or junior in right of payment to any Senior Debt of such Guarantor and senior in any respect in right of payment to such Guarantor's Guarantee. Liens AirGate will not, and will not permit any of its Restricted Subsidiaries, directly or indirectly, to create, incur, assume or suffer to exist any Lien of any kind securing Indebtedness, Attributable Debt or trade payables on any asset now owned or hereafter acquired, except Permitted Liens. Dividend and Other Payment Restrictions Affecting Subsidiaries AirGate will not, and will not permit any of its Restricted Subsidiaries, directly or indirectly, to create or permit to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary to: (1) pay dividends or make any other distributions on its Capital Stock to AirGate or any of AirGate's Restricted Subsidiaries, or with respect to any other interest or participation in, or 20 Alternate Senior Subordinated Discount Notes Pages measured by, its profits, or pay any indebtedness owed to AirGate or any of AirGate Restricted Subsidiaries; (2) make loans or advances to AirGate or any of AirGate's Restricted Subsidiaries; or (3) transfer any of its properties or assets to AirGate or any of AirGate's Restricted Subsidiaries. However, the preceding restrictions will not apply to encumbrances or restrictions existing under or by reason of: (1) Existing Indebtedness as in effect on the date of the Indenture and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings thereof, provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacement or refinancings are no more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in such Existing Indebtedness, as in effect on the date of the Indenture; (2) the Indenture and the senior subordinated discount notes; (3) applicable law; (4) any instrument governing Indebtedness or Capital Stock of a Person acquired by AirGate or any of its Restricted Subsidiaries as in effect at the time of such acquisition, except to the extent such Indebtedness was incurred in connection with or in contemplation of such acquisition, which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, provided that, in the case of Indebtedness, such Indebtedness was permitted by the terms of the Indenture to be incurred; (5) customary non-assignment provisions in leases entered into in the ordinary course of business and consistent with past practices; (6) purchase money obligations for property acquired in the ordinary course of business that impose restrictions on the property so acquired of the nature described in clause (3) of the preceding paragraph; (7) any agreement for the sale or other disposition of a Restricted Subsidiary that restricts distributions by such Restricted Subsidiary pending its sale or other disposition; (8) Permitted Refinancing Indebtedness, provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are no more restrictive, taken as a whole, than those contained in the agreements governing the Indebtedness being refinanced; (9) Liens securing Indebtedness otherwise permitted to be incurred pursuant to the provisions of the covenant described above under the caption "-- Liens" that limit the right of AirGate or any of its Restricted Subsidiaries to dispose of the assets subject to such Lien; (10) provisions with respect to the disposition or distribution of assets or property in joint venture agreements and other similar agreements entered into in the ordinary course of business; and (11) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business. 21 Alternate Senior Subordinated Discount Notes Pages Merger, Consolidation or Sale of Assets AirGate shall not, in any transaction or series of related transactions, merge or consolidate with or into, or sell, assign, convey, transfer or otherwise dispose of its properties and assets substantially as an entirety to, any Person, and shall not permit any of its Restricted Subsidiaries to enter into any such transaction or series of transactions if such transaction or series of transactions, in the aggregate, would result in a sale, assignment, conveyance, transfer or other disposition of the properties and assets of AirGate and its Restricted Subsidiaries, taken as a whole, substantially as an entirety to any Person, unless, at the time and after giving effect thereto: (1) either: (A) if the transaction or series of transactions is a consolidation of AirGate with or a merger of AirGate with or into any other Person, AirGate shall be the surviving Person of such merger or consolidation, or (B) the Person formed by any consolidation with or merger with or into AirGate, or to which the properties and assets of AirGate or AirGate and its Restricted Subsidiaries, taken as a whole, as the case may be, substantially as an entirety are sold, assigned, conveyed or otherwise transferred (any such surviving Person or transferee Person referred to in this clause (B) being the "Surviving Entity"), shall be a corporation, partnership, limited liability company or trust organized and existing under the laws of the United States of America, any state thereof or the District of Columbia and shall expressly assume by a supplemental indenture executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of AirGate under the senior subordinated discount notes and the Indenture and, in each case, the Indenture, as so supplemented, shall remain in full force and effect; (2) immediately before and immediately after giving effect to such transaction or series of transactions on a pro forma basis including any Indebtedness incurred or anticipated to be incurred in connection with or in respect of such transaction or series of transactions, no Default or Event of Default shall have occurred and be continuing; and (3) AirGate or the Surviving Entity will, at the time of such transaction and after giving pro forma effect thereto as if such transaction had occurred at the beginning of the applicable period, (A) have Consolidated Net Worth immediately after the transaction equal to or greater than the Consolidated Net Worth of AirGate immediately preceding the transaction and (B) be permitted to Incur at least $1.00 of additional Indebtedness pursuant to clause (a) of the covenant described above under the caption "Limitation on Incurrence of Indebtedness and Issuance of Preferred Stock"; provided, however, that the foregoing requirements shall not apply to any transaction or series of transactions involving the sale, assignment, conveyance, transfer or other disposition of the properties and assets by any Restricted Subsidiary to any other Restricted Subsidiary, or the merger or consolidation of any Restricted Subsidiary with or into any other Restricted Subsidiary. The Indenture will also provide that AirGate may not, directly or indirectly, lease all or substantially all of its properties or asset, in one or more related transactions, to any other Person. In connection with any consolidation, merger, sale, assignment, conveyance, transfer or other disposition contemplated by the foregoing provisions, AirGate shall deliver, or cause to be delivered, to the Trustee, in form and substance reasonably satisfactory to the Trustee, an Officers' Certificate stating that such consolidation, merger, sale, assignment, conveyance, transfer, or other disposition and the supplemental indenture in respect thereof, required under clause (1)(B) of the preceding paragraph, comply with the requirements of the Indenture and an opinion of counsel. Each such Officers' Certificate shall set forth the manner of determination of AirGate's compliance with clause (3) of the preceding paragraph. 22 Alternate Senior Subordinated Discount Notes Pages For all purposes of the Indenture and the senior subordinated discount notes, including the provisions described in the two immediately preceding paragraphs and the "Limitation on Incurrence of Indebtedness and Issuance of Preferred Stock" and "Designation of Restricted and Unrestricted Subsidiaries" covenants, Subsidiaries of any Surviving Entity will, upon such transaction or series of transactions, become Restricted Subsidiaries or Unrestricted Subsidiaries as provided pursuant to the "Designation of Restricted and Unrestricted Subsidiaries" covenant and all Indebtedness of the Surviving Entity and its Subsidiaries that was not Indebtedness of AirGate and its Subsidiaries immediately prior to such transaction or series of transactions shall be deemed to have been incurred upon such transaction or series of transactions. The Surviving Entity shall succeed to, and be substituted for, and may exercise every right and power of AirGate under the Indenture, and the predecessor company shall be released from all its obligations and covenants under the Indenture and the senior subordinated discount notes. Transactions with Affiliates AirGate will not, and will not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each, an "Affiliate Transaction"), unless: (1) such Affiliate Transaction is on terms that are no less favorable to AirGate or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by AirGate or such Restricted Subsidiary with an unrelated Person; and (2) AirGate delivers to the Trustee: (a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $1.0 million, a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with this covenant and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors; and (b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $5.0 million, an opinion as to the fairness to the Holders of such Affiliate Transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of national standing. The following items shall not be deemed to be Affiliate Transactions and, therefore, will not be subject to the provisions of the prior paragraph: (1) any employment agreement entered into by AirGate or any of its Restricted Subsidiaries in the ordinary course of business and consistent with the past practice of AirGate or such Restricted Subsidiary; (2) transactions between or among AirGate and/or its Restricted Subsidiaries; (3) payment of reasonable directors fees to Persons who are not otherwise Affiliates of AirGate; and (4) Restricted Payments that are permitted by the provisions of the Indenture described above under the caption "--Limitation on Restricted Payments." 23 Alternate Senior Subordinated Discount Notes Pages Additional Guarantees If AirGate or any of its Restricted Subsidiaries acquires or creates another Restricted Subsidiary after the date of the Indenture, then that newly acquired or created Restricted Subsidiary must become a Guarantor and execute a supplemental indenture satisfactory to the Trustee and deliver an Opinion of Counsel to the Trustee within 10 Business Days of the date on which it was acquired or created. Designation of Restricted and Unrestricted Subsidiaries Subject to compliance with the "Limitation on Restricted Payments" covenant, the Board of Directors may designate any Restricted Subsidiary as an Unrestricted Subsidiary. The designation by the Board of Directors of a Restricted Subsidiary as an Unrestricted Subsidiary shall, for all purposes of the "Limitation on Restricted Payments" covenant, including clause (b) thereof, be deemed to be a Restricted Payment of an amount equal to the fair market value of AirGate's ownership interest in such Subsidiary including, without duplication, such indirect ownership interest in all Subsidiaries of such Subsidiary, as determined by the Board of Directors in good faith and evidenced by a Board Resolution, and will reduce the amount available for Restricted Payments under the first paragraph of the covenant described above under the caption "-- Limitation on Restricted Payments" or Permitted Investments, as applicable. Notwithstanding the foregoing provisions of this "Designation of Restricted and Unrestricted Subsidiaries" covenant, the Board of Directors may not designate a Subsidiary of AirGate to be an Unrestricted Subsidiary if, after such designation, (a) AirGate or any of its other Restricted Subsidiaries (1) provides credit support for, or a Guarantee of, any Indebtedness of such Subsidiary (including any undertaking, agreement or instrument evidencing such Indebtedness) or (2) is directly or indirectly liable for any Indebtedness of such Subsidiary, (b) a default with respect to any Indebtedness of such Subsidiary, including any right which the holders thereof may have to take enforcement action against such Subsidiary, would permit upon notice, lapse of time or both any holder of any other Indebtedness of AirGate or any Restricted Subsidiary to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its final scheduled maturity or (c) such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property of, any Restricted Subsidiary which is not a Subsidiary of the Subsidiary to be so designated. The Board of Directors, from time to time, may designate any Person that is about to become a Subsidiary of AirGate as an Unrestricted Subsidiary, and may designate any newly-created Subsidiary as an Unrestricted Subsidiary, if at the time such Subsidiary is created it contains no assets, other than such de minimis amount of assets then required by law for the formation of corporations, and no Indebtedness. Subsidiaries of AirGate that are not designated by the Board of Directors as Restricted or Unrestricted Subsidiaries shall be deemed to be Restricted Subsidiaries. Notwithstanding any provisions of this "Designation of Restricted and Unrestricted Subsidiaries" covenant, all Subsidiaries of an Unrestricted Subsidiary shall be Unrestricted Subsidiaries. Sale and Leaseback Transactions AirGate will not, and will not permit any of its Restricted Subsidiaries to, enter into any sale and leaseback transaction; provided that AirGate or any Restricted Subsidiary of AirGate that is a Guarantor may enter into a sale and leaseback transaction if: 24 Alternate Senior Subordinated Discount Notes Pages (1) AirGate or that Guarantor, as applicable, could have (a) incurred Indebtedness in an amount equal to the Attributable Debt relating to such sale and leaseback transaction under the tests in (a) and (b), if applicable, of the covenant described above under the caption "-- Limitation on Incurrence of Additional Indebtedness" and (b) incurred a Lien to secure such Indebtedness pursuant to the covenant described above under the caption "--Liens"; (2) the gross cash proceeds of that sale and leaseback transaction are at least equal to the fair market value, as determined in good faith by the Board of Directors and set forth in an Officers' Certificate delivered to the Trustee, of the property that is the subject of such sale and leaseback transaction; and (3) the transfer of assets in that sale and leaseback transaction is permitted by, and AirGate applies the proceeds of such transaction in compliance with, the covenant described above under the caption "-- Repurchase at the Option of Holders--Asset Sales." Limitation on Issuances and Sales of Equity Interests in Wholly Owned Subsidiaries AirGate will not, and will not permit any of its Restricted Subsidiaries to, transfer, convey, sell, lease or otherwise dispose of any Equity Interests in any Wholly Owned Restricted Subsidiary of AirGate to any Person, other than AirGate or a Wholly Owned Restricted Subsidiary of AirGate, unless: (1) such transfer, conveyance, sale, lease or other disposition is of all the Equity Interests in such Wholly Owned Restricted Subsidiary; and (2) the cash Net Proceeds from such transfer, conveyance, sale, lease or other disposition are applied in accordance with the covenant described above under the caption "--Repurchase at the Option of Holders--Asset Sales." In addition, AirGate will not permit any Wholly Owned Restricted Subsidiary of AirGate to issue any of its Equity Interests, other than, if necessary, shares of its Capital Stock constituting directors' qualifying shares, to any Person other than to AirGate or a Wholly Owned Restricted Subsidiary of AirGate. Business Activities AirGate will not, and will not permit any Restricted Subsidiary to, engage in any business other than Permitted Businesses. Advances to Subsidiaries All advances to Restricted Subsidiaries made by AirGate after the date of the Indenture will be evidenced by Intercompany Notes in favor of AirGate. These Intercompany Notes will be pledged pursuant to the Pledge Agreement as Collateral to secure the senior subordinated discount notes. The pledge to the Trustee will be junior to the pledge in favor of the Senior Debt. Each Intercompany Note will be payable upon demand and will bear interest at the same rate as the senior subordinated discount notes. A form of Intercompany Note will be attached as an exhibit to the Indenture. Repayments of principal with respect to any Intercompany Notes will be required to be pledged pursuant to the Pledge Agreement as Collateral to secure the senior subordinated discount notes until such amounts are advanced to a Restricted Subsidiary in accordance with the Indenture. 25 Alternate Senior Subordinated Discount Notes Pages Payments for Consent AirGate will not, and will not permit any of its Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration to or for the benefit of any Holder of senior subordinated discount notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the Indenture or the senior subordinated discount notes unless such consideration is offered to be paid and is paid to all Holders of the senior subordinated discount notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. Reports Whether or not required by the Commission, so long as any senior subordinated discount notes are outstanding, AirGate will furnish to the Holders of senior subordinated discount notes, within the time periods specified in the Commission's rules and regulations: (1) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if AirGate were required to file such Forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report on the annual financial statements by AirGate's certified independent accountants; and (2) all current reports that would be required to be filed with the Commission on Form 8-K if AirGate were required to file such reports. If AirGate has designated any of its Subsidiaries as Unrestricted Subsidiaries, then the quarterly and annual financial information required by the preceding paragraph shall include a reasonably detailed presentation, either on the face of the financial statements or in the footnotes thereto, and in Management's Discussion and Analysis of Financial Condition and Results of Operations, of the financial condition and results of operations of AirGate and its Restricted Subsidiaries separate from the financial condition and results of operations of the Unrestricted Subsidiaries of AirGate. In addition, whether or not required by the Commission, AirGate will file a copy of all of the information and reports referred to in clauses (1) and (2) above with the Commission for public availability within the time periods specified in the Commission's rules and regulations, unless the Commission will not accept such a filing, and make such information available to securities analysts and prospective investors upon request. Events of Default and Remedies Each of the following is an Event of Default: (1) default for 30 days in the payment when due of interest on the senior subordinated discount notes, whether or not prohibited by the subordination provisions of the Indenture; (2) default in payment when due of the principal of or premium, if any, on the senior subordinated discount notes, whether or not prohibited by the subordination provisions of the Indenture; (3) failure by AirGate or any of its Subsidiaries to comply with the provisions described under the captions "Repurchase at the Option of Holders--Change of Control," "Repurchase at the Option of Holders-- Asset Sales," "--Selected Covenants--Limitation on Restricted Payments" or "--Selected Covenants--Limitation on Incurrence of Indebtedness and Issuance of Preferred Stock"; 26 Alternate Senior Subordinated Discount Notes Pages (4) failure by AirGate or any of its Restricted Subsidiaries for 60 days after notice to comply with any of the other agreements in the Indenture or the Pledge Agreement; (5) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by AirGate or any of its Restricted Subsidiaries, or the payment of which is guaranteed by AirGate or any of its Restricted Subsidiaries, whether such Indebtedness or guarantee now exists, or is created after the date of the Indenture, if that default: (a) is caused by a failure to pay principal of or premium, if any, or interest on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default"); or (b) results in the acceleration of such Indebtedness prior to its express maturity, and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $5.0 million or more; (6) failure by AirGate or any of its Restricted Subsidiaries to pay final judgments aggregating in excess of $5.0 million, which judgments are not paid, discharged or stayed for a period of 60 days; (7) breach by AirGate of any material representation or warranty or agreement in the Pledge Agreement, the repudiation by AirGate of any of its obligations under the Pledge Agreement or the unenforceability of the Pledge Agreement against AirGate for any reason; (8) except as permitted by the Indenture, any Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Guarantee; (9) certain events of bankruptcy or insolvency with respect to AirGate or any of its Restricted Subsidiaries; and (10) any event occurs which causes or, with notice or the passage of time, would cause an Event of Termination under any of the Sprint Agreements. In the case of an Event of Default arising from certain events of bankruptcy or insolvency, with respect to AirGate, any Restricted Subsidiary that is a Significant Subsidiary or any group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary, all outstanding senior subordinated discount notes will become due and payable immediately without further action or notice. If any other Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding senior subordinated discount notes may declare all the senior subordinated discount notes to be due and payable immediately. Holders of the senior subordinated discount notes may not enforce the Indenture or the senior subordinated discount notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding senior subordinated discount notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the senior subordinated discount notes notice of any continuing Default or Event of Default, except a Default or Event of Default relating to the payment of principal or interest, if it determines that withholding notice is in their interest. 27 Alternate Senior Subordinated Discount Notes Pages The Holders of a majority in aggregate principal amount of the senior subordinated discount notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the senior subordinated discount notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest on, or the principal of, the senior subordinated discount notes. In the case of any Event of Default occurring by reason of any willful action or inaction taken or not taken by or on behalf of AirGate with the intention of avoiding payment of the premium that AirGate would have had to pay if AirGate then had elected to redeem the senior subordinated discount notes pursuant to the optional redemption provisions of the Indenture, an equivalent premium shall also become and be immediately due and payable to the extent permitted by law upon the acceleration of the senior subordinated discount notes. If an Event of Default occurs prior to , 2004, by reason of any willful action or inaction taken or not taken by or on behalf of AirGate with the intention of avoiding the prohibition on redemption of the senior subordinated discount notes prior to , 2004, then the premium specified in the Indenture shall also become immediately due and payable to the extent permitted by law upon the acceleration of the senior subordinated discount notes. AirGate is required to deliver to the Trustee annually a statement regarding compliance with the Indenture. Upon becoming aware of any Default or Event of Default, AirGate is required to deliver to the Trustee a statement specifying such Default or Event of Default. No Personal Liability of Directors, Officers, Employees and Stockholders No director, officer, employee, incorporator or stockholder of AirGate or any Guarantor, as such, shall have any liability for any obligations of AirGate or the Guarantors under the senior subordinated discount notes, the Indenture, the Guarantees, the Pledge Agreements or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of senior subordinated discount notes by accepting a senior subordinated discount note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the senior subordinated discount notes. The waiver may not be effective to waive liabilities under the federal securities laws. Legal Defeasance and Covenant Defeasance AirGate may, at its option and at any time, elect to have all of its obligations discharged with respect to the outstanding senior subordinated discount notes and all obligations of the Guarantors discharged with respect to their Guarantees ("Legal Defeasance") except for: (1) the rights of Holders of outstanding senior subordinated discount notes to receive payments in respect of the principal of, premium, if any, and interest on such senior subordinated discount notes when such payments are due from the trust referred to below; (2) AirGate's obligations with respect to the senior subordinated discount notes concerning issuing temporary senior subordinated discount notes, registration of senior subordinated discount notes, mutilated, destroyed, lost or stolen senior subordinated discount notes and the maintenance of an office or agency for payment and money for security payments held in trust; (3) the rights, powers, trusts, duties and immunities of the Trustee, and AirGate's obligations in connection therewith; and (4) the Legal Defeasance provisions of the Indenture. 28 Alternate Senior Subordinated Discount Notes Pages In addition, AirGate may, at its option and at any time, elect to have the obligations of AirGate and the Guarantors released with respect to certain covenants that are described in the Indenture ("Covenant Defeasance") and thereafter any omission to comply with those covenants shall not constitute a Default or Event of Default with respect to the senior subordinated discount notes. In the event Covenant Defeasance occurs, certain events, not including non-payment, bankruptcy, receivership, rehabilitation and insolvency events, described under "Events of Default" will no longer constitute an Event of Default with respect to the senior subordinated discount notes. In order to exercise either Legal Defeasance or Covenant Defeasance: (1) AirGate must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of the senior subordinated discount notes, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest on the outstanding senior subordinated discount notes on the stated maturity or on the applicable redemption date, as the case may be, and AirGate must specify whether the senior subordinated discount notes are being defeased to maturity or to a particular redemption date; (2) in the case of Legal Defeasance, AirGate shall have delivered to the Trustee an Opinion of Counsel reasonably acceptable to the Trustee confirming that (a) AirGate has received from, or there has been published by, the Internal Revenue Service a ruling or (b) since the date of the Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion of counsel shall confirm that, the Holders of the outstanding senior subordinated discount notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (3) in the case of Covenant Defeasance, AirGate shall have delivered to the Trustee an Opinion of Counsel reasonably acceptable to the Trustee confirming that the Holders of the outstanding senior subordinated discount notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (4) no Default or Event of Default shall have occurred and be continuing either: (a) on the date of such deposit other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit; or (b) or insofar as Events of Default from bankruptcy or insolvency events are concerned, at any time in the period ending on the 91st day after the date of deposit; (5) such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under any material agreement or instrument, other than the Indenture, to which AirGate or any of its Restricted Subsidiaries is a party or by which AirGate or any of its Restricted Subsidiaries is bound; (6) AirGate must have delivered to the Trustee an opinion of counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (7) AirGate must deliver to the Trustee an Officers' Certificate stating that the deposit was not made by AirGate with the intent of preferring the Holders of senior subordinated discount 29 Alternate Senior Subordinated Discount Notes Pages notes over the other creditors of AirGate with the intent of defeating, hindering, delaying or defrauding creditors of AirGate or others; and (8) AirGate must deliver to the Trustee an Officers' Certificate and an opinion of counsel, each stating that all conditions precedent relating to the Legal Defeasance or the Covenant Defeasance have been complied with. Amendment, Supplement and Waiver Without the consent of each Holder affected, an amendment or waiver may not, with respect to any senior subordinated discount notes held by a non- consenting Holder: (1) reduce the principal amount of senior subordinated discount notes whose Holders must consent to an amendment, supplement or waiver; (2) reduce the principal of or change the fixed maturity of any senior subordinated discount note or alter the provisions with respect to the redemption of the senior subordinated discount notes, other than provisions relating to the covenants described above under the caption "--Repurchase at the Option of Holders"; (3) reduce the rate of or change the time for payment of interest on any senior subordinated discount note; (4) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on the senior subordinated discount notes, except a rescission of acceleration of the senior subordinated discount notes by the Holders of at least a majority in aggregate principal amount of the senior subordinated discount notes and a waiver of the payment default that resulted from such acceleration; (5) make any senior subordinated discount note payable in money other than that stated in the senior subordinated discount notes; (6) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of Holders of senior subordinated discount notes to receive payments of principal of or premium, if any, or interest on the senior subordinated discount notes; (7) waive a redemption payment with respect to any senior subordinated discount note, other than a payment required by one of the covenants described above under the caption "--Repurchase at the Option of Holders"; or (8) make any chance in the preceding amendment and waiver provisions. In addition, any amendment to, or waiver of, the provisions of the Indenture relating to the security interests created by the Pledge Agreement that adversely affects the rights of the Holders of the senior subordinated discount notes will require the consent of the Holders of at least 75% in aggregate principal amount of senior subordinated discount notes then outstanding. Notwithstanding the preceding, without the consent of any Holder of senior subordinated discount notes, AirGate and the Trustee may amend or supplement the Indenture or the senior subordinated discount notes: (1) to cure any ambiguity, defect or inconsistency; (2) to provide for uncertificated senior subordinated discount notes in addition to or in place of certificated senior subordinated discount notes; (3) to provide for the assumption of AirGate's obligations to Holders of senior subordinated discount notes in the case of a merger or consolidation or sale of all or substantially all of AirGate's assets; 30 Alternate Senior Subordinated Discount Notes Pages (4) to make any change that would provide any additional rights or benefits to the Holders of senior subordinated discount notes or that does not adversely affect the legal rights under the Indenture of any Holder; or (5) to comply with requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. Concerning the Trustee If the Trustee becomes a creditor of AirGate or any Guarantor, the Indenture limits its right to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the Commission for permission to continue or resign. The Holders of a majority in principal amount of the then outstanding senior subordinated discount notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee, subject to certain exceptions. The Indenture provides that in case an Event of Default shall occur and be continuing, the Trustee will be required, in the exercise of its power, to use the degree of care of a prudent man in the conduct of his own affairs. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any Holder of senior subordinated discount notes, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. Certain Definitions Set forth below are many of the defined terms used in the Indenture. Reference is made to the Indenture for a full disclosure of all such terms, as well as any other capitalized terms used herein for which no definition is provided. "Accreted Value" of any outstanding senior subordinated discount note as of or to any date of determination means an amount equal to the sum of (1) the issue price of such senior subordinated discount note as determined in accordance with Section 1273 of the Internal Revenue Code plus (2) the aggregate of the portions of the original issue discount, i.e., the excess of the amounts considered as part of the "stated redemption price at maturity" of such Note within the meaning of Section 1273(a)(2) of the Internal Revenue Code or any successor provisions, whether denominated as principal or interest, over the issue price of such senior subordinated discount note, that shall theretofore have accrued pursuant to Section 1272 of the Internal Revenue Code, without regard to Section 1272(a)(7) of the Internal Revenue Code, from the date of issue of such senior subordinated discount note (a) for each six-month or shorter period ending or prior to the date of determination and (b) for the shorter period, if any, from the end of the immediately preceding six-month or shorter period, as the case may be, to the date of determination, plus (3) accrued and unpaid interest to the date such Accreted Value is paid (without duplication of any amount set forth in (ii) above), minus all amounts theretofore paid in respect of such senior subordinated discount note, which amounts are considered as part of the "stated redemption price at maturity" of such senior subordinated discount note within the meaning of Section 1273(a)(2) of the Internal Revenue Code or any successor provisions whether such amounts paid were denominated principal or interest. "Acquired Debt" means, with respect to any specified Person: (1) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, whether or not such Indebtedness is 31 Alternate Senior Subordinated Discount Notes Pages incurred in connection with, or in contemplation of, such other Person merging with or into, or becoming a Subsidiary of, such specified Person; and (2) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control," as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the Voting Stock of a Person shall be deemed to be control. For purposes of this definition, the terms "controlling," "controlled by" and "under common control with" shall have correlative meanings. "Annualized Operating Cash Flow" means, for any fiscal quarter, the Operating Cash Flow for such fiscal quarter multiplied by four. "Asset Sale" means: (1) the sale, lease, conveyance or other disposition of any assets or rights, other than sales of inventory in the ordinary course of business consistent with past practices; provided that the sale, conveyance or other disposition of all or substantially all of the assets of AirGate and its Restricted Subsidiaries taken as a whole will be governed by the provisions of the Indenture described above under the caption "--Repurchase at the Option of Holders--Change of Control" and/or the provisions described above under the caption "--Selected Covenants--Merger, Consolidation or Sale of Assets" and not by the provisions of the Asset Sale covenant; and (2) the issuance of Equity Interests by any of AirGate's Restricted Subsidiaries or the sale of Equity Interests in any of its Subsidiaries, Notwithstanding the preceding, the following items shall not be deemed to be Asset Sales: (1) any single transaction or series of related transactions that: (a) involves assets having a fair market value of less than $1.0 million; or (b) results in net proceeds to AirGate and its Restricted Subsidiaries of less than $1.0 million; (2) a transfer of assets between or among AirGate and its Wholly Owned Restricted Subsidiaries; (3) an issuance of Equity Interests by a Wholly Owned Restricted Subsidiary to AirGate or to another Wholly Owned Restricted Subsidiary; and (4) a Restricted Payment that is permitted by the covenant described above under the caption "--Selected Covenants--Sprint PCS Limitation on Restricted Payments." "Attributable Debt" in respect of a sale and leaseback transaction means, at the time of determination, the present value of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale and leaseback transaction including any period for which such lease has been extended or may, at the option of the lessor, be extended. Such present value shall be calculated using a discount rate equal to the rate of interest implicit in such transaction, determined in accordance with GAAP. 32 Alternate Senior Subordinated Discount Notes Pages "Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular "person," as such term is used in Section 13(d)(3) of the Exchange Act, such "person" shall be deemed to have beneficial ownership of all securities that such "person" has the right to acquire, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of AirGate to have been duly adopted by the Board of Directors, unless the context specifically requires that such resolution be adopted by a majority of the Disinterested Directors, in which case by a majority of such directors, and to be in full force and effect on the date of such certification and delivered to the Trustee. "Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at that time be required to be capitalized on a balance sheet in accordance with GAAP. "Capital Stock"means: (1) in the case of a corporation, corporate stock; (2) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents, however designated, of corporate stock; (3) in the case of a partnership or limited liability company, partnership or membership interests, whether general or limited; and (4) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "Cash Equivalents" means: (1) United States dollars; (2) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof, provided that the full faith and credit of the United States is pledged in support thereof, having maturities of not more than six months from the date of acquisition; (3) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case, with any domestic commercial bank having capital and surplus in excess of $500 million and a Thompson Bank Watch Rating of "B" or better; (4) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (2) and (3) above entered into with any financial institution meeting the qualifications specified in clause (3) above; (5) commercial paper having the highest rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's Corporation and in each case maturing within six months after the date of acquisition; and (6) money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (1) through (5) of this definition. 33 Alternate Senior Subordinated Discount Notes Pages "Change of Control" means the occurrence of any of the following: (1) the sale, transfer, conveyance or other disposition, other than by way of merger or consolidation, in one or a series of related transactions, of all or substantially all of the assets of AirGate and its Subsidiaries taken as a whole to any "person," as such term is used in Section 13(d)(3) of the Exchange Act; (2) the adoption of a plan relating to the liquidation or dissolution of AirGate; (3) the consummation of any transaction, including, without limitation, any merger or consolidation, the result of which is that any "person," as defined above, becomes the Beneficial Owner, directly or indirectly, of more than % of the Voting Stock of AirGate, measured by voting power rather than number of shares; (4) the first day on which a majority of the members of the Board of Directors of AirGate are not Continuing Directors; or (5) AirGate consolidates with, or merges with or into, an Person, or any Person consolidates with, or merges with or into, AirGate, in any such event pursuant to a transaction in which any of the outstanding Voting Stock of AirGate is converted into or exchanged for cash, securities or other property, other than any such transaction where the Voting Stock of AirGate outstanding immediately prior to such transaction is converted into or exchanged for Voting Stock, other than Disqualified Stock, of the surviving or transferee Person constituting a majority of the outstanding shares of such Voting Stock of such surviving or transferee Person immediately after giving effect to such issuance. "Change of Control Offer" means a written offer (the "Offer") sent by AirGate by first class mail, postage prepaid, to each holder at his address appearing in the security register maintained by the Trustee on the date of the Offer offering to purchase the senior subordinated discount notes at the purchase price specified in such Offer, as determined pursuant to the Indenture. Unless otherwise required by applicable law, the Offer shall specify an expiration date (the "Expiration Date") of the Change of Control Offer which shall be, subject to any contrary requirements of applicable law, not less than 30 days or more than 60 days after the date of such Offer and a settlement date (the "Purchase Date") for purchase of senior subordinated discount notes within five Business Days after the Expiration Date. AirGate shall notify the Trustee at least 15 days or such shorter period as is acceptable to the Trustee, prior to the mailing of the Offer of AirGate's obligation to make an Offer to Purchase, and the Offer shall be mailed by AirGate or, at AirGate's request, by the Trustee in the name and at the expense of AirGate. The Offer shall contain information concerning the business of AirGate and its Subsidiaries which, at a minimum, shall include: (1) the most recent annual and quarterly financial statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in the documents required to be filed with the Trustee pursuant to the Indenture (which requirements may be satisfied by delivery of such documents together with the Offer), (2) a description of material developments in AirGate's business subsequent to the date of the latest of such financial statements referred to in clause (i) including a description of the events requiring AirGate to make the Change of Control Offer, (3) if required under applicable law, pro forma financial information concerning, among other things, the Change of Control Offer and the events requiring AirGate to make the Change of Control Offer and 34 Alternate Senior Subordinated Discount Notes Pages (4) any other information required by applicable law to be included therein. The Offer shall contain all instructions and materials necessary to enable such holders to tender their senior subordinated discount notes pursuant to the Change of Control Offer. The Offer shall also state: (1) the section of the Indenture pursuant to which the Change of Control Offer is being made; (2) the Expiration Date and the Purchase Date; (3) the aggregate principal amount at Stated Maturity of the outstanding senior subordinated discount notes offered to be purchased by AirGate pursuant to the Change of Control Offer (the "Purchase Amount"); (4) the purchase price to be paid by AirGate for each $1,000 principal amount at Stated Maturity of senior subordinated discount notes accepted for payment as specified pursuant to the Indenture (the "Purchase Price"); (5) that the holder may tender all or any portion of the senior subordinated discount notes registered in the name of such holder and that any portion of senior subordinated discount notes tendered must be tendered in an integral multiple of $1,000 of principal amount at Stated Maturity; (6) the place or places where the senior subordinated discount notes are to be surrendered for tender pursuant to the Change of Control Offer; (7) that interest, if any, on any senior subordinated discount notes not tendered or tendered but not purchased by the Company pursuant to the Change of Control Offer will continue to accrue; (8) that on the Purchase Date the Purchase Price will become due and payable upon each Note being accepted for payment pursuant to the Change of Control Offer; (9) that each holder electing to tender senior subordinated discount notes pursuant to the Change of Control Offer will be required to surrender such senior subordinated discount notes at the place or places specified in the Offer prior to the close of business on the Expiration Date. Such senior subordinated discount notes must be, if AirGate or the Trustee so requires, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by the holder thereof or his attorney duly authorized in writing; (10) that holders will be entitled to withdraw all or any portion of the senior subordinated discount notes tendered if AirGate, or its Paying Agent, receives, not later than the close of business on the Expiration Date, a facsimile transmission or letter setting forth the name of the holder, the principal amount at Stated Maturity of the senior subordinated discount notes the Holder tendered, the certificate number of the senior subordinated discount notes the holder tendered and a statement that such holder is withdrawing all or a portion of his tender; (11) that AirGate shall purchase all such senior subordinated discount notes duly tendered and not withdrawn pursuant to the Change of Control Offer; and (12) that in the case of any holder whose senior subordinated discount notes are purchased only in part, AirGate shall execute, and the Trustee shall authenticate and deliver to the holder of such senior subordinated discount notes without service charge, new senior subordinated discount notes of any authorized denomination as requested by such holder, in an aggregate principal amount at Stated Maturity equal to and in exchange for the unpurchased portion of the aggregate principal amount at Stated Maturity of the senior subordinated discount notes so tendered. 35 Alternate Senior Subordinated Discount Notes Pages Any Change of Control Offer shall be governed by and effected in accordance with the Offer for such Change of Control Offer. "Closing Date" means , 1999, the date on which the senior subordinated discount notes were originally issued under the Indenture. "Consolidated Debt" means the aggregate amount of Indebtedness of AirGate and its Restricted Subsidiaries on a Consolidated basis outstanding at the date of determination. "Consolidated Debt to Annualized Operating Cash Flow Ratio" means, as at any date of determination, the ratio of (i) Consolidated Debt to (ii) the Annualized Operating Cash Flow of AirGate for the most recently completed fiscal quarter of AirGate for which financial statements are available. "Consolidated Interest Expense" means, . "Consolidated Net Income" means, with respect to any specified Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that: (1) the Net Income, but not loss, of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the specified Person or a Wholly Owned Subsidiary thereof; (2) the Net Income of any Restricted Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval that has not been obtained or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders; (3) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded; (4) the Net Income, but not loss, of any Unrestricted Subsidiary shall be excluded, whether or not distributed to the specified Person or one of its Subsidiaries; and (5) the cumulative effect of a change in accounting principles shall be excluded. "Consolidated Net Worth" means, with respect to any Person as of any date, the sum of: (1) the consolidated equity of the common stockholders of such Person and its consolidated Subsidiaries as of such date; plus (2) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of preferred stock, other than Disqualified Stock, that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year of such declaration and payment, but only to the extent of any cash received by such Person upon issuance of such preferred stock. "Consolidation" means the consolidation of the accounts of each of the Restricted Subsidiaries with those of AirGate, if and to the extent that the accounts of each such Restricted Subsidiary would normally be consolidated with those of AirGate in accordance with generally accepted accounting principles; provided, however, that "Consolidation" shall not include consolidation of the accounts of any Unrestricted Subsidiary, but the interest of AirGate or any Restricted Subsidiary in any 36 Alternate Senior Subordinated Discount Notes Pages Unrestricted Subsidiary shall be accounted for as an investment. The term "Consolidated" has a correlative meaning. "Continuing Directors" means, as of any date of determination, any member of the Board of Directors of AirGate who: (1) was a member of such Board of Directors on the date of the Indenture; or (2) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board at the time of such nomination or election. "Credit Facilities" means, with respect to AirGate or any Guarantor, one or more debt facilities or commercial paper facilities, in each case with banks or other institutional lenders providing for revolving credit loans, term loans, receivables financing, including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables, or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time. "Default" means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default. "Disqualified Stock" means any Capital Stock that, by its terms, or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case at the option of the holder thereof, or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder thereof, in whole or in part, on or prior to the date that is 91 days after the date on which the senior subordinated discount notes mature. Notwithstanding the preceding sentence, any Capital Stock that would constitute Disqualified Stock solely because the holders thereof have the right to require AirGate to repurchase such Capital Stock upon the occurrence of a change of control or an asset sale shall not constitute Disqualified Stock if the terms of such Capital Stock provide that AirGate may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with the covenant described above under the caption "--Selected Covenants--Selected Covenants--Limitation on Restricted Payments." "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock, but excludes any debt security that is convertible into, or exchangeable for, Capital Stock. "Event of Termination" means any of the events described in (1) Section 11.3 of the Management Agreement; (2) Section 13.2 of the Trademark Agreement or (3) Section 13.2 of the Spectrum Trademark Agreement. "Existing Indebtedness" means up to $ million in aggregate principal amount of Indebtedness of AirGate and its Restricted Subsidiaries in existence on the date of the Indenture, until such amounts are repaid. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect from time to time. 37 Alternate Senior Subordinated Discount Notes Pages "Government Securities" means (1) any security which is (a) a direct obligation of the United States of America for the payment of which the full faith and credit of the United States of America is pledged or (b) an obligation of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the payment of which is unconditionally guaranteed as a full faith and credit obligation of the United States of America, which, in either case, is not callable or redeemable at the option of the issuer thereof, and (2) any depository receipt issued by a bank, as defined in the Securities Act, as custodian with respect to any Government Securities and held by such bank for the account of the holder of such depository receipt, or with respect to any specific payment of principal of or interest on any Government Securities which is so specified and held, provided that, except as required by law, such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the Government Securities or the specific payment of principal or interest evidenced by such depository receipt. "Guarantee" means a guarantee other than by endorsement of negotiable instruments for collection in the ordinary course of business, direct or indirect, in any manner including, without limitation, by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof, of all or any part of any Indebtedness. "Guarantors" means each of: (1) AGW Leasing Company, Inc.; and (2) any other subsidiary that executes a Guarantee in accordance with the provisions of the Indenture; and their respective successors and assigns. "Hedging Obligations" means, with respect to any Person, the obligations of such Person under: (1) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements; and (2) other agreements or arrangements designed to protect such Person against fluctuations in interest rates. "Indebtedness" means, with respect to any specified Person, any indebtedness of such Person, whether or not contingent, in respect of: (1) borrowed money; (2) evidenced by bonds, senior subordinated discount notes, debentures or similar instruments or letters of credit, or reimbursement agreements in respect thereof; (3) banker's acceptances; (4) representing Capital Lease Obligations; (5) the balance deferred and unpaid of the purchase price of any property, except any such balance that constitutes an accrued expense or trade payable; or (6) representing any Hedging Obligations; if and to the extent any of the preceding, other than letters of credit and Hedging Obligations, would appear as a liability upon a balance sheet of the specified Person prepared in accordance with GAAP. In addition, the term "Indebtedness" includes all Indebtedness of others secured by a Lien on any 38 Alternate Senior Subordinated Discount Notes Pages asset of the specified Person, whether or not such Indebtedness is assumed by the specified Person, and, to the extent not otherwise included, the Guarantee by such Person of any indebtedness of any other Person. The amount of any Indebtedness outstanding as of any date shall be: (1) the accreted value thereof, in the case of any Indebtedness issued with original issue discount; and (2) the principal amount thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Indebtedness. "Intercompany Notes" means the intercompany notes issued by Subsidiaries of AirGate in favor of AirGate or a Guarantor to evidence advances by AirGate or such Guarantor, in each case, in the form attached as Annex B to the Indenture. "Investments" means, with respect to any Person, all investments by such Person in other Persons, including Affiliates, in the forms of direct or indirect loans, including guarantees of Indebtedness or other obligations, advances or capital contributions, excluding commission, travel and similar advances to officers and employees made in the ordinary course of business, purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If AirGate or any Restricted Subsidiary of AirGate sells or otherwise disposes of any Equity Interests of any direct or indirect Restricted Subsidiary of AirGate such that, after giving effect to any such sale or disposition, such Person is no longer a Restricted Subsidiary of AirGate, AirGate shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Equity Interests of such Restricted Subsidiary not sold or disposed of in an amount determined as provided in the final paragraph of the covenant described above under the caption "--Selected Covenants-- Limitation on Restricted Payments." "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code, or equivalent statutes, of any jurisdiction. "Net Income" means, with respect to any Person, the net income (loss) of such Person and its Restricted Subsidiaries, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however: (1) any gain, but not loss, together with any related provision for taxes on such gain (but not loss), realized in connection with: (a) any Asset Sale; or (b) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries; and (2) any extraordinary gain, but not loss, together with any related provision for taxes on such extraordinary gain, but not loss. "Net Proceeds" means the aggregate cash proceeds received by AirGate or any of its Restricted Subsidiaries in respect of any Asset Sale, including, without limitation, any cash received upon the sale or other disposition of any non- cash consideration received in any Asset Sale, net of the direct 39 Alternate Senior Subordinated Discount Notes Pages costs relating to such Asset Sale, including, without limitation, legal, accounting and investment banking fees, and sales commissions, and any relocation expenses incurred as a result thereof, taxes paid or payable as a result thereof, in each case after taking into account any available tax credits or deductions and any tax sharing arrangements and amounts required to be applied to the repayment of Indebtedness, other than Senior Debt, secured by a Lien on the asset or assets that were the subject of such Asset Sale. "Non-Recourse Debt" means Indebtedness: (1) as to which neither AirGate nor any of its Restricted Subsidiaries (a) provides credit support of any kind, including any undertaking, agreement or instrument that would constitute Indebtedness, (b) is directly or indirectly liable as a guarantor or otherwise, or (c) constitutes the lender; (2) no default with respect to which, including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary, would permit upon notice, lapse of time or both any holder of any other Indebtedness, other than the senior subordinated discount notes, of AirGate or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity; and (3) as to which the lenders have been notified in writing that they will not have any recourse to the stock or assets of AirGate or any of its Restricted Subsidiaries. "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Officers' Certificate" means a certificate signed by the Chairman of the Board, the President or Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary, or an Assistant Secretary, of AirGate, and delivered to the Trustee. "Operating Cash Flow" means, . "Paying Agent" means any Person authorized by AirGate to pay the principal of, and premium, if any, or interest on any senior subordinated discount notes on behalf of AirGate. "Permitted Business" means the business primarily involved in the ownership, design, construction, development, acquisition, installation, integration, management and/or provision of Telecommunications Assets. "Permitted Investments" means: (1) any Investment in AirGate or in a Wholly Owned Restricted Subsidiary of AirGate that is a Guarantor; (2) any Investment in Cash Equivalents; (3) any Investment by AirGate or any Restricted Subsidiary of AirGate in a Person, if as a result of such Investment: (a) such Person becomes a Restricted Subsidiary of AirGate; or (b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, AirGate or a Restricted Subsidiary of AirGate; 40 Alternate Senior Subordinated Discount Notes Pages (4) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with the covenant described above under the caption "-- Repurchase at the Option of Holders--Asset Sales"; (5) any acquisition of assets solely in exchange for the issuance of Equity Interests, other than Disqualified Stock, of AirGate; and (6) other Investments in any Person having an aggregate fair market value, measured on the date each such Investment was made and without giving effect to subsequent changes in value, when taken together with all other Investments made pursuant to this clause (6) since the date of the Indenture, not to exceed $ million. "Permitted Liens" means: (1) Liens on the assets of AirGate and any Guarantor securing Indebtedness and other Obligations under Credit Facilities that were permitted by the terms of the Indenture to be incurred; (2) Liens in favor of AirGate or the Guarantors; (3) Liens on property of a Person existing at the time such Person is merged with or into or consolidated with AirGate or any Restricted Subsidiary of AirGate; provided that such Liens were in existence prior to the contemplation of such merger or consolidation and do not extend to any assets other than those of the Person merged into or consolidated with AirGate or the Restricted Subsidiary; (4) Liens on property existing at the time of acquisition thereof by AirGate or any Restricted Subsidiary of AirGate, provided that such Liens were in existence prior to the contemplation of such acquisition; (5) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; (6) Liens to secure Indebtedness, including Capital Lease Obligations, permitted by clause (5) of the second paragraph of the covenant entitled "Limitation on Incurrence of Indebtedness and Issuance of Preferred Stock" covering only the assets acquired with such Indebtedness; (7) Liens existing on the date of the Indenture; (8) Liens on Assets of Guarantors to secure Secured Debt of such Guarantor that was permitted by the Indenture to be incurred; (9) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded, provided that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; and (10) Liens incurred in the ordinary course of business of AirGate or any Restricted Subsidiary of AirGate with respect to obligations that do not exceed $5.0 million at any one time outstanding. "Permitted Refinancing Indebtedness" means any Indebtedness of AirGate or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, 41 Alternate Senior Subordinated Discount Notes Pages refinance, renew, replace, defease or refund other Indebtedness of AirGate or any of its Restricted Subsidiaries, other than intercompany Indebtedness; provided that: (1) the principal amount, or accreted value, if applicable, of such Permitted Refinancing Indebtedness does not exceed the principal amount of, or accreted value, if applicable, plus accrued interest on, the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded, plus the amount of reasonable expenses incurred in connection therewith; (2) such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (3) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the senior subordinated discount notes, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the senior subordinated discount notes on terms at least as favorable to the Holders of senior subordinated discount notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and (4) such Indebtedness is incurred either by AirGate or by the Restricted Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. "Person" means any individual, corporation, partnership, joint venture, trust, unincorporated organization or government or any agency or political subdivision thereof. "Preferred Capital Stock," as applied to the Capital Stock of any Person, means Capital Stock of such Person of any class or classes, however designated, that ranks prior, as to the payment of dividends or as to the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of such Person, to shares of Capital Stock of any other class of such Person. "Public Equity Offering" means any underwritten public offering of common stock of AirGate in which the gross proceeds to AirGate are at least $ million provided, however the underwritten public offering of AirGate common stock sold pursuant to a prospectus dated as of the Closing Date shall not constitute a Public Equity Offering. "Restricted Subsidiary" of a Person means any Subsidiary of the referent Person that is not an Unrestricted Subsidiary. "Senior Debt" means: (1) all Indebtedness outstanding under any Vendor Financing Facility; (2) all Indebtedness outstanding under Credit Facilities and all Hedging Obligations with respect thereto; (3) all Obligations with respect to the items listed in the preceding clauses (1) and (2). Notwithstanding anything to the contrary in the preceding, Senior Debt will not include: (1) any liability for federal, state, local or other taxes owed or owing by AirGate; 42 Alternate Senior Subordinated Discount Notes Pages (2) any Indebtedness of AirGate to any of its Subsidiaries or other Affiliates; (3) any trade payables; or (4) any Indebtedness that is incurred in violation of the Indenture. "Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Act, as such Regulation is in effect on the date hereof. "Sprint Agreements" means the (1) Management Agreement between SprintCom, Inc. and AirGate, dated as of July 22, 1998, and any exhibits, schedules or addendum thereto, as such may be amended, modified or supplemented from time to time (the "Management Agreement"); (2) Sprint PCS Services Agreement between Sprint Spectrum L.P. and AirGate, dated as of July 22, 1998, and any exhibits, schedules or addendum thereto, as such may be amended, modified or supplemented from time to time; (3) Sprint Trademark and Service Mark License Agreement between Sprint Communications Company, L.P. and AirGate, dated as of July 22, 1998, and any exhibits, schedules or addendum thereto, as such may be amended, modified or supplemented from time to time (the "Trademark Agreement"); and (4) Sprint Trademark and Service mark License Agreement between Sprint Spectrum L.P. and AirGate, dated as of July 22, 1998, and any exhibits, schedules or addendum thereto, as such may be amended, modified or supplemented from time to time (the "Spectrum Trademark Agreement"). "Stated Maturity" means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which such payment of interest or principal was scheduled to be paid in the original documentation governing such Indebtedness, and shall not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof. "Subsidiary" means, with respect to any Person: (1) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled, without regard to the occurrence of any contingency, to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person, or a combination thereof; and (2) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or of one or more Subsidiaries of such Person, or any combination thereof. "Telecommunications Assets" means, with respect to any Person, any asset that is utilized by such Person, directly or indirectly, for the design, development, construction, installation, integration, operation, management or provision of PCS telecommunications equipment, inventory, technology, systems and/or services. Telecommunications Assets shall include stock, joint venture or partnership interests of an entity where substantially all of the assets of the entity consist of Telecommunications Assets. "Trustee" means the trustee under the Indenture. "Unrestricted Subsidiary" means any Subsidiary of AirGate that is designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution, but only to the extent that such Subsidiary: (1) has no Indebtedness other than Non-Recourse Debt; 43 Alternate Senior Subordinated Discount Notes Pages (2) is not party to any agreement, contract, arrangement or understanding with AirGate or any Restricted Subsidiary of AirGate unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to AirGate or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of AirGate; (3) is a Person with respect to which neither AirGate nor any of its Restricted Subsidiaries has any direct or indirect obligation (a) to subscribe for additional Equity Interests or (b) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; (4) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of AirGate or any of its Restricted Subsidiaries; and (5) has at least one director on its board of directors that is not a director or executive officer of AirGate or any of its Restricted Subsidiaries and has at least one executive officer that is not a director or executive officer of AirGate or any of its Restricted Subsidiaries. Any designation of a Subsidiary of AirGate as an Unrestricted Subsidiary shall be evidenced to the Trustee by filing with the Trustee a certified copy of the Board Resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the preceding conditions and was permitted by the covenant described above under the caption "--Selected Covenants--Limitation on Restricted Payments." If, at any time, any Unrestricted Subsidiary would fail to meet the preceding requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of AirGate as of such date and, if such Indebtedness is not permitted to be incurred as of such date under the covenant described under the caption "Limitation on Incurrence of Indebtedness and Issuance of Preferred Stock," AirGate shall be in default of such covenant. The Board of Directors of AirGate may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such designation shall be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of AirGate of any outstanding Indebtedness of such Unrestricted Subsidiary and such designation shall only be permitted if (1) such Indebtedness is permitted under the covenant described under the caption "--Selected Covenants--Limitation on Incurrence of Indebtedness and Issuance of Preferred Stock," calculated on a pro forma basis as if such designation had occurred at the beginning of the four-quarter reference period; and (2) no Default or Event of Default would be in existence following such designation. "Vendor Financing Facility" means any facility under which any Indebtedness is owed to: (1) a vendor or supplier of any property or materials used by AirGate or its Restricted Subsidiaries in their telecommunications business, (2) any Affiliate of such a vendor or supplier, (3) any assignee of such a vendor, supplier or Affiliate of such a vendor or supplier, or (4) a bank or other financial institution that has financed or refinanced the purchase of such property or materials from such a vendor, supplier, Affiliate of such a vendor or supplier or assignee of such a vendor or supplier; provided that the aggregate amount of such Indebtedness does not exceed the sum of: (a) the purchase price of such property or materials, including transportation, installation, warranty and testing charges, as well as applicable taxes paid, in respect of such property or materials, 44 Alternate Senior Subordinated Discount Notes Pages (b) the cost of design, development, site acquisition and construction, (c) any interest or other financing costs accruing or otherwise payable in respect of the foregoing, and (d) the cost of any services provided by such vendor, supplier or Affiliate of such vendor or supplier. "Voting Stock" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing: (1) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years, calculated to the nearest one-twelfth, that will elapse between such date and the making of such payment; by (2) the then outstanding principal amount of such Indebtedness. "Wholly Owned Restricted Subsidiary" of any Person means a Restricted Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which, other than directors' qualifying shares, shall at the time be owned by such Person or by one or more Wholly Owned Restricted Subsidiaries of such Person and one or more Wholly Owned Restricted Subsidiaries of such Person. Book-Entry; Delivery; Form and Transfer The senior subordinated discount notes initially will be in the form of one or more registered global senior subordinated discount notes without interest coupons (collectively, the "Global Senior Subordinated Discount Notes"). Upon issuance, the Global Senior Subordinated Discount Notes will be deposited with the Trustee, as custodian for The Depository Trust Company ("DTC"), in New York, New York, and registered in the name of DTC or its nominee for credit to the accounts of DTC's Direct and Indirect Participants, as defined below. Transfer of beneficial interests in any Global Senior Subordinated Discount Notes will be subject to the applicable rules and procedures of DTC and its Direct or Indirect Participants, including, if applicable, those of Euroclear and Cedel, which may change from time to time. The Global Senior Subordinated Discount Notes may be transferred, in whole and not in part, only to another nominee of DTC or to a successor of DTC or its nominee in certain limited circumstances. Beneficial interests in the Global Senior Subordinated Discount Notes may be exchanged for senior subordinated discount notes in certificated form in certain limited circumstances. See "-- Transfers of Interests in Global Senior Subordinated Discount Notes for Certificated Senior Subordinated Discount Notes." Initially, the Trustee will act as Paying Agent and Registrar. The senior subordinated discount notes may be presented for registration of transfer and exchange at the offices of the Registrar. Depositary Procedures DTC has advised AirGate that DTC is a limited-purpose trust company created to hold securities for its participating organizations (collectively, the "Direct Participants") and to facilitate the clearance and settlement of transactions in those securities between Direct Participants through electronic book-entry changes in accounts of Participants. The Direct Participants include securities brokers and dealers, including the underwriters, banks, trust companies, clearing corporations and certain other organizations, including the Euroclear System ("Euroclear") and Cedel Bank, societe anonyme ("Cedel"). Access to 45 Alternate Senior Subordinated Discount Notes Pages DTC's system is also available to other entities that clear through or maintain a direct or indirect, custodial relationship with a Direct Participant (collectively, the "Indirect Participants"). DTC has advised AirGate that, pursuant to DTC's procedures, (1) upon deposit of the Global Senior Subordinated Discount Notes, DTC will credit the accounts of the Direct Participants designated by the underwriters with portions of the principal amount of the Global Senior Subordinated Discount Notes that have been allocated to them by the underwriters, and (2) DTC will maintain records of the ownership interests of such Direct Participants in the Global Senior Subordinated Discount Notes and the transfer of ownership interests by and between Direct Participants. DTC will not maintain records of the ownership interests of, or the transfer of ownership interests by and between, Indirect Participants or other owners of beneficial interests in the Global Senior Subordinated Discount Notes. Direct Participants and Indirect Participants must maintain their own records of the ownership interests of, and the transfer of ownership interests by and between, Indirect Participants and other owners of beneficial interests in the Global Senior Subordinated Discount Notes. Investors in the Global Senior Subordinated Discount Notes may hold their interests therein directly through DTC if they are Direct Participants in DTC or indirectly through organizations that are Direct Participants in DTC. The laws of some states in the United States require that certain persons take physical delivery in definitive, certificated form, of securities that they own. This may limit or curtail the ability to transfer beneficial interests in a Global Senior Subordinated Discount Note to such persons. Because DTC can act only on behalf of Direct Participants, which in turn act on behalf of Indirect Participants and others, the ability of a person having a beneficial interest in a Global Senior Subordinated Discount Note to pledge such interest to persons or entities that are not Direct Participants in DTC, or to otherwise take actions in respect of such interests, may be affected by the lack of physical certificates evidencing such interests. For certain other restrictions on the transferability of the senior subordinated discount notes see "--Transfers of Interests in Global Senior Subordinated Discount Notes for Certificated Senior Subordinated Discount Notes". Except as described in "--Transfers of Interests in Global Senior Subordinated Discount Notes for Certificated Senior Subordinated Discount Notes", owners of beneficial interests in the Global Senior Subordinated Discount Notes will not have senior subordinated discount notes registered in their names, will not receive physical delivery of senior subordinated discount notes in certificated form and will not be considered the registered owners or holders thereof under the Indenture for any purpose. Under the terms of the Indenture, AirGate and the Trustee will treat the persons in whose names the senior subordinated discount notes are registered, including senior subordinated discount notes represented by Global Senior Subordinated Discount Notes, as the owners thereof for the purpose of receiving payments and for any and all other purposes whatsoever. Payments in respect of the principal, premium and interest on Global Senior Subordinated Discount Notes registered in the name of DTC or its nominee will be payable by the Trustee to DTC or its nominee as the registered holder under the Indenture. Consequently, neither AirGate, the Trustee nor any agent of AirGate or the Trustee has or will have any responsibility or liability for (1) any aspect of DTC's records or any Direct Participant's or Indirect Participant's records or any Direct Participant's or Indirect Participant's records relating to or payments made on account of beneficial ownership interests in the Global Senior Subordinated Discount Notes or for maintaining, supervising or reviewing any of DTC's records or any Direct Participant's or Indirect Participant's records relating to the beneficial ownership interests in any Global Senior Subordinated Discount Note or (2) any other matter relating to the actions and practices of DTC or any of its Direct Participants or Indirect Participants. 46 Alternate Senior Subordinated Discount Notes Pages DTC has advised AirGate that its current payment practice, for payments of principal, interest and the like, with respect to securities such as the senior subordinated discount notes is to credit the accounts of the relevant Direct Participants with such payment on the payment date in amounts proportionate to such Direct Participant's respective ownership interests in the Global Senior Subordinated Discount Notes as shown on DTC's records. Payments by Direct Participants and Indirect Participants to the beneficial owners of the senior subordinated discount notes will be governed by standing instructions and customary practices between them and will not be the responsibility of DTC, the Trustee or AirGate. Neither AirGate nor the Trustee will be liable for any delay by DTC or its Direct Participants or Indirect Participants in identifying the beneficial owners of the senior subordinated discount notes, and AirGate and the Trustee may conclusively rely on and will be protected in relying on instructions from DTC or its nominee as the registered owner of the senior subordinated discount notes for all purposes. The Global Senior Subordinated Discount Notes will trade in DTC's Same-Day Funds Settlement System and, therefore, transfers between direct Participants in DTC will be effected in accordance with DTC's procedures, and will be settled in immediately available funds. Transfers between Indirect Participants, other than Indirect Participants who hold an interest in the senior subordinated discount notes through Euroclear or Cedel, who hold an interest through a Direct Participant will be effected in accordance with the procedures of such Direct Participant but generally will settle in immediately available funds. Transfers between and among Indirect Participants who hold interests in the senior subordinated discount notes through Euroclear and Cedel will be effected in the ordinary way in accordance with their respective rules and operating procedures. Subject to compliance with the transfer restrictions applicable to the senior subordinated discount notes described herein, cross-market transfers between Direct Participants in DTC, on the one hand, and Indirect Participants who hold interests in the senior subordinated discount notes through Euroclear or Cedel, on the other hand, will be effected by Euroclear's or Cedel's respective Nominee through DTC in accordance with DTC's rules on behalf of Euroclear or Cedel; however, delivery of instructions relating to crossmarket transactions must be made directly to Euroclear or Cedel, as the case may be, by the counterparty in accordance with the rules and procedures of Euroclear or Cedel and within their established deadlines, i.e., Brussels time for Euroclear and UK time for Cedel. Indirect Participants who hold interest in the senior subordinated discount notes through Euroclear and Cedel may not deliver instructions directly to Euroclear's or Cedel's Nominee. Euroclear or Cedel will, if the transaction meets its settlement requirements, deliver instructions to its respective Nominee to deliver or receive interests on Euroclear's or Cedel's behalf in the relevant Global Senior Subordinated Discount Note in DTC, and make or receive payment in accordance with normal procedures for same-day fund settlement applicable to DTC. Because of time zone differences, the securities accounts of an Indirect Participant who holds an interest in the senior subordinated discount notes through Euroclear or Cedel purchasing an interest in a Global Senior Subordinated Discount Note from a Direct Participant in DTC will be credited, and any such crediting will be reported to Euroclear or Cedel during the European business day immediately following the settlement date of DTC in New York. Although recorded in DTC's accounting records as of DTC's settlement date in New York, Euroclear and Cedel customers will not have access to the cash amount credited to their accounts as a result of a sale of an interest in a Global Senior Subordinated Discount Note to a DTC Participant until the European business day for Euroclear or Cedel immediately following DTC's settlement date. DTC has advised AirGate that it will take any action permitted to be taken by a holder of senior subordinated discount notes only at the direction of one or more Direct Participants to whose account interests in the Global Senior Subordinated Discount Notes are credited and only in respect of such 47 Alternate Senior Subordinated Discount Notes Pages portion of the aggregate principal amount of the senior subordinated discount notes to which such Direct Participant or Direct Participants has or have given direction. However, if there is an Event of Default under the senior subordinated discount notes, DTC reserves the right to exchange Global Senior Subordinated Discount Notes, without the direction of one or more of its Direct Participants, for legended senior subordinated discount notes in certificated form, and to distribute such certificated forms of senior subordinated discount notes to its Direct Participants. See "--Transfers of Interests in Global Senior Subordinated Discount Notes for Certificated Senior Subordinated Discount Notes." Although DTC, Euroclear and Cedel have agreed to the foregoing procedures to facilitate transfers of interests in the Global Senior Subordinated Discount Notes among Direct Participants, including Euroclear and Cedel, they are under no obligation to perform or to continue to perform such procedures, and such procedures may be discontinued at any time. None of AirGate, the underwriters or the Trustee shall have any responsibility for the performance by DTC, Euroclear or Cedel or their respective Direct and Indirect Participants of their respective obligations under the rules and procedures governing any of their operations. The information in this section concerning DTC, Euroclear and Cedel and their book-entry systems has been obtained from sources that AirGate believes to be reliable, but AirGate takes no responsibility for the accuracy thereof. Transfers of Interests in Global Senior Subordinated Discount Notes for Certificated Senior Subordinated Discount Notes An entire Global Senior Subordinated Discount Note may be exchanged for definitive senior subordinated discount notes in registered, certificated form without interest coupons ("Certificated Senior Subordinated Discount Notes") if: (1) DTC (a) notifies AirGate that it is unwilling or unable to continue as depositary for the Global Senior Subordinated Discount Notes and AirGate thereupon fails to appoint a successor depositary within 90 days or (b) has ceased to be a clearing agency registered under the Exchange Act, (2) AirGate, at its option, notifies the Trustee in writing that it elects to cause the issuance of Certificated Senior Subordinated Discount Notes or (3) there shall have occurred and be continuing a Default or an Event of Default with respect to the senior subordinated discount notes. In any such case, AirGate will notify the Trustee in writing that, upon surrender by the Direct and Indirect Participants of their interest in such Global Senior Subordinated Discount Note, Certificated Senior Subordinated Discount Notes will be issued to each person that such Direct and Indirect Participants and the DTC identify as being the beneficial owners of the related senior subordinated discount notes. Beneficial interests in Global Senior Subordinated Discount Notes held by any Direct or Indirect Participant may be exchanged for Certificated Senior Subordinated Discount Notes upon request to DTC, by such Direct Participant, for itself or on behalf of an Indirect Participant, to the Trustee in accordance with customary DTC procedures. Certificated Senior Subordinated Discount Notes delivered in exchange for any beneficial interest in any Global Senior Subordinated Discount Note will be registered in the names, and issued in any approved denominations, requested by DTC on behalf of such Direct or Indirect Participants, in accordance with DTC's customary procedures. Neither AirGate nor the Trustee will be liable for any delay by the holder of any Global Senior Subordinated Discount Note or DTC in identifying the beneficial owners of senior subordinated discount notes, and AirGate and the Trustee may conclusively rely on, and will be protected in relying on, instructions from the holder of the Global Senior Subordinated Discount Note or DTC for all purposes. 48 Alternate Senior Subordinated Discount Notes Pages Same Day Settlement and Payment The Indenture will require that payments in respect of the senior subordinated discount notes represented by the Global Senior Subordinated Discount Notes, including principal, premium, if any, and interest, be made by wire transfer of immediately available same day funds to the accounts specified by the holder of interests in such Global Senior Subordinated Discount Notes. With respect to Certificated Senior Subordinated Discount Notes, AirGate will make all payments of principal, premium, if any, and interest by wire transfer of immediately available same day funds to the accounts specified by the holders thereof or, if no such account is specified, by mailing a check to each such holder's registered address. AirGate expects that secondary trading in the Certificated Senior Subordinated Discount Notes will also be settled in immediately available funds. UNITED STATES FEDERAL INCOME TAX CONSEQUENCES The following is a discussion of United States federal income tax consequences of the acquisition, ownership and disposition of the senior subordinated discount notes. Unless otherwise stated this discussion is limited to the tax consequences to those persons who purchase the senior subordinated discount notes on their original issue and who hold such senior subordinated discount notes as capital assets within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the "Code"). The discussion does not purport to address tax consequences to holders who may be subject to special tax rules because of their status, such as financial institutions,insurance companies, tax-exempt organizations and broker-dealers, or because of how they hold the senior subordinated discount notes, such as if the senior subordinated discount notes are held as part of a straddle, hedge, conversion transaction, or other integrated investment. In addition, this discussion does not address U.S. federal alternative minimum tax consequences or any aspect of state, local or foreign taxation. This discussion is based upon the Code, the Treasury regulations promulgated thereunder and administrative and judicial interpretation thereof, all or which are subject to change possibly on a retroactive basis. For purposes of this discussion, a U.S. holder is any United States citizen or resident, corporation or partnership or other entity created or organized on or under the laws of the United States or any state thereof, estate the income of which is subject to United State federal income taxation regardless of its source, or trust if a United States court exercises primary jurisdiction over its administration and one or more United States persons have the authority to control all of its substantial decisions. A foreign holder is any holder other than a U.S. holder. Prospective purchasers of the senior subordinated discount notes are urged to consult their tax advisors concerning the United States federal income tax consequences to them to acquiring, owning and disposing of the senior subordinated discount notes, as well as the application of state, local and foreign income and other tax laws. Characterization of the Senior Discount Notes AirGate will treat the senior subordinated discount notes as indebtedness for federal income tax purposes, and the following discussion assumes that such treatment will be respected. Tax Consequences to U.S. Holders Taxation of interest. The senior subordinated discount notes will be treated as issued with original issue discount ("OID"). Thus, all U.S. holders, regardless of their method of accounting for tax purposes, will be required to include OID in income as it accrues. OID generally will be treated as interest income to the U.S. holder and will accrue on a yield-to-maturity basis over the life of the senior subordinated discount notes, as discussed below. The rate at which OID accrues on the life of the senior subordinated discount notes will not necessarily equal the stated rate of interest on the 49 Alternate Senior Subordinated Discount Notes Pages senior subordinated discount notes payable beginning in 2004. U.S. holders will not be required to include in income the actual cash receipt of interest payments beginning in 2004. The amount of OID with respect to a senior subordinated discount note will be an amount equal to the excess of the stated redemption price at maturity of such senior subordinated discount note over the issue price of such senior subordinated discount note. The stated redemption price at maturity of each senior subordinated discount note will include all cash payments, including principal and interest, required to be made under the senior subordinated discount note through maturity. The issue price of a senior subordinated discount note will be the first price at which a substantial portion of the senior subordinated discount notes are sold to the holder for cash. The amount of OID accruing to a holder with respect to any senior subordinated discount note will be the sum of the "daily portions" of OID with respect to such senior subordinated discount note for each day during the taxable year in which such holder owns such senior subordinated discount note ("accrued OID"). The daily portion is determined by allocating to each day in any "accrual period" a pro rata portion of the OID allocable to that accrual period. An accrual period may be of any length and may vary in length over the term of a senior subordinated discount note provided that each accrual period is no longer than one year and each scheduled payment of principal or interest occurs either on the final day or on the first day of an accrual period. Accrual periods for the senior subordinated discount notes will occur every six months with the final accrual period expected to end on the date of maturity. The amount of OID accruing during any six-month accrual period with respect to a senior discount note will be equal to the following amount: (1) the "adjusted issue price" of such senior discount note at the beginning of that accrual period, multiplied by (2) the yield to maturity of such senior discount note (taking into account the length of the accrual period). OID allocable to the final accrual period is the difference between the amount payable at maturity and the adjusted issue price at the beginning of the final accrual period. If all accrual periods are of equal length, except for an initial short accrual period, the amount of OID allocable to the initial short accrual period may be computed under any reasonable method. The adjusted issue price of a senior discount note at the beginning of its first accrual period will be equal to its issue price. The adjusted issue price at the beginning of any subsequent accrual period will be equal to: . the adjusted issue price at the beginning of the preceding accrual period, increased by, . the amount of OID accrued during the preceding accrual period, and included in the gross income of any holder, and decreased by, . any payments made on the senior discount note during the preceding accrual period. AirGate may redeem the senior subordinated discount notes at any time on or after a certain date, and, in certain circumstances, may redeem or repurchase all or a portion of the senior subordinated discount notes any time prior to the maturity date. For purposes of calculating OID on the senior subordinated discount notes, the Treasury regulations will treat AirGate as having exercised its option to redeem the senior subordinated discount notes if the exercise of that option would lower the yield on the senior subordinated discount notes. Because AirGate's exercise of the option to redeem would increase, rather than decrease, the yield on the senior subordinated discount notes, it will not be treated as having exercised the option under these rules. Sale, exchange or retirement of the senior subordinated discount notes. Upon the sale, exchange or retirement of senior subordinated discount notes, a U.S. holder will recognize gain or loss equal to the difference between the amount realized upon the sale, exchange or retirement and the U.S. holder's adjusted tax basis in the senior subordinated discount notes. An original U.S. holder's adjusted tax basis in the senior subordinated discount notes generally will be the U.S. 50 Alternate Senior Subordinated Discount Notes Pages holder's cost therefor, increased by the amount of OID previously accrued on the senior subordinated discount notes through the sale, exchange or retirement date and decreased by the amount of all prior cash payments received with respect to the senior subordinated discount notes. Gain or loss recognized by a U.S. holder on the sale, exchange, or retirement of the senior subordinated discount notes will be capital gain or loss. An individual who disposes of senior subordinated discount notes that he or she holds as a capital asset for more than one year qualifies for long term capital gains tax rate. Effective 2001, the 20% rate drops to 18% or the 10% rate drops to 8% for capital assets acquired after the year 2000 and held for more than five years. To take advantage of the lower rate, individuals may elect to treat pre-2001 property as sold and repurchased at fair market value on January 1, 2001. Tax Consequences to Foreign Holders Assuming that the interest income received by a foreign holder is not effectively connected with the foreign holder's conduct of a trade or business in the United States, a foreign holder generally will not be subject to United States federal income or withholding tax on such interest so long as the foreign holder (1) is not actually or constructively a "10 percent shareholder" of AirGate or a "controlled foreign corporation" with respect to which AirGate is a "related person" within the meaning of the Code, and (2) provides an appropriate statement, signed under penalties of perjury, certifying that the beneficial owner of the senior subordinated discount note is a foreign person and providing that foreign person's name and address. If the foregoing conditions are not satisfied, then interest paid on the senior subordinated discount notes will be subject to United States withholding tax at a rate of 30 percent, unless such rate is reduced or eliminated pursuant to an applicable tax treaty. Any capital gain a foreign holder realized on the sale, exchange, retirement or other taxable disposition of a senior discount note will be exempt from United States federal income and withholding tax, provided that: (a) the gain is not effectively connected with the foreign holder's conduct of a trade or business in the United States; (b) in the case of a foreign holder that is an individual, the foreign holder is not present in the United States for 183 days or more in the taxable year; and (c) the foreign holder is not subject to tax pursuant to the provisions of U.S. tax law applicable to certain expatriates. If the interest, gain or other income a foreign holder recognizes on a senior subordinated discount note is effectively connected with the foreign holder's conduct of a trade or business in the United States, the foreign holder, although exempt from the withholding tax previously discussed if an appropriate statement is furnished, generally will be subject to United States federal income tax on the interest, gain or other income at regular federal income tax rates. In addition, if the foreign holder is a foreign corporation, it may be subject to a branch profits tax equal to 30 percent of its "effectively connected earnings and profits," as adjusted for certain items, unless it qualifies for a lower rate under an applicable tax treaty. If interest on the senior subordinated discount notes is exempt from withholding of United States federal income tax under the rules described above, the senior subordinated discount notes will not be included in the estate of a deceased foreign holder for United States federal estate tax purposes. Information Reporting and Backup Withholding AirGate will be required to report annually to the IRS, and to each holder of record, the amount of OID accrued on the senior subordinated discount notes and the amount of interest withheld for federal income taxes, if any, for each calendar year, except as to exempt holders, generally, corporations, tax-exempt organizations, qualified pension and profit-sharing trusts, individual retirement accounts, or nonresident aliens who provide certification as to their status. Each holder, 51 Alternate Senior Subordinated Discount Notes Pages other than holders who are not subject to the reporting requirements will be required to provide to AirGate, under penalties of perjury, a certificate containing the holder's name, address, correct federal taxpayer identification number and a statement that the holder is not subject to backup withholding. Should a nonexempt holder fail to provide the required certificate, AirGate will be required to withhold 31% of the interest otherwise payable to the holder and to remit the withheld amount to the IRS as a credit against the holder's federal income tax liability. In the case of payments of interest to foreign holders, temporary Treasury regulations provide that the 31% backup withholding tax and certain information reporting will not apply to such payments with respect to which the requisite certification, as described above for the exemption from the 30% withholding tax, has been received or an exemption has otherwise been established; provided that neither AirGate nor its payment agent has actual knowledge that the holder is a United States person or that the conditions of any other exemption are not in fact satisfied. Under temporary Treasury regulations, these information reporting and backup withholding requirements will apply, however, to the gross proceeds paid to a foreign holder on the disposition of the senior subordinated discount notes by or through a United States office of a United States or foreign broker, unless the holder certifies to the broker under penalties of perjury as to its name, address and status as a foreign person or the holder otherwise establishes an exemption. Information reporting requirements, but not backup withholding, will also apply to a payment of the proceeds of a disposition of, the senior subordinated discount notes by or through a foreign office of a United States broker or foreign brokers with certain types of relationships to the United States unless such broker has documentary evidence in its file that the holder of the senior subordinated discount notes is not a United States person, and such broker has no actual knowledge to the contrary, or the holder establishes an exception. Neither information reporting nor backup withholding generally will apply to a payment of the proceeds of a disposition of the senior subordinated discount notes by or through a foreign office of a foreign broker not subject to the preceding sentence. The Treasury Department recently promulgated final regulations regarding the withholding and information reporting rules relating to foreign holders discussed above. In general, the final regulations do not significantly alter the substantive withholding and information reporting requirements but rather unify current certification procedures and forms and clarify reliance standards. The final regulations are generally effective for payments made after December 31, 1999, subject to certain transition rules. Foreign holders should consult their own tax advisors with respect to the impact, if any, of the new final regulations. Applicable High-Yield Discount Obligations If the senior subordinated discount notes are considered to have "significant OID" and if the yield of the senior subordinated discount notes is at least five percentage points above the applicable federal rate, the senior subordinated discount notes will be classified as applicable high yield discount obligations and AirGate would not be able to deduct for tax purposes any OID required to be accrued on the senior subordinated discount notes until such interest is actually paid. In addition, if the senior subordinated discount notes are classified as applicable high yield discount obligations and the yield on the senior subordinated discount notes is more than six percentage points above the applicable federal rate, then: . a portion of such interest corresponding to the yield in excess of six percentage points above the applicable federal rate would not be deductible by AirGate at any time, and . a U.S. corporate holder may be entitled to treat the interest that would not be deductible as a dividend to the extent of the earnings and profits of AirGate, which may then qualify for the dividends received deduction. In such event, U.S. corporate holders should consult their tax advisers concerning the availability of the dividends received deduction. 52 Alternate Senior Subordinated Discount Notes Pages UNDERWRITING We, each of the subsidiary guarantors and the underwriters named below have entered into an underwriting agreement covering the senior subordinated discount notes to be offered in this offering. Donaldson, Lufkin & Jenrette Securities Corporation and Paribas Corporation are acting as representatives of the underwriters. Each underwriter has agreed to purchase from us the principal amount of senior subordinated discount notes set forth opposite its name in the following table.
Principal amount of senior subordinated Underwriters discount notes ------------ ---------------------- Donaldson, Lufkin & Jenrette Securities Corporation.............. Paribas Corporation....... ------------ Total................... $150,000,000 ============
The underwriting agreement provides that if the underwriters take any of the senior subordinated discount notes set forth in the table above, then they must take all of these senior subordinated discount notes. No underwriter is obligated to take any shares allocated to a defaulting underwriter except under limited circumstances. The underwriters initially propose to offer the senior subordinated discount notes in part directly to the public at the initial public offering price set forth on the cover page of this prospectus and in part to certain dealers, including the underwriters, at such price less a concession not in excess of % of the principal amount of the senior subordinated discount notes. The underwriters may allow, and such dealers may re-allow, to certain other dealers a concession not in excess of % of the principal amount of the senior subordinated discount notes. After the initial offering of the senior subordinated discount notes, the public offering price and other selling terms may be changed by the underwriters at any time without notice. The underwriters do not intend to confirm sales to any accounts over which they exercise discretionary authority. We and each of the subsidiary guarantors have jointly and severally agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments that the underwriters may be required to make in respect thereof. There is no existing market for the senior subordinated discount notes. We cannot assure you as to the liquidity of any market that may develop for the senior subordinated discount notes, the ability of the holders of the senior subordinated discount notes to sell their senior subordinated discount notes or the price at which holders would be able to sell their senior subordinated discount notes. Future trading prices of the senior subordinated discount notes will depend on many factors, including, among other things, prevailing interest rates, AirGate's operating results and the market for similar securities. AirGate has been advised by the underwriters that the underwriters intend to make a market in the senior subordinated discount notes, subject to the limits imposed by the Securities Act and the Securities Exchange Act, however, they are not obligated to do so, and may discontinue such market-making at any time without notice. Other than in the United States, no action has been taken by AirGate or the underwriters that would permit a public offering of the senior subordinated discount notes included in this offering in any jurisdiction where action for that purpose is required. The senior subordinated discount notes included in this offering may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisement in connection with the offer and sale of any such senior 53 Alternate Senior Subordinated Discount Notes Pages subordinated discount notes be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of such jurisdiction. This prospectus is not an offer to sell or a solicitation of an offer to buy any senior subordinated discount notes included in this offering in any jurisdiction where that would not be permitted or legal. We expect that delivery of the senior subordinated discount notes will be made to investors on or about , 1999. The underwriters may purchase and sell senior subordinated discount notes in the open market in connection with this offering. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of senior subordinated discount notes than they are required to purchase in the offering. Stabilizing transactions consist of certain bids or purchases made for the purpose of preventing or slowing a decline in the market price of the senior subordinated discount notes while the offering is in progress. The underwriters may also impose a penalty bid, which means that an underwriter must repay to the other underwriters a portion of the underwriting discount received by it. An underwriter may be subject to a penalty bid if the representatives of the underwriters, while engaging in stabilizing or short covering transactions, repurchase senior subordinated discount notes sold by or for the account of that underwriter. These activities may stabilize, maintain or otherwise affect the market price of the senior subordinated discount notes. As a result, the price of the senior subordinated discount notes may be higher than the price that otherwise might exist in the open market. If the underwriters commence these activities, they may discontinue them at any time. The underwriters may carry out these transactions in the over-the-counter market or otherwise. Donaldson, Lufkin & Jenrette Securities Corporation is also acting as underwriter under our concurrent offering of common stock, for which they will receive fees customary for performing such services. In addition, we intend to engage Donaldson, Lufkin & Jenrette Securities Corporation to serve as our financial advisor in the negotiation of our proposed vendor equipment financing, for which they would receive fees customary for performing such services. LEGAL MATTERS The validity of the senior subordinated discount notes offered hereby will be passed upon for AirGate by Patton Boggs LLP, Washington, D.C. Certain legal matters in connection with this offering will be passed upon for the underwriters by Skadden, Arps, Slate, Meagher & Flom (Illinois), Chicago, Illinois. 54 Alternate Senior Subordinated Discount Notes Pages - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- , 1999 [LOGO] AirGate PCS, Inc. $150,000,000 % Senior Subordinated Discount Notes Due 2009 ---------------- PROSPECTUS ---------------- Donaldson, Lufkin & Jenrette Paribas Corporation - -------------------------------------------------------------------------------- We have not authorized any dealer, salesperson or other person to give you written information other than this prospectus or to make representations as to matters not stated in this prospectus. You must not rely on unauthorized information. This prospectus is not an offer to sell these securities or our solicitation of your offer to buy the securities in any jurisdiction where that would not be permitted or legal. Neither the delivery of this prospectus nor any sales made hereunder after the date of this prospectus shall create an implication that the information contained herein or the affairs of AirGate have not changed since the date hereof. Until , 1999 ( days after the date of this prospectus), all dealers that effect transactions in these securities may be required to deliver a prospectus. This is in addition to the dealer's obligation to deliver a prospectus when acting as an underwriter in this offering or when selling previously unsold allotments or subscriptions. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Part II Information Not Required in the Prospectus Item 13. Other Expenses of Issuance and Distribution AirGate PCS, Inc. and AGW Leasing Company, Inc. (the "Registrants") estimate that expenses (other than underwriting discounts and commissions) in connection with the offering described in this Registration Statement will be as set forth in the following table. All amounts shown are estimates except for the Securities and Exchange Commission registration fee, the NASD filing fee and the Nasdaq National Market listing fee. Securities and Exchange Commission registration fee................ $ 75,801 National Association of Securities Dealers, Inc. filing fee........ 27,767 Nasdaq National Market listing fees................................ 76,625 Printing and engraving expenses.................................... 350,000 Accountants' fees and expenses..................................... 250,000 Legal fees and expenses............................................ 350,000 Fees and expenses for qualifications under state securities laws (including legal fees)............................................ 10,000 Transfer agent fees................................................ 5,000 Miscellaneous...................................................... 854,807 ---------- Total............................................................ $2,000,000 ==========
Item 14. Indemnification of Directors and Officers In accordance with General Corporation Law of the State of Delaware (being Chapter 1 of Title 8 of the Delaware Code), each Registrant's Certificate of Incorporation provides as follows: Each Registrant's Certificate of Incorporation provides that the Registrant shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Registrant to procure a judgment in its favor by reason of the fact that such person acted in any of the capacities set forth above, against expenses (including attorney's fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if such person acted under similar standards, provided that the Registrant receives a written undertaking by or on behalf of the director or officer to repay such amount if it is ultimately determined that that such person is not entitled to be indemnified by the Registrant. Each Registrant's Certificate of Incorporation further provides that to the extent that a director or officer of the Registrant has been successful in the defense of any action, suit or proceeding referred to above or in the defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorney's fees) actually and reasonably incurred by him or her in connection therewith, that indemnification provided for by the Certificate of Incorporation shall not be deemed exclusive of any other rights to which the indemnified party may be entitled; and that the Registrant is empowered to purchase and maintain insurance on behalf of a director or officer of the Registrant against any liability asserted against him or here in any such capacity, or arising out of such person's status as such, whether or not the Registrant would have the power to indemnify him against such liabilities under the Certificate of Incorporation. II-1 In addition to indemnification provided to our officers and directors in the Certificate of Incorporation and under the laws of Delaware, AirGate PCS, Inc. has entered into indemnification agreements with certain officers and directors to provide further assurances and protection from liability that they may incur in their respective positions and duties in connection with the public offering or as a fiduciary of AirGate PCS, Inc. and its shareholders. We have agreed to indemnify and hold harmless, to the extent permitted under Delaware law, each person and affiliated person (generally, any director, officer, employee, controlling person, agent, or fiduciary of the indemnified person), provided that the indemnified person was acting or serving at our request in his capacity as either an officer, director, employee, controlling person, fiduciary or other agent or affiliate of AirGate PCS, Inc. Under the indemnification agreements, each person is indemnified against any and all losses, claims, damages, expenses and liabilities, joint or several, (including attorney's fees, expenses and amount in settlement) that occur in connection with any threatened, pending or completed action, suit, proceeding, alternative dispute resolution mechanism or hearing, inquiry or investigation that such indemnified person believes in good faith may lead to the institution of such action, under the Securities Act of 1933, Securities Exchange Act of 1934 or other federal or state statutory law or regulation, at common law or otherwise, which relate directly or indirectly to the registration, purchase, sale or ownership of any securities of AirGate PCS, Inc. or to any fiduciary obligation owed with respect to AirGate PCS, Inc. and its stockholders. As a condition to receiving indemnification, indemnified persons are required to give us notice in writing of any claim for which indemnification may be sought under this agreement. The agreement provides that an indemnified person may receive indemnification against (1) expenses (including attorney's fees and other costs, expenses and obligations incurred), judgments, fines and penalties; (2) amounts paid in settlement (approved by AirGate PCS, Inc.); (3) federal, state, local taxes imposed as a result of receipt of any payments under the indemnification agreement; and (4) all interest, assessments and other charges paid or payable in connection with any expenses, costs of settlement or taxes. An indemnified person will be indemnified against expenses to the extent that he is successful on the merits or otherwise, including dismissal of an action without prejudice, in defense of any action, suit, proceeding, inquiry or investigation. Expenses that the indemnified person have or will incur in connection with a suit or other proceeding may be received in advance within 10 days of written demand to AirGate PCS, Inc. Prior to receiving indemnification or being advanced expenses, a committee, consisting of either members of the board of directors or any person appointed by the board of directors, must make a determination of whether the indemnified person is entitled to indemnification under Delaware law. If there is a change in control (as defined in the indemnification agreement) that occurs without majority approval of the board of directors, then the committee will consist of independent legal counsel selected by the indemnified person and approved by AirGate PCS, Inc. to render a written opinion as to whether and the extent of indemnification that the indemnified person is entitled, which will be binding on AirGate PCS, Inc. Under the indemnification agreement, an indemnified person may appeal a determination by the committee's determination not to grant indemnification or advance expenses by commencing a legal proceeding. Failure of the committee to make a indemnification determination or the termination of any claim by judgment, order, settlement, plea of nolo contendere, or conviction does not create a presumption that either (1) the indemnified person did not meet a particular standard of conduct or belief or (2) that the court has determined that indemnification is not available. Under the indemnification agreement, an indemnified person is entitled to contribution from us for losses, claims, damages, expenses or liabilities as well as other equitable considerations upon the II-2 determination of a court of competent jurisdiction that indemnification is not available. The amount contributed by AirGate PCS, Inc. will be in proportion, as appropriate, to reflect the relative benefits received by us and the indemnified person or, if such contribution is not permitted under Delaware law, then the relative benefit will be considered with the relative fault of both parties. In connection with the registration of AirGate PCS, Inc.'s securities, the relative benefits received by AirGate PCS, Inc. and indemnified person will be deemed to be in the same respective proportions of the net proceeds from the offering (less expenses) received by AirGate PCS, Inc. and the indemnified person. The relative fault of AirGate PCS, Inc. and the indemnified person is determined by reference to the whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by AirGate PCS, Inc. or the indemnified person and their relative intent, knowledge, access to information and opportunity to correct such statement or omission. Contribution paid takes into account the equitable considerations, if any, instead of a pro rata or per capital allocation. In connection with the offering of AirGate PCS, Inc. securities, an indemnified person will not be required to contribute any amount in excess of the lessor of (1) the proportion of the total of such losses, claims, damages, or liabilities indemnified against equal to the proportion of the total securities sold under the registration statement sold by the indemnified person or (2) the proceeds received by the indemnified person from the sale of securities under the registration statement. Contribution will not be available if such person is found guilty of fraudulent misrepresentation, as defined in the agreement. In the event that AirGate PCS, Inc. is also obligated under a claim and upon written notice to the indemnified person, we are entitled to assume defense of the claim and select counsel which is approved by the indemnified person. Upon receipt of the indemnified person's approval, AirGate PCS, Inc. will directly incur the legal expenses and as a result will have the right to conduct the defense as it sees fit in its sole discretion, including the right to settle any claim against any indemnified party, without consent of the indemnified person. The underwriting agreements to be filed as Exhibits 1.1 and 1.2 to the Registration Statement provides for indemnification by the underwriters of AirGate PCS, Inc. and its directors and certain officers, and by AirGate PCS, Inc. of the underwriters, for certain liabilities arising under the Securities Act or otherwise. Item 15. Recent Sales of Unregistered Securities In accordance with Item 701 of Regulation S-K, the following information is presented with respect to securities sold by the Registrants within the past three years which were not registered under the Securities Act. (i) September 1996 Note (a) On September 27, 1996, AirGate, L.L.C. (the "LLC") sold a $180,000 8% note, due and payable or convertible on August 8, 1998. This note was rolled into the 1998 Financing outlined below. (b) The note was sold to a related party who qualified as an accredited investor under Regulation D promulgated under the Securities Act. (c) The note was sold for $180,000. (d) The notes were offered and sold in reliance upon an exemption from registration under Section 4(2) of the Securities Act. II-3 (e) Not applicable (f) Not applicable (ii) The 1998 Financing (a) Between August and September 1998, AirGate PCS, Inc. sold $4,815,000 of 8% Convertible Promissory Notes. $3 million of the notes was due on September 18, 1999, while $1.815 million was due on August 20, 1999, unless converted. The notes are convertible into Series A preferred stock or common stock upon the satisfaction of certain conditions. AirGate PCS, Inc. also issued warrants to purchase the preferred stock to the purchasers of the notes, which warrants were to be exercised on the earlier of five years from the date of issuance or an initial public offering. These notes were rolled into the May 1999 Refinancing. (b) The notes and warrants were sold to two related party venture funds and their affiliates who qualified as accredited investors within the meaning of Regulation D under the Securities Act. (c) The notes and the warrants were sold for a total aggregate consideration of $4,815,000. (d) The notes were offered and sold in reliance upon an exemption from registration under Section 4(2) of the Securities Act. (e) Not applicable (f) Not applicable (iii) The 1999 Financings (a) In March, April and May 1999 AirGate PCS, Inc. sold an aggregate of $2.5 million of 8% subordinated notes. (b) The notes and warrants were sold to two related party venture funds, Weiss, Peck and Greer Venture Partners affiliated funds and JAFCO America Ventures, Inc. affiliated funds, who qualified as accredited investors within the meaning of Regulation D under the Securities Act. (c) The notes were sold for a total aggregate consideration of $2.5 million. (d) The notes were offered and sold in reliance upon an exemption from registration under Section 4(2) of the Securities Act. (e) Not applicable (f) Not applicable (iv) The May 1999 Refinancing (a) In May 1999, AirGate PCS, Inc. consolidated the promissory notes issued to the two related party venture funds in the 1998 financing and the March, April and May 1999 financings totaling $7.325 million into promissory notes that will be converted into shares of AirGate PCS, Inc.'s common stock concurrently with the completion of the offering contemplated hereby at a price 48% less than the price of a share of common stock sold in the offering. The warrants held by these funds II-4 were terminated. In addition, the Registrant issued warrants to Weiss, Peck and Greer Venture Partners affiliated funds to purchase shares of common stock for an aggregate price of up to $2.75 million at a price 25% less than the price of a share of common stock sold in this offering. (b) The promissory notes and the warrants were issued to two related party venture funds, Weiss, Peck and Greer Venture Partners affiliated funds and JAFCO America Ventures, Inc. affiliated funds, who qualified as accredited investors within the meaning of Regulation D under the Securities Act. (c) The aggregate consideration received in exchange for the promissory notes and the warrant was the refinancing of $7.561 million of promissory notes and the cancellation of warrants held by each venture fund. (d) The notes and the warrant were offered and sold in reliance upon an exemption from registration under Section 4(2) of the Securities Act. (e) Not applicable (f) Not applicable Item 16. Exhibits The exhibits and financial statement schedules filed as a part of the Registration Statement are as follows: (a) List of Exhibits 1.1 Form of Equity Underwriting Agreement 1.2** Form of Debt Underwriting Agreement 3.1* Amended and Restated Certificate of Incorporation of AirGate PCS, Inc. 3.2* Amended and Restated Bylaws of AirGate PCS, Inc. 4.1* Specimen of Common Stock Certificate of AirGate PCS, Inc. 4.2 Form of warrants 4.3** Form of Indenture for Senior Discount Notes 5.1 Opinion of Patton Boggs LLP regarding legality of the common stock being offered 5.2 Opinion of Patton Boggs LLP regarding legality of the Senior Discount Notes being offered 10.1*+ Sprint PCS Management Agreement between SprintCom, Inc. and AirGate Wireless, L.L.C. 10.2* Sprint PCS Services Agreement between Sprint Spectrum L.P. and AirGate Wireless, L.L.C. 10.3* Sprint Spectrum Trademark and Service Mark License Agreement 10.4* Sprint Trademark and Service Mark License Agreement 10.5*+ Master Site Agreement dated August 6, 1998 between AirGate and BellSouth Carolinas PCS, L.P., BellSouth Personal Communications, Inc. and BellSouth Mobility PCS. 10.6*+ Compass Telecom, L.L.C. Construction Management Agreement 10.7 Commercial Real Estate Lease dated August 7, 1998 between AirGate and Perry Company of Columbia, Inc. to lease a warehouse facility. 10.8* Form of Indemnification Agreement
II-5 10.9* Employment Agreement dated April 9, 1999 between AirGate and Mr. Thomas M. Dougherty 10.10 Form of Executive Employment Agreement 10.11 Form of 1999 Stock Option Plan 10.12** Form of Consent and Agreement with Sprint PCS 10.13** Credit Agreement with vendor 21.1 Subsidiaries of AirGate PCS, Inc. 23.1 Consent of KPMG LLP 23.2 Consent of Patton Boggs LLP (included in Exhibits 5.1 and 5.2) 24.1* Powers of Attorney 25.1** Statement of Eligibility and Qualification under the Trust Indenture Act of 1939 of Trustee, on Form T-1, in connection with the Senior Discount Notes offering 27.1* Financial Data Schedule
- --------------------- * Previously filed **To be filed by amendment +Confidential treatment requested (b) Financial Statement Schedule No financial statement schedules are filed because the required information is not applicable or is included in the consolidated financial statements or related notes. Item 17. Undertakings The Registrant hereby undertakes: (1) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (2) To provide to the underwriter at the closing specified in the underwriting agreements certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser. (3) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (4) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-6 Pursuant to the requirements of the Securities Act, AirGate PCS, Inc. has duly caused this Amendment No. 2 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the County of Fulton, State of Georgia, on July 9, 1999. Airgate PCS, Inc. /s/ Thomas M. Dougherty By: _________________________________ Name: Thomas M. Dougherty Title: Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 2 to the Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
Name Title Date ---- ----- ---- /s/ Thomas M. Dougherty Chief Executive Officer July 9, 1999 ______________________________________ and Director (Principal Thomas M. Dougherty Executive Officer) /s/ Alan B. Catherall* Chief Financial Officer July 9, 1999 ______________________________________ (Principal Financial and Alan B. Catherall Accounting Officer) /s/ W. Chris Blane* Vice President and July 9, 1999 ______________________________________ Director W. Chris Blane /s/ Thomas D. Body, III* Vice President and July 9, 1999 ______________________________________ Director Thomas D. Body, III /s/ Barry Schiffman* Director July 9, 1999 ______________________________________ Barry Schiffman /s/ Gill Cogan* Director July 9, 1999 ______________________________________ Gill Cogan /s/ Thomas M. Dougherty July 9, 1999 *By: _________________________________ Thomas M. Dougherty Attorney-in-Fact
Pursuant to the requirements of the Securities Act, AGW Leasing Company, Inc. has duly caused this Amendment No. 2 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the County of Fulton, State of Georgia, on July 9, 1999. AGW Leasing Company, Inc. /s/ Thomas M. Dougherty By: _________________________________ Name: Thomas M. Dougherty Title: Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 2 to the Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
Name Title Date ---- ----- ---- /s/ Thomas M. Dougherty Chief Executive Officer July 9, 1999 ______________________________________ and Director (Principal Thomas M. Dougherty Executive Officer) /s/ Alan B. Catherall* Chief Financial Officer July 9, 1999 ______________________________________ (Principal Financial and Alan B. Catherall Accounting Officer) /s/ W. Chris Blane* Vice President and July 9, 1999 ______________________________________ Director W. Chris Blane /s/ Thomas D. Body, III* Vice President and July 9, 1999 ______________________________________ Director Thomas D. Body, III /s/ Barry Schiffman* Director July 9, 1999 ______________________________________ Barry Schiffman /s/ Gill Cogan* Director July 9, 1999 ______________________________________ Gill Cogan /s/ Thomas M. Dougherty July 9, 1999 *By: _________________________________ Thomas M. Dougherty Attorney-in-Fact
EX-1.1 2 FORM OF EQUITY UNDERWRITING AGREEMENT Exhibit 1.1 Shares AIRGATE PCS, INC. Common Stock [FORM OF UNDERWRITING AGREEMENT] -------------------------------- , 1999 DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION SG COWEN SECURITIES CORPORATION THE ROBINSON-HUMPHREY COMPANY As representatives of the several Underwriters named in Schedule I hereto c/o Donaldson, Lufkin & Jenrette Securities Corporation 277 Park Avenue New York, New York 10172 Dear Sirs: AirGate PCS, Inc., a Delaware corporation (the "Company"), proposes to issue and sell shares of its common stock, par value $.01 per share (the "Firm Shares") to the several underwriters named in Schedule I hereto (the "Underwriters"). The Company also proposes to issue and sell to the several Underwriters not more than an additional shares of its common stock, par value $.01 per share (the "Additional Shares") if requested by the Underwriters as provided in Section 2 hereof. The Firm Shares and the Additional Shares are hereinafter referred to collectively as the "Shares". The shares of common stock of the Company to be outstanding after giving effect to the sales contemplated hereby are hereinafter referred to as the "Common Stock". The Firm Shares are being issued and sold concurrently with an offering by the Company of $150,000,000 aggregate principal amount at issuance of % senior subordinated discount notes due 2009 (the "Senior Subordinated Discount Notes"). In addition, the Company is entering into a Credit Agreement with Lucent Technologies Inc. ("Lucent") or one of Lucent's affiliates and is entering into certain other related agreements, including a 5-year exclusive supply contract between the Company and Lucent (the "Supply Contract") pursuant to which the Company shall purchase products and services from Lucent (the Credit Agreement and such other related documents, including the Supply Contract, being hereinafter referred to, collectively, as the "Vendor Financing Documents" and the financing to be provided to the Company by Lucent or one of Lucent's affiliates being hereinafter referred to as the "Vendor Financing"). SECTION 1. Registration Statement and Prospectus. The Company has prepared and filed with the Securities and Exchange Commission (the "Commission") in accordance with the provisions of the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder (collectively, the "Act"), a registration statement on Form S-1, including a prospectus, relating to the Shares. The registration statement, as amended at the time it became effective, including the information (if any) deemed to be part of the registration statement at the time of effectiveness pursuant to Rule 430A under the Act, is hereinafter referred to as the "Registration Statement"; and the prospectus in the form first used to confirm sales of Shares is hereinafter referred to as the "Prospectus". If the Company has filed or is required pursuant to the terms hereof to file a registration statement pursuant to Rule 462(b) under the Act registering additional shares of Common Stock (a "Rule 462(b) Registration Statement"), then, unless otherwise specified, any reference herein to the term "Registration Statement" shall be deemed to include such Rule 462(b) Registration Statement. SECTION 2. Agreements to Sell and Purchase and Lock-Up Agreements. On the basis of the representations and warranties contained in this Agreement, and subject to its terms and conditions, the Company agrees to issue and sell, and each Underwriter agrees, severally and not jointly, to purchase from the Company at a price per Share of $ (the "Purchase Price") the number of Firm Shares set forth opposite the name of such Underwriter in Schedule I hereto. On the basis of the representations and warranties contained in this Agreement, and subject to its terms and conditions, the Company agrees to issue and sell the Additional Shares and the Underwriters shall have the right to purchase, severally and not jointly, up to Additional Shares from the Company at the Purchase Price. Additional Shares may be purchased solely for the purpose of covering over-allotments made in connection with the offering 2 of the Firm Shares. The Underwriters may exercise their right to purchase Additional Shares in whole or in part from time to time by giving written notice thereof to the Company within 30 days after the date of this Agreement. You shall give any such notice on behalf of the Underwriters and such notice shall specify the aggregate number of Additional Shares to be purchased pursuant to such exercise and the date for payment and delivery thereof, which date shall be a business day (i) no earlier than two business days after such notice has been given (and, in any event, no earlier than the Closing Date (as hereinafter defined)) and (ii) no later than ten business days after such notice has been given. If any Additional Shares are to be purchased, each Underwriter, severally and not jointly, agrees to purchase from the Company the number of Additional Shares (subject to such adjustments to eliminate fractional shares as you may determine) which bears the same proportion to the total number of Additional Shares to be purchased from the Company as the number of Firm Shares set forth opposite the name of such Underwriter in Schedule I bears to the total number of Firm Shares. The Company hereby agrees not to (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock or (ii) enter into any swap or other arrangement that transfers all or a portion of the economic consequences associated with the ownership of any Common Stock (regardless of whether any of the transactions described in clause (i) or (ii) is to be settled by the delivery of Common Stock, or such other securities, in cash or otherwise), except to the Underwriters pursuant to this Agreement, for a period of 180 days after the date of the Prospectus without the prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation. Notwithstanding the foregoing, during such period (i) the Company may grant stock options pursuant to the Company's existing stock option plan and (ii) the Company may issue shares of Common Stock upon the exercise of an option or warrant or the conversion of a security outstanding on the date hereof. The Company also agrees not to file any registration statement with respect to any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock for a period of 180 days after the date of the Prospectus without the prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation. The Company shall, prior to or concurrently with the execution of this Agreement, deliver an agreement executed by (i) each of the directors and officers of the Company and (ii) each stockholder listed on Annex I hereto to the effect that such person will not, during the period commencing on the date such person signs such agreement and ending 180 days after the date of the Prospectus, without the prior written consent of Donaldson, Lufkin & Jenrette Corporation, (A) engage in any of the transactions described in the first sentence of this paragraph or (B) make any demand for, or exercise any right with respect 3 to, the registration of any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock. SECTION 3. Terms of Public Offering. The Company is advised by you that the Underwriters propose (i) to make a public offering of their respective portions of the Shares as soon after the execution and delivery of this Agreement as in your judgment is advisable and (ii) initially to offer the Shares upon the terms set forth in the Prospectus. SECTION 4. Delivery and Payment. The Shares shall be represented by definitive certificates and shall be issued in such authorized denominations and registered in such names as Donaldson, Lufkin & Jenrette Securities Corporation shall request no later than two business days prior to the Closing Date or the applicable Option Closing Date (as defined below), as the case may be. The Company shall deliver the Shares, with any transfer taxes thereon duly paid by the Company, to Donaldson, Lufkin & Jenrette Securities Corporation through the facilities of The Depository Trust Company ("DTC"), for the respective accounts of the several Underwriters, against payment to the Company of the Purchase Price therefor by wire transfer of Federal or other funds immediately available in New York City. The certificates representing the Shares shall be made available for inspection not later than 9:30 A.M., New York City time, on the business day prior to the Closing Date or the applicable Option Closing Date, as the case may be, at the office of DTC or its designated custodian (the "Designated Office"). The time and date of delivery and payment for the Firm Shares shall be 9:00 A.M., New York City time, on , 1999 or such other time on the same or such other date as Donaldson, Lufkin & Jenrette Securities Corporation and the Company shall agree in writing. The time and date of delivery for the Firm Shares are hereinafter referred to as the "Closing Date". The time and date of delivery and payment for any Additional Shares to be purchased by the Underwriters shall be 9:00 A.M., New York City time, on the date specified in the applicable exercise notice given by you pursuant to Section 2 or such other time on the same or such other date as Donaldson, Lufkin & Jenrette Securities Corporation and the Company shall agree in writing. The time and date of delivery for any Additional Shares are hereinafter referred to as an "Option Closing Date." The documents to be delivered on the Closing Date or any Option Closing Date on behalf of the parties hereto pursuant to Section 8 of this Agreement shall be delivered at the offices of Skadden, Arps, Slate, Meagher & Flom (Illinois), 333 West Wacker Drive, Chicago, Illinois 60606, and the Shares shall be delivered at the Designated Office, all on the Closing Date or such Option Closing Date, as the case may be. 4 SECTION 5. Agreements of the Company. The Company agrees with you: (a) To advise you promptly and, if requested by you, to confirm such advice in writing, (i) of any request by the Commission for amendments to the Registration Statement or amendments or supplements to the Prospectus or for additional information, (ii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of the suspension of qualification of the Shares for offering or sale in any jurisdiction, or the initiation of any proceeding for such purposes, (iii) when any amendment to the Registration Statement becomes effective, (iv) if the Company is required to file a Rule 462(b) Registration Statement after the effectiveness of this Agreement, when the Rule 462(b) Registration Statement has become effective, and (v) of the happening of any event during the period referred to in Section 5(d) below which makes any statement of a material fact made in the Registration Statement or the Prospectus untrue or which requires any additions to or changes in the Registration Statement or the Prospectus in order to make the statements therein not misleading. If at any time the Commission shall issue any stop order suspending the effectiveness of the Registration Statement, the Company will use its best efforts to obtain the withdrawal or lifting of such order at the earliest possible time. (b) To furnish to you four (4) signed copies of the Registration Statement as first filed with the Commission and of each amendment to it, including all exhibits, and to furnish to you and each Underwriter designated by you such number of conformed copies of the Registration Statement as so filed and of each amendment to it, without exhibits, as you may reasonably request. (c) To prepare the Prospectus, the form and substance of which shall be satisfactory to you, and to file the Prospectus in such form with the Commission within the applicable period specified in Rule 424(b) under the Act; during the period specified in Section 5(d) below, not to file any further amendment to the Registration Statement and not to make any amendment or supplement to the Prospectus of which you shall not previously have been advised or to which you shall reasonably object after being so advised; and, during such period, to prepare and file with the Commission, promptly upon your reasonable request, any amendment to the Registration Statement or amendment or supplement to the Prospectus which may be necessary or advisable in connection with the distribution of the Shares by you, and to use its best efforts to cause any such amendment to the Registration Statement to become promptly effective. (d) Prior to 10:00 A.M., New York City time, on the first business day after the date of this Agreement and from time to time thereafter for such period as in the opinion of counsel for the Underwriters a prospectus is required by law 5 to be delivered in connection with sales by an Underwriter or a dealer, to furnish in New York City to each Underwriter and any dealer as many copies of the Prospectus (and of any amendment or supplement to the Prospectus) as such Underwriter or dealer may reasonably request. (e) If during the period specified in Section 5(d), any event shall occur or condition shall exist as a result of which, in the opinion of counsel for the Underwriters, it becomes necessary to amend or supplement the Prospectus in order to make the statements therein, in the light of the circumstances when the Prospectus is delivered to a purchaser, not misleading, or if, in the opinion of counsel for the Underwriters, it is necessary to amend or supplement the Prospectus to comply with applicable law, forthwith to prepare and file with the Commission an appropriate amendment or supplement to the Prospectus so that the statements in the Prospectus, as so amended or supplemented, will not in the light of the circumstances when it is so delivered, be misleading, or so that the Prospectus will comply with applicable law, and to furnish to each Underwriter and to any dealer as many copies thereof as such Underwriter or dealer may reasonably request. (f) Prior to any public offering of the Shares, to cooperate with you and counsel for the Underwriters in connection with the registration or qualification of the Shares for offer and sale by the several Underwriters and by dealers under the state securities or Blue Sky laws of such jurisdictions as you may request, to continue such registration or qualification in effect so long as required for distribution of the Shares and to file such consents to service of process or other documents as may be necessary in order to effect such registration or qualification; provided, however, that the Company shall not be required in connection therewith to qualify as a foreign corporation in any jurisdiction in which it is not now so qualified or to take any action that would subject it to general consent to service of process or taxation other than as to matters and transactions relating to the Prospectus, the Registration Statement, any preliminary prospectus or the offering or sale of the Shares, in any jurisdiction in which it is not now so subject. (g) To mail and make generally available to its stockholders as soon as practicable an earnings statement covering the twelve-month period ending [September 30], 2000 that shall satisfy the provisions of Section 11(a) of the Act, and to advise you in writing when such statement has been so made available. (h) During the period of three years after the date of this Agreement, to furnish to you as soon as available copies of all reports or other communications furnished to the record holders of Common Stock or furnished to or filed with the Commission or any national securities exchange on which any class of securities 6 of the Company is listed and such other publicly available information concerning the Company and its subsidiaries as you may reasonably request. (i) Whether or not the transactions contemplated in this Agreement are consummated or this Agreement is terminated, to pay or cause to be paid all expenses incident to the performance of its obligations under this Agreement, including: (i) the fees, disbursements and expenses of the Company's counsel and the Company's accountants in connection with the registration and delivery of the Shares under the Act and all other fees and expenses in connection with the preparation, printing, filing and distribution of the Registration Statement (including financial statements and exhibits), any preliminary prospectus, the Prospectus and all amendments and supplements to any of the foregoing, including the mailing and delivering of copies thereof to the Underwriters and dealers in the quantities specified herein, (ii) all costs and expenses related to the transfer and delivery of the Shares to the Underwriters, including any transfer or other taxes payable thereon, (iii) all costs of printing or producing this Agreement and any other agreements or documents in connection with the offering, purchase, sale or delivery of the Shares, (iv) all expenses in connection with the registration or qualification of the Shares for offer and sale under the securities or Blue Sky laws of the several states and all costs of printing or producing any Preliminary and Supplemental Blue Sky Memoranda in connection therewith (including the filing fees and fees and disbursements of counsel for the Underwriters in connection with such registration or qualification and memoranda relating thereto), (v) the filing fees and disbursements of counsel for the Underwriters in connection with the review and clearance of the offering of the Shares by the National Association of Securities Dealers, Inc., (vi) all fees and expenses in connection with the preparation and filing of the registration statement on Form 8-A relating to the Common Stock and all costs and expenses incident to the listing of the Shares on the Nasdaq National Market, (vii) the cost of printing certificates representing the Shares, (viii) the costs and charges of any transfer agent, registrar and/or depositary, and (ix) all other costs and expenses incident to the performance of the obligations of the Company hereunder for which provision is not otherwise made in this Section. (j) To use its best efforts to list for quotation the Shares on the Nasdaq National Market and to maintain the listing of the Shares on the Nasdaq National Market for a period of three years after the date of this Agreement. (k) To use its best efforts to do and perform all things required or necessary to be done and performed under this Agreement by the Company prior to the Closing Date or any Option Closing Date, as the case may be, and to satisfy all conditions precedent to the delivery of the Shares. 7 (l) If the Registration Statement at the time of the effectiveness of this Agreement does not cover all of the Shares, to file a Rule 462(b) Registration Statement with the Commission registering the Shares not so covered in compliance with Rule 462(b) by 10:00 P.M., New York City time, on the date of this Agreement and to pay to the Commission the filing fee for such Rule 462(b) Registration Statement at the time of the filing thereof or to give irrevocable instructions for the payment of such fee pursuant to Rule 111(b) under the Act. SECTION 6. Representations and Warranties of the Company. The Company represents and warrants to each Underwriter that: (a) The Registration Statement has become effective (other than any Rule 462(b) Registration Statement to be filed by the Company after the effectiveness of this Agreement); any Rule 462(b) Registration Statement filed after the effectiveness of this Agreement will become effective no later than 10:00 P.M., New York City time, on the date of this Agreement; and no stop order suspending the effectiveness of the Registration Statement is in effect, and no proceedings for such purpose are pending before or threatened by the Commission. (b) (i) The Registration Statement (other than any Rule 462(b) Registration Statement to be filed by the Company after the effectiveness of this Agreement), when it became effective, did not contain and, as amended, if applicable, will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) the Registration Statement (other than any Rule 462(b) Registration Statement to be filed by the Company after the effectiveness of this Agreement) and the Prospectus comply and, as amended or supplemented, if applicable, will comply in all material respects with the Act, (iii) if the Company is required to file a Rule 462(b) Registration Statement after the effectiveness of this Agreement, such Rule 462(b) Registration Statement and any amendments thereto, when they become effective (A) will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (B) will comply in all material respects with the Act and (iv) the Prospectus does not contain and, as amended or supplemented, if applicable, will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that the representations and warranties set forth in this paragraph do not apply to statements or omissions in the Registration Statement or the Prospectus based upon information relating to any Underwriter furnished to the Company in writing by such Underwriter through you expressly for use therein. 8 (c) Each preliminary prospectus filed as part of the Registration Statement as originally filed or as part of any amendment thereto, or filed pursuant to Rule 424 under the Act, complied when so filed in all material respects with the Act, and did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that the representations and warranties set forth in this paragraph do not apply to statements or omissions in any preliminary prospectus based upon information relating to any Underwriter furnished to the Company in writing by such Underwriter through you expressly for use therein. (d) Each of the Company and its subsidiaries has been duly incorporated, is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation and has the corporate power and authority to carry on its business as described in the Prospectus and to own, lease and operate its properties, and each is duly qualified and is in good standing as a foreign corporation authorized to do business in each jurisdiction in which the nature of its business or its ownership or leasing of property requires such qualification, except where the failure to be so qualified would not have a material adverse effect on the business, prospects, financial condition or results of operations of the Company and its subsidiaries, taken as a whole. (e) There are no outstanding subscriptions, rights, warrants, options, calls, convertible securities, commitments of sale or liens granted or issued by the Company or any of its subsidiaries relating to or entitling any person to purchase or otherwise to acquire any shares of the capital stock of the Company or any of its subsidiaries, except as otherwise disclosed in the Registration Statement. (f) All the outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid, non-assessable and not subject to any preemptive or similar rights; and the Shares have been duly authorized and, when issued and delivered to the Underwriters against payment therefor as provided by this Agreement, will be validly issued, fully paid and non-assessable, and the issuance of such Shares will not be subject to any preemptive or similar rights. (g) All of the outstanding shares of capital stock of each of the Company's subsidiaries have been duly authorized and validly issued and are fully paid and non-assessable, and are owned by the Company, directly or indirectly through one or more subsidiaries, free and clear of any security interest, claim, lien, encumbrance or adverse interest of any nature. 9 (h) The authorized capital stock of the Company conforms as to legal matters to the description thereof contained in the Prospectus. (i) Neither the Company nor any of its subsidiaries is in violation of its respective certificate of incorporation or by-laws or in default in the performance of any obligation, agreement, covenant or condition contained in any indenture, loan agreement, mortgage, lease or other agreement or instrument that is material to the Company and its subsidiaries, taken as a whole, to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or their respective property is bound. (j) The execution, delivery and performance of this Agreement by the Company, the compliance by the Company with all the provisions hereof and the consummation of the transactions contemplated hereby will not (i) require any consent, approval, authorization or other order of, or qualification with, any court or governmental body or agency (except such as may be required under the securities or Blue Sky laws of the various states), (ii) conflict with or constitute a breach of any of the terms or provisions of, or a default under, the certificate of incorporation or by-laws of the Company or any of its subsidiaries or any indenture, loan agreement, mortgage, lease or other agreement or instrument that is material to the Company and its subsidiaries, taken as a whole, to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or their respective property is bound, (iii) violate or conflict with any applicable law or any rule, regulation, judgment, order or decree of any court or any governmental body or agency having jurisdiction over the Company, any of its subsidiaries or their respective property or (iv) result in the suspension, termination or revocation of any Authorization (as defined below) of the Company or any of its subsidiaries or any other impairment of the rights of the holder of any such Authorization. (k) There are no legal or governmental proceedings pending or threatened to which the Company or any of its subsidiaries is or could be a party or to which any of their respective property is or could be subject that are required to be described in the Registration Statement or the Prospectus and are not so described; nor are there any statutes, regulations, contracts or other documents that are required to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement that are not so described or filed as required. (l) Neither the Company nor any of its subsidiaries has violated any foreign, federal, state or local law or regulation relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ("Environmental Laws"), any provisions of the 10 Employee Retirement Income Security Act of 1974, as amended, or any provisions of the Foreign Corrupt Practices Act, or the rules and regulations promulgated thereunder, except for such violations which, singly or in the aggregate, would not have a material adverse effect on the business, prospects, financial condition or results of operation of the Company and its subsidiaries, taken as a whole. (m) Each of the Company and its subsidiaries has such permits, licenses, consents, exemptions, franchises, authorizations and other approvals (each, an "Authorization") of, and has made all filings with and notices to, all governmental or regulatory authorities and self-regulatory organizations and all courts and other tribunals, including, without limitation, under any applicable Environmental Laws, as are necessary to own, lease, license and operate its respective properties and to conduct its business, except where the failure to have any such Authorization or to make any such filing or notice would not, singly or in the aggregate, have a material adverse effect on the business, prospects, financial condition or results of operations of the Company and its subsidiaries, taken as a whole. Each such Authorization is valid and in full force and effect and each of the Company and its subsidiaries is in compliance with all the terms and conditions thereof and with the rules and regulations of the authorities and governing bodies having jurisdiction with respect thereto; and no event has occurred (including, without limitation, the receipt of any notice from any authority or governing body) which allows or, after notice or lapse of time or both, would allow, revocation, suspension or termination of any such Authorization or results or, after notice or lapse of time or both, would result in any other impairment of the rights of the holder of any such Authorization; and such Authorizations contain no restrictions that are burdensome to the Company or any of its subsidiaries; except where such failure to be valid and in full force and effect or to be in compliance, the occurrence of any such event or the presence of any such restriction would not, singly or in the aggregate, have a material adverse effect on the business, prospects, financial condition or results of operations of the Company and its subsidiaries, taken as a whole. (n) There are no costs or liabilities associated with Environmental Laws (including, without limitation, any capital or operating expenditures required for clean-up, closure of properties or compliance with Environmental Laws or any Authorization, any related constraints on operating activities and any potential liabilities to third parties) which would, singly or in the aggregate, have a material adverse effect on the business, prospects, financial condition or results of operations of the Company and its subsidiaries, taken as a whole. (o) This Agreement has been duly authorized, executed and delivered by the Company. 11 (p) KPMG LLP are independent public accountants with respect to the Company and its subsidiaries as required by the Act. (q) The consolidated financial statements included in the Registration Statement and the Prospectus (and any amendment or supplement thereto), together with related schedules and notes, present fairly the consolidated financial position, results of operations and changes in financial position of the Company and its subsidiaries on the basis stated therein at the respective dates or for the respective periods to which they apply; such statements and related schedules and notes have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods involved, except as disclosed therein; the supporting schedules, if any, included in the Registration Statement present fairly in accordance with generally accepted accounting principles the information required to be stated therein; and the other financial and statistical information and data set forth in the Registration Statement and the Prospectus (and any amendment or supplement thereto) are, in all material respects, accurately presented and prepared on a basis consistent with such financial statements and the books and records of the Company. (r) The Company is not and, after giving effect to the offering and sale of the Shares and the application of the proceeds thereof as described in the Prospectus, will not be, an "investment company" as such term is defined in the Investment Company Act of 1940, as amended. (s) Except as disclosed in the Registration Statement, there are no contracts, agreements or understandings between the Company and any person granting such person the right to require the Company to file a registration statement under the Act with respect to any securities of the Company or to require the Company to include such securities with the Shares registered pursuant to the Registration Statement. (t) Since the respective dates as of which information is given in the Prospectus other than as set forth in the Prospectus (exclusive of any amendments or supplements thereto subsequent to the date of this Agreement), (i) there has not occurred any material adverse change or any development involving a prospective material adverse change in the condition, financial or otherwise, or the earnings, business, management or operations of the Company and its subsidiaries, taken as a whole, (ii) there has not been any material adverse change or any development involving a prospective material adverse change in the capital stock or in the long-term debt of the Company or any of its subsidiaries and (iii) neither the Company nor any of its subsidiaries has incurred any material liability or obligation, direct or contingent. 12 (u) The Company has provided the Underwriters and counsel for the Underwriters a true and correct copy of the Consent and Agreement between Sprint Spectrum L.P., SprintCom, Inc., Sprint Communications Company, L.P., the Trustee (for the benefit of the holders of the Senior Subordinated Discount Notes) under the indenture governing the Senior Subordinated Discount Notes and the Company, including any amendments thereto and restatements thereof, as in effect on the date hereof (the "Noteholder Consent and Agreement"); all documents and correspondence relating to such Noteholder Consent and Agreement; and such other documents as may be necessary to interpret such Noteholder Consent and Agreement, documents and correspondence and to assess the impact thereof on the business and financial condition of the Company. (v) The Company has provided the Underwriters and counsel for the Underwriters true and correct copies of each and every agreement (or, if an agreement has not been reduced to writing, a written enumeration of the terms of such agreement) between and among the Company and any Related Party (as such term is defined below), on the one hand, and Sprint PCS and any Related Party on the other, including in each case any amendments and addenda thereto and restatements thereof, as in effect on the date hereof (collectively, including the Noteholder Consent and Agreement, the "Sprint Agreements"); all documents and correspondence relating to such agreements; and such other documents as may be necessary to interpret such agreements, documents and correspondence and to assess the impact thereof on the business and financial condition of the Company. For purposes of this subparagraph and the immediately following subparagraph, "Related Party" shall have the meaning given to such term in the Schedule of Definitions incorporated by reference in that certain Sprint PCS Management Agreement executed by the Company and Sprint PCS as of July 22, 1998 (the "Sprint PCS Management Agreement"). (w) Each of the Sprint Agreements (A) has been duly authorized, executed and delivered by, (B) constitutes the valid and binding obligation of and (C) is enforceable in accordance with its terms against, the Company and any Related Party, to the extent each is a party thereto. (x) The Company has provided the Underwriters and counsel for the Underwriters a true and correct copy of the Consent and Agreement between Sprint Spectrum L.P., SprintCom, Inc., Sprint Communications Company, L.P., Lucent and the Company, including any amendments thereto and restatements thereof, as in effect on the date hereof (the "Lucent Consent and Agreement"); all documents and correspondence relating to such Lucent Consent and Agreement; and such other documents as may be necessary to interpret such Lucent Consent and Agreement, documents and correspondence and to assess the impact thereof on the business and financial condition of the Company. 13 (y) The Company has provided the Underwriters and counsel for the Underwriters true and correct copies of each and every Vendor Financing Document that is or may be required pursuant to the borrowing by the Company under the Vendor Financing (or, if an agreement relating to the Vendor Financing has not been reduced to writing, a written enumeration of the terms of such agreement), including in each case any amendments thereto and restatements thereof, as in effect on the date hereof (collectively, including the Lucent Consent and Agreement, the "Vendor Financing Agreements"); all documents and correspondence relating to such agreements; and such other documents as may be necessary to interpret such agreements, documents and correspondence and to assess the impact thereof on the business and financial condition of the Company. (z) Each of the Vendor Financing Agreements (A) has been duly authorized, executed and delivered by, (B) constitutes the valid and binding obligation of and (C) is enforceable in accordance with its terms against, the Company and its affiliates, to the extent each is a party thereto. (aa) The Company has heretofore received $[10] million constituting Tranche 1 under the Vendor Financing Documents. The Vendor Financing Agreements constitute all of the documentation and agreements necessary for the Company to receive further disbursements under the Vendor Financing in accordance with the terms of the Vendor Financing Agreements. (bb) The execution, delivery and performance of the Sprint Agreements and the Vendor Financing Agreements by the Company and any of its affiliates that are a party thereto, the compliance by the Company and such affiliates with all the provisions thereof and the consummation of the transactions contemplated thereby do not (A) require any consent, approval, authorization or other order of, or qualification with, any court or governmental body or agency (except such as have already been obtained), (B) conflict with or constitute a breach of any of the terms or provisions of, or a default under (or an event which with notice or lapse of time, or both, would constitute a breach of or a default under), the certificate of incorporation or by-laws of the Company or any of its subsidiaries or any indenture, loan agreement, mortgage, lease or other agreement or instrument that is material to the Company and its subsidiaries, taken as a whole, to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or their respective property is bound, (C) violate or conflict with any applicable law or any rule, regulation, judgment, order or decree of any court or any governmental body or agency having jurisdiction over the Company, any of its subsidiaries or their respective property or (D) result in the suspension, termination or revocation of any Authorization of the Company or any of its subsidiaries or any other impairment of the rights of the holder of any such Authorization. 14 (cc) Each of the Sprint Agreements (including, without limitation, the Sprint PCS Management Agreement) and each of the Vendor Financing Agreements (collectively, the "PCS Agreements"), is, and the PCS Agreements viewed as a whole are, consistent with the terms and conditions of the License (as such term is defined in the Sprint PCS Management Agreement) as the Federal Communications Commission (the "FCC") has construed the terms of such License, or similar licenses, to date and, to the best of the Company's knowledge, is not otherwise contrary to FCC policies, rules and regulations or other applicable law, rules or regulations. (dd) The Plan of Reorganization relating to AirGate PCS, Inc. and AirGate Wireless, Inc., pursuant to which AirGate PCS, Inc. was to have been merged with and into AirGate Wireless, Inc., and the surviving corporation was to have been renamed AirGate PCS, Inc., has been duly authorized, executed and delivered by the parties thereto and constitutes the legal, valid and binding obligations of such parties, and the transactions contemplated by such Plan of Reorganization have been consummated in all respects in accordance with the terms of such Plan of Reorganization. (ee) Each certificate signed by any officer of the Company and delivered to the Underwriters or counsel for the Underwriters shall be deemed to be a representation and warranty by the Company to the Underwriters as to the matters covered thereby. SECTION 7. Indemnification. (a) The Company agrees to indemnify and hold harmless each Underwriter, its directors, its officers and each person, if any, who controls any Underwriter within the meaning of Section 15 of the Act or Section 20 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), from and against any and all losses, claims, damages, liabilities and judgments (including, without limitation, any legal or other expenses reasonably incurred in connection with investigating or defending any matter, including any action, that could give rise to any such losses, claims, damages, liabilities or judgments) caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto), the Prospectus (or any amendment or supplement thereto) or any preliminary prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities or judgments are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information relating to any Underwriter furnished in writing to the Company by such Underwriter through you expressly for use therein; provided, however, that the foregoing indemnity agreement with respect to any preliminary prospectus shall not inure to the benefit of any 15 Underwriter who failed to deliver a Prospectus, as then amended or supplemented, (so long as the Prospectus and any amendments or supplements thereto was provided by the Company to the several Underwriters in the requisite quantity and on a timely basis to permit proper delivery on or prior to the Closing Date) to the person asserting any losses, claims, damages, liabilities or judgments caused by any untrue statement or alleged untrue statement of a material fact contained in such preliminary prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, if such material misstatement or omission or alleged material misstatement or omission was cured in the Prospectus, as so amended or supplemented, and such Prospectus was required by law to be delivered at or prior to the written confirmation of sale to such person. (b) Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company, its directors, its officers who sign the Registration Statement and each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, to the same extent as the foregoing indemnity from the Company to such Underwriter but only with reference to information relating to such Underwriter furnished in writing to the Company by such Underwriter through you expressly for use in the Registration Statement (or any amendment thereto), the Prospectus (or any amendment or supplement thereto) or any preliminary prospectus. (c) In case any action shall be commenced involving any person in respect of which indemnity may be sought pursuant to Section 7(a) or 7(b) (the "indemnified party"), the indemnified party shall promptly notify the person against whom such indemnity may be sought (the "indemnifying party") in writing and the indemnifying party shall assume the defense of such action, including the employment of counsel reasonably satisfactory to the indemnified party and the payment of all reasonably-incurred fees and expenses of such counsel, as incurred (except that in the case of any action in respect of which indemnity may be sought pursuant to both Sections 7(a) and 7(b), the Underwriter shall not be required to assume the defense of such action pursuant to this Section 7(c), but may employ separate counsel and participate in the defense thereof, but the fees and expenses of such counsel, except as provided below, shall be at the expense of such Underwriter). Any indemnified party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of the indemnified party unless (i) the employment of such counsel shall have been specifically authorized in writing by the indemnifying party, (ii) the indemnifying party shall have failed to assume the defense of such action or employ counsel reasonably satisfactory to the indemnified party or (iii) the named parties to any such action (including any impleaded parties) include both the indemnified party 16 and the indemnifying party, and the indemnified party shall have been advised by such counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the indemnifying party (in which case the indemnifying party shall not have the right to assume the defense of such action on behalf of the indemnified party). In any such case, the indemnifying party shall not, in connection with any one action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) for all indemnified parties and all such reasonably-incurred fees and expenses shall be reimbursed as they are incurred. Such firm shall be designated in writing by Donaldson, Lufkin & Jenrette Securities Corporation, in the case of parties indemnified pursuant to Section 7(a), and by the Company, in the case of parties indemnified pursuant to Section 7(b). The indemnifying party shall indemnify and hold harmless the indemnified party from and against any and all losses, claims, damages, liabilities and judgments by reason of any settlement of any action (i) effected with its written consent or (ii) effected without its written consent if the settlement is entered into more than twenty business days after the indemnifying party shall have received a request from the indemnified party for reimbursement for the fees and expenses of counsel (in any case where such fees and expenses are at the expense of the indemnifying party) and, prior to the date of such settlement, the indemnifying party shall have failed to comply with such reimbursement request. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement or compromise of, or consent to the entry of judgment with respect to, any pending or threatened action in respect of which the indemnified party is or could have been a party and indemnity or contribution may be or could have been sought hereunder by the indemnified party, unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability on claims that are or could have been the subject matter of such action and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of the indemnified party. (d) To the extent the indemnification provided for in this Section 7 is unavailable to an indemnified party or insufficient in respect of any losses, claims, damages, liabilities or judgments referred to therein, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities and judgments (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other hand from the offering of the Shares or (ii) if the allocation provided by clause 7(d)(i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to 17 in clause 7(d)(i) above but also the relative fault of the Company on the one hand and the Underwriters on the other hand in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or judgments, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other hand shall be deemed to be in the same proportion as the total net proceeds from the offering (after deducting underwriting discounts and commissions, but before deducting expenses) received by the Company, and the total underwriting discounts and commissions received by the Underwriters, bear to the total price to the public of the Shares, in each case as set forth in the table on the cover page of the Prospectus. The relative fault of the Company on the one hand and the Underwriters on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 7(d) were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities or judgments referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any matter, including any action, that could have given rise to such losses, claims, damages, liabilities or judgments. Notwithstanding the provisions of this Section 7, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations to contribute pursuant to this Section 7(d) are several in proportion to the respective number of Shares purchased by each of the Underwriters hereunder and not joint. (e) The remedies provided for in this Section 7 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any 18 indemnified party at law or in equity. SECTION 8. Conditions of Underwriters' Obligations. The several obligations of the Underwriters to purchase the Firm Shares under this Agreement are subject to the satisfaction of each of the following conditions; (a) All the representations and warranties of the Company contained in this Agreement shall be true and correct on the Closing Date with the same force and effect as if made on and as of the Closing Date. (b) If the Company is required to file a Rule 462(b) Registration Statement after the effectiveness of this Agreement, such Rule 462(b) Registration Statement shall have become effective by 10:00 P.M., New York City time, on the date of this Agreement; and no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been commenced or shall be pending before or contemplated by the Commission. (c) You shall have received on the Closing Date a certificate dated the Closing Date, signed by Thomas M. Dougherty in his capacity as President and Chief Executive Officer of the Company and by Alan B. Catherall in his capacity as Chief Financial Officer of the Company, confirming the matters set forth in Sections 6(t), 8(a) and 8(b) and that the Company has complied with all of the agreements and satisfied all of the conditions herein contained and required to be complied with or satisfied by the Company on or prior to the Closing Date. (d) Since the respective dates as of which information is given in the Prospectus other than as set forth in the Prospectus (exclusive of any amendments or supplements thereto subsequent to the date of this Agreement), (i) there shall not have occurred any change or any development involving a prospective change in the condition, financial or otherwise, or the earnings, business, management or operations of the Company and its subsidiaries, taken as a whole, (ii) there shall not have been any change or any development involving a prospective change in the capital stock or in the long-term debt of the Company or any of its subsidiaries and (iii) neither the Company nor any of its subsidiaries shall have incurred any liability or obligation, direct or contingent, the effect of which, in any such case described in clause 8(d)(i), 8(d)(ii) or 8(d)(iii), in your judgment, is material and adverse and, in your judgment, makes it impracticable to market the Shares on the terms and in the manner contemplated in the Prospectus. (e) You shall have received on the Closing Date an opinion (satisfactory to you and counsel for the Underwriters), dated the Closing Date, of Patton Boggs LLP, counsel for the Company, to the effect that: 19 (i) each of the Company and its subsidiaries has been duly incorporated, is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation and has the corporate power and authority to carry on its business as described in the Prospectus and to own, lease and operate its properties; (ii) each of the Company and its subsidiaries is duly qualified and is in good standing as a foreign corporation authorized to do business in each jurisdiction in which the nature of its business or its ownership or leasing of property requires such qualification, except where the failure to be so qualified would not have a material adverse effect on the business, prospects, financial condition or results of operations of the Company and its subsidiaries, taken as a whole; (iii) all the outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid, non-assessable and not subject to any preemptive or similar rights; (iv) the Shares have been duly authorized and, when issued and delivered to the Underwriters against payment therefor as provided by this Agreement, will be validly issued, fully paid and non- assessable, and the issuance of such Shares will not be subject to any preemptive or similar rights; (v) all of the outstanding shares of capital stock of each of the Company's subsidiaries have been duly authorized and validly issued and are fully paid and non-assessable, and are owned by the Company, directly or indirectly through one or more subsidiaries, free and clear of any security interest, claim, lien, encumbrance or adverse interest of any nature; (vi) this Agreement has been duly authorized, executed and delivered by the Company; (vii) the authorized capital stock of the Company conforms as to legal matters to the description thereof contained in the Prospectus; (viii) the Registration Statement has become effective under the Act, no stop order suspending its effectiveness has been issued and no proceedings for that purpose are, to the best of such counsel's knowledge after due inquiry, pending before or contemplated by the Commission; (ix) the statements under the captions "The Sprint PCS 20 Agreements", "Description of Certain Indebtedness", "Principal Stockholders", "Certain Transactions", "Description of Capital Stock" and "Underwriting" in the Prospectus and Items 14 and 15 of Part II of the Registration Statement, insofar as such statements constitute a summary of the legal matters, documents or proceedings referred to therein, fairly present the information called for with respect to such legal matters, documents and proceedings; (x) neither the Company nor any of its subsidiaries is in violation of its respective certificate of incorporation or by-laws and, to the best of such counsel's knowledge after due inquiry, neither the Company nor any of its subsidiaries is in default in the performance of any obligation, agreement, covenant or condition contained in any indenture, loan agreement, mortgage, lease or other agreement or instrument that is material to the Company and its subsidiaries, taken as a whole, to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or their respective property is bound; (xi) the execution, delivery and performance of this Agreement by the Company, the compliance by the Company with all the provisions hereof and the consummation of the transactions contemplated hereby will not (A) require any consent, approval, authorization or other order of, or qualification with, any court or governmental body or agency (except such as may be required under the securities or Blue Sky laws of the various states), (B) conflict with or constitute a breach of any of the terms or provisions of, or a default under, the certificate of incorporation or by-laws of the Company or any of its subsidiaries or any indenture, loan agreement, mortgage, lease or other agreement or instrument that is material to the Company and its subsidiaries, taken as a whole, to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or their respective property is bound, (C) violate or conflict with any applicable law or any rule, regulation, judgment, order or decree of any court or any governmental body or agency having jurisdiction over the Company, any of its subsidiaries or their respective property or (D) result in the suspension, termination or revocation of any Authorization of the Company or any of its subsidiaries or any other impairment of the rights of the holder of any such Authorization; (xii) after due inquiry, such counsel does not know of any legal or governmental proceedings pending or threatened to which the Company or any of its subsidiaries is or could be a party or to which any of their respective property is or could be subject that are required to be described in the Registration Statement or the Prospectus and are not so described, or 21 of any statutes, regulations, contracts or other documents that are required to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement that are not so described or filed as required; (xiii) to the best of such counsel's knowledge, neither the Company nor any of its subsidiaries has violated any Environmental Law, any provisions of the Employee Retirement Income Security Act of 1974, as amended, or any provisions of the Foreign Corrupt Practices Act, or the rules and regulations promulgated thereunder, except for such violations which, singly or in the aggregate, would not have a material adverse effect on the business, prospects, financial condition or results of operation of the Company and its subsidiaries, taken as a whole; (xiv) to the best of such counsel's knowledge: (A) each of the Company and its subsidiaries has such Authorizations of, and has made all filings with and notices to, all governmental or regulatory authorities and self-regulatory organizations and all courts and other tribunals, including, without limitation, under any applicable Environmental Laws, as are necessary to own, lease, license and operate its respective properties and to conduct its business, except where the failure to have any such Authorization or to make any such filing or notice would not, singly or in the aggregate, have a material adverse effect on the business, prospects, financial condition or results of operations of the Company and its subsidiaries, taken as a whole; (B) each such Authorization is valid and in full force and effect and each of the Company and its subsidiaries is in compliance with all the terms and conditions thereof and with the rules and regulations of the authorities and governing bodies having jurisdiction with respect thereto; and (C) no event has occurred (including, without limitation, the receipt of any notice from any authority or governing body) which allows or, after notice or lapse of time or both, would allow, revocation, suspension or termination of any such Authorization or results or, after notice or lapse of time or both, would result in any other impairment of the rights of the holder of any such Authorization; and such Authorizations contain no restrictions that are burdensome to the Company or any of its subsidiaries; except where such failure to be valid and in full force and effect or to be in compliance, the occurrence of any such event or the presence of any such restriction would not, singly or in the aggregate, have a material adverse effect on the business, prospects, financial condition or results of operations of the Company and its subsidiaries, taken as a whole; (xv) the Company is not and, after giving effect to the offering 22 and sale of the Shares and the application of the proceeds thereof as described in the Prospectus, will not be, an "investment company" as such term is defined in the Investment Company Act of 1940, as amended; (xvi) to the best of such counsel's knowledge after due inquiry, there are no contracts, agreements or understandings between the Company and any person granting such person the right to require the Company to file a registration statement under the Act with respect to any securities of the Company or to require the Company to include such securities with the Shares registered pursuant to the Registration Statement; (xvii) the Registration Statement and the Prospectus and any supplement or amendment thereto (except for the financial statements and other financial data included therein as to which no opinion need be expressed) comply as to form with the Act; (xviii) each of the Sprint Agreements (A) has been duly authorized, executed and delivered by, (B) constitutes the valid and binding obligation of and (C) is enforceable in accordance with its terms against, the Company and any Related Party, to the extent each is a party thereto; (xix) each of the Vendor Financing Agreements (A) has been duly authorized, executed and delivered by, (B) constitutes the valid and binding obligation of and (C) is enforceable in accordance with its terms against, the Company and its affiliates, to the extent each is a party thereto; (xx) the Vendor Financing Agreements constitute all of the documentation and agreements necessary for the Company to receive further disbursements under the Vendor Financing Documents in accordance with the terms of the Vendor Financing Agreements; and (xxi) The execution, delivery and performance of the Sprint Agreements and the Vendor Financing Agreements by the Company and any of its affiliates that are a party thereto, the compliance by the Company and such affiliates with all the provisions thereof and the consummation of the transactions contemplated thereby do not (A) require any consent, approval, authorization or other order of, or qualification with, any court or governmental body or agency (except such as have already been obtained), (B) conflict with or constitute a breach of any of the terms or provisions of, or a default under (or an event which with notice or lapse of time, or both, would constitute a breach of or a default 23 under), the certificate of incorporation or by-laws of the Company or any of its subsidiaries or any indenture, loan agreement, mortgage, lease or other agreement or instrument that is material to the Company and its subsidiaries, taken as a whole, to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or their respective property is bound, (C) violate or conflict with any applicable law or any rule, regulation, judgment, order or decree of any court or any governmental body or agency having jurisdiction over the Company, any of its subsidiaries or their respective property or (D) result in the suspension, termination or revocation of any Authorization of the Company or any of its subsidiaries or any other impairment of the rights of the holder of any such Authorization. The opinion of Patton Boggs LLP described in Section 8(e) above shall be rendered to you at the request of the Company and shall so state therein. (f) You shall have received on the Closing Date an opinion (satisfactory to you and counsel for the Underwriters), dated the Closing Date, of Patton Boggs LLP, counsel for the Company, to the effect that (i) such counsel has no reason to believe that at the time the Registration Statement became effective or on the date of this Agreement, the Registration Statement and the prospectus included therein (except for the financial statements and other financial data as to which such counsel need not express any belief) contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (ii) such counsel has no reason to believe that the Prospectus, as amended or supplemented, if applicable (except for the financial statements and other financial data, as aforesaid) contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The opinion of Patton Boggs LLP described in this Section 8(f) shall be rendered to you at the request of the Company and shall so state therein. (g) You shall have received on the Closing Date an opinion, dated the Closing Date, of Skadden, Arps, Slate, Meagher & Flom (Illinois), counsel for the Underwriters, as to the matters referred to in Sections 8(e)(iv), 8(e)(vi), 8(e)(ix) (but only with respect to the statements under the caption "Description of Capital Stock" and "Underwriting"), 8(e)(xvii) and 8(f). 24 In giving such opinions with respect to the matters covered by Section 8(e)(xvii) and Section 8(f) counsel for the Company and counsel for the Underwriters may state that their opinion and belief are based upon their participation in the preparation of the Registration Statement and Prospectus and any amendments or supplements thereto and review and discussion of the contents thereof, but are without independent check or verification except as specified. (h) You shall have received, on each of the date hereof and the Closing Date, a letter dated the date hereof or the Closing Date, as the case may be, in form and substance satisfactory to you, from KPMG LLP, independent public accountants, containing the information and statements of the type ordinarily included in accountants' "comfort letters" to Underwriters with respect to the financial statements and certain financial information contained in the Registration Statement and the Prospectus. (i) The Company shall have delivered to you the agreements specified in Section 2 hereof, which agreements shall be in full force and effect on the Closing Date. (j) The Shares shall have been duly listed for quotation on the Nasdaq National Market. (k) The Company shall not have failed on or prior to the Closing Date to perform or comply with any of the agreements herein contained and required to be performed or complied with by the Company on or prior to the Closing Date. (l) The Company's concurrent offering of $150,000,000 aggregate principal amount at issuance of Senior Subordinated Discount Notes shall have been consummated simultaneously with the consummation of the transactions contemplated by this Agreement. (m) The Company shall have received $ under the Vendor Financing Documents. (n) The Company shall have delivered evidence reasonably satisfactory to you and counsel for the Underwriters that the transactions contemplated by the Plan of Reorganization have been consummated in all respects in accordance with the terms of such Plan of Reoganization. SECTION 9. Conditions of Underwriters' Obligations to Purchase Additional Shares. The several obligations of the Underwriters to purchase any Additional Shares hereunder are subject to the delivery to you on the applicable Option Closing Date of such documents as you may reasonably request with respect to the good standing of the Company, the due authorization and issuance 25 of such Additional Shares and other matters related to the issuance of such Additional Shares, including, without limitation, the following documents: (a) a certificate dated the Option Closing Date, signed by Thomas M. Dougherty in his capacity as President and Chief Executive Officer of the Company and by Alan B. Catherall in his capacity as Chief Financial Officer of the Company, or their respective successors serving in such capacities as of the Option Closing Date, confirming (A) the matters set forth in Sections 6(t) and 8(b); (B) that all the representations and warranties of the Company contained in this Agreement are true and correct on the Option Closing Date with the same force and effect as if made on and as of the Option Closing Date; and (C) that the Company has complied with all of the agreements and satisfied all of the conditions herein contained and required to be complied with or satisfied by the Company on or prior to such Option Closing Date; (b) a letter dated the Option Closing Date in form and substance satisfactory to you, from KPMG LLP, independent public accountants, containing the information and statements of the type ordinarily included in accountants' "comfort letters" to Underwriters with respect to the financial statements and certain financial information contained in the Registration Statement and the Prospectus; and (c) legal opinions (satisfactory to you and counsel for the Underwriters), dated the Option Closing Date, of counsel for the Company as to the matters enumerated in subparagraphs (i) through (xxi) of Section 8(e) and to the effect that such counsel: (i) has no reason to believe that at the time the Registration Statement became effective or on the date of this Agreement, the Registration Statement and the prospectus included therein (except for the financial statements and other financial data as to which such counsel need not express any belief) contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and (ii) has no reason to believe that the Prospectus, as amended or supplemented, if applicable (except for the financial statements and other financial data, as aforesaid) contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The opinions of counsel to the Company described in Section 9(c) shall be 26 rendered to you at the request of the Company and shall so state therein. In giving such opinions with respect to the matters covered by Section 9(c) counsel for the Company may state that its opinion and belief are based upon its participation in the preparation of the Registration Statement and Prospectus and any amendments or supplements thereto and review and discussion of the contents thereof, but are without independent check or verification except as specified. SECTION 10. Effectiveness of Agreement and Termination. This Agreement shall become effective upon the execution and delivery of this Agreement by the parties hereto. This Agreement may be terminated at any time on or prior to the Closing Date by you by written notice to the Company if any of the following has occurred: (i) any outbreak or escalation of hostilities or other national or international calamity or crisis or change in economic conditions or in the financial markets of the United States or elsewhere that, in your judgment, is material and adverse and, in your judgment, makes it impracticable to market the Shares on the terms and in the manner contemplated in the Prospectus, (ii) the suspension or material limitation of trading in securities or other instruments on the New York Stock Exchange, the American Stock Exchange, the Chicago Board of Options Exchange, the Chicago Mercantile Exchange, the Chicago Board of Trade or the Nasdaq National Market or limitation on prices for securities or other instruments on any such exchange or the Nasdaq National Market, (iii) the suspension of trading of any securities of the Company on any exchange or in the over-the-counter market, (iv) the enactment, publication, decree or other promulgation of any federal or state statute, regulation, rule or order of any court or other governmental authority which in your opinion materially and adversely affects, or will materially and adversely affect, the business, prospects, financial condition or results of operations of the Company and its subsidiaries, taken as a whole, (v) the declaration of a banking moratorium by either federal or New York State authorities or (vi) the taking of any action by any federal, state or local government or agency in respect of its monetary or fiscal affairs which in your opinion has a material adverse effect on the financial markets in the United States. If on the Closing Date or on an Option Closing Date, as the case may be, any one or more of the Underwriters shall fail or refuse to purchase the Firm Shares or Additional Shares, as the case may be, which it has or they have agreed to purchase hereunder on such date and the aggregate number of Firm Shares or Additional Shares, as the case may be, which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase is not more than one-tenth of the total number of Firm Shares or Additional Shares, as the case may be, to be purchased on such date by all Underwriters, each non-defaulting Underwriter shall 27 be obligated severally, in the proportion which the number of Firm Shares set forth opposite its name in Schedule I bears to the total number of Firm Shares which all the non-defaulting Underwriters have agreed to purchase, or in such other proportion as you may specify, to purchase the Firm Shares or Additional Shares, as the case may be, which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase on such date; provided that in no event shall the number of Firm Shares or Additional Shares, as the case may be, which any Underwriter has agreed to purchase pursuant to Section 2 hereof be increased pursuant to this Section 10 by an amount in excess of one-ninth of such number of Firm Shares or Additional Shares, as the case may be, without the written consent of such Underwriter. If on the Closing Date any Underwriter or Underwriters shall fail or refuse to purchase Firm Shares and the aggregate number of Firm Shares with respect to which such default occurs is more than one-tenth of the aggregate number of Firm Shares to be purchased by all Underwriters and arrangements satisfactory to you and the Company for purchase of such Firm Shares are not made within 48 hours after such default, this Agreement will terminate without liability on the part of any non-defaulting Underwriter and the Company. In any such case which does not result in termination of this Agreement, either you or the Company shall have the right to postpone the Closing Date, but in no event for longer than seven days, in order that the required changes, if any, in the Registration Statement and the Prospectus or any other documents or arrangements may be effected. If, on an Option Closing Date, any Underwriter or Underwriters shall fail or refuse to purchase Additional Shares and the aggregate number of Additional Shares with respect to which such default occurs is more than one-tenth of the aggregate number of Additional Shares to be purchased on such date, the non-defaulting Underwriters shall have the option to (i) terminate their obligation hereunder to purchase such Additional Shares or (ii) purchase not less than the number of Additional Shares that such non-defaulting Underwriters would have been obligated to purchase on such date in the absence of such default. Any action taken under this paragraph shall not relieve any defaulting Underwriter from liability in respect of any default of any such Underwriter under this Agreement. SECTION 11. Miscellaneous. Notices given pursuant to any provision of this Agreement shall be addressed as follows: (i) if to the Company, to AirGate PCS, Inc., Harris Tower, Suite 1700, 233 Peachtree Street, N.W., Atlanta, Georgia 30303, Attention: Thomas M. Dougherty and (ii) if to any Underwriter or to you, to you c/o Donaldson, Lufkin & Jenrette Securities Corporation, 277 Park Avenue, New York, New York 10172, Attention: Syndicate Department, or in any case to such other address as the person to be notified may have requested in writing. The respective indemnities, contribution agreements, representations, 28 warranties and other statements of the Company and the several Underwriters set forth in or made pursuant to this Agreement shall remain operative and in full force and effect, and will survive delivery of and payment for the Shares, regardless of (i) any investigation, or statement as to the results thereof, made by or on behalf of any Underwriter, the officers or directors of any Underwriter, any person controlling any Underwriter, the Company, the officers or directors of the Company or any person controlling the Company, (ii) acceptance of the Shares and payment for them hereunder and (iii) termination of this Agreement. If for any reason the Shares are not delivered by or on behalf of the Company as provided herein (other than as a result of any termination of this Agreement pursuant to Section 10), the Company agrees to reimburse the several Underwriters for all reasonable out-of-pocket expenses (including the reasonable fees and disbursements of counsel) incurred by them. Notwithstanding any termination of this Agreement, the Company shall be liable for all expenses which it has agreed to pay pursuant to Section 5(i) hereof. The Company also agrees to reimburse the several Underwriters, their directors and officers and any persons controlling any of the Underwriters for any and all reasonable fees and expenses (including, without limitation, the fees disbursements of counsel) incurred by them in connection with enforcing their rights hereunder (including, without limitation, pursuant to Section 7 hereof). Except as otherwise provided, this Agreement has been and is made solely for the benefit of and shall be binding upon the Company, the Underwriters, the Underwriters' directors and officers, any controlling persons referred to herein, the Company's directors and the Company's officers who sign the Registration Statement and their respective successors and assigns, all as and to the extent provided in this Agreement, and no other person shall acquire or have any right under or by virtue of this Agreement. The term "successors and assigns" shall not include a purchaser of any of the Shares from any of the several Underwriters merely because of such purchase. This Agreement shall be governed and construed in accordance with the laws of the State of New York. This Agreement may be signed in various counterparts which together shall constitute one and the same instrument. 29 Please confirm that the foregoing correctly sets forth the agreement between the Company and the several Underwriters. Very truly yours, AIRGATE PCS, INC. By: --------------------- Title: DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION SG COWEN SECURITIES CORPORATION THE ROBINSON-HUMPHREY COMPANY Acting severally on behalf of themselves and the several Underwriters named in Schedule I hereto By DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION By ----------------------------- 30 EX-4.2 3 FORM OF WARRANTS Exhibit 4.2 THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR ANY STATE SECURITIES LAWS. NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT (i) EFFECTIVE REGISTRATION STATEMENTS RELATED THERETO, (ii) AN OPINION OF COUNSEL OR OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATIONS ARE NOT REQUIRED, (iii) RECEIPT OF NO-ACTION LETTERS FROM THE APPROPRIATE GOVERNMENTAL AUTHORITIES, OR (iv) OTHERWISE COMPLYING WITH THE PROVISIONS OF SECTION 7 OF THIS WARRANT. AIRGATE PCS, INC. WARRANT TO PURCHASE SHARES OF COMMON STOCK THIS CERTIFIES THAT, for value received, [_____] and its assignees are entitled to subscribe for and purchase that number of shares of the fully paid and nonassessable Common Stock, as the case may be, as determined below (each, as adjusted pursuant to Section 4 hereof, the "Shares") of AirGate PCS, Inc., a Delaware corporation (the "Company"), at a price per share as determined below (such price and such other price as shall result, from time to time, from the adjustments specified in Section 4 hereof is herein referred to as the "Warrant Price"), subject to the provisions and upon the terms and conditions hereinafter set forth. As used herein, (a) the term "Common Stock" shall mean the Company's Common Stock, and any stock into or for which such Common Stock may hereafter be converted or exchanged, (b) the term "Date of Grant" shall mean the Date of Grant listed on the signature page hereof, and (c) the term "Other Warrants" shall mean any other warrants issued by the Company in connection with the transaction with respect to which this Warrant was issued, and any warrant issued upon transfer or partial exercise of this Warrant. The term "Warrant" as used herein shall be deemed to include Other Warrants unless the context clearly requires otherwise. Unless otherwise defined herein all capitalized terms shall have the meanings ascribed to them in that certain convertible promissory note dated [_____], 1999 issued on the date hereof (the "Note"). In the event that the Company shall sell shares of Common Stock in an Initial Public Offering within 6 months of the date hereof, upon payment therefor to the Company, the Company shall issue to the Holder hereof a number of shares of Common Stock equal to the quotient obtained by dividing (a) [_____] by (b) the product obtained by multiplying the per share offering price in the Initial Public Offering by [_____] (the "Warrant Price"). In the event that the Company shall not complete an Initial Public Offering within six months of the date hereof, the Company agrees that it will negotiate in good faith with the Holder to provide for conversion of the Warrant upon the closing of an Equity Transaction (as defined in the Note) on terms substantially similar to these contained herein. -1- 1. Term. The purchase right represented by this Warrant is ---- exercisable, in whole or in part, at any time and from time to time from the Date of Grant through two (2) years after the Date of Grant. 2. Method of Exercise; Payment; Issuance of New Warrant. ---------------------------------------------------- Subject to Section 1 hereof, the purchase right represented by this Warrant may be exercised by the holder hereof, in whole or in part and from time to time, at the election of the holder hereof, by (a) the surrender of this Warrant (with the notice of exercise substantially in the form attached hereto as Exhibit A duly completed and executed) at the principal office of the Company and by the payment to the Company, by certified or bank check, or by wire transfer to an account designated by the Company (a "Wire Transfer") of an amount equal to the then applicable Warrant Price multiplied by the number of Shares then being purchased, or (b) if in connection with a registered public offering of the Company's securities, the surrender of this Warrant (with the notice of exercise form attached hereto as Exhibit A-1 duly completed and executed) at the principal office of the Company together with notice of arrangements reasonably satisfactory to the Company for payment to the Company either by certified or bank check or by Wire Transfer from the proceeds of the sale of shares to be sold by the holder in such public offering of an amount equal to the then applicable Warrant Price per share multiplied by the number of Shares then being purchased or (c) exercise of the right provided for in Section 10.3 hereof. The person or persons in whose name(s) any certificate(s) representing shares of Common Stock shall be issuable upon exercise of this Warrant shall be deemed to have become the holder(s) of record of, and shall be treated for all purposes as the record holder(s) of, the shares represented thereby (and such shares shall be deemed to have been issued) immediately prior to the close of business on the date or dates upon which this Warrant is exercised. In the event of any exercise of the rights represented by this Warrant, certificates for the shares of stock so purchased shall be delivered to the holder hereof as soon as possible and in any event within thirty (30) days after such exercise and, unless this Warrant has been fully exercised or expired, a new Warrant representing the portion of the Shares, if any, with respect to which this Warrant shall not then have been exercised shall also be issued to the holder hereof as soon as possible and in any event within such thirty-day period. 3. Stock Fully Paid; Reservation of Shares. All Shares that --------------------------------------- may be issued upon the exercise of the rights represented by this Warrant will, upon issuance pursuant to the terms and conditions herein, be fully paid and nonassessable, and free from all taxes, liens and charges with respect to the issue thereof. During the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized, and reserved for the purpose of the issue upon exercise of the purchase rights evidenced by this Warrant, a sufficient number of shares of its Common Stock to provide for the exercise of the rights represented by this Warrant. 4. Adjustment of Warrant Price and Number of Shares. The ------------------------------------------------ number and kind of securities purchasable upon the exercise of this Warrant and the Warrant Price shall be subject to adjustment from time to time upon the occurrence of certain events, as follows: (a) Reclassification or Merger. In case of any reclassification or change of securities of the class issuable upon exercise of this Warrant (other than a change in par value, or from par value to no par value, or as a result of a subdivision or combination), or in case of any merger of the Company with or into another corporation (other than a merger with another corporation in which the Company is the acquiring and the surviving corporation and which does not result in any reclassification -2- or change of outstanding securities issuable upon exercise of this Warrant), or in case of any sale of all or substantially all of the assets of the Company, the Company, or such successor or purchasing corporation, as the case may be, shall duly execute and deliver to the holder of this Warrant a new Warrant (in form and substance satisfactory to the holder of this Warrant), so that the holder of this Warrant shall have the right to receive, at a total purchase price not to exceed that payable upon the exercise of the unexercised portion of this Warrant, and in lieu of the shares of Common Stock, theretofore issuable upon exercise of this Warrant, the kind and amount of shares of stock, other securities, money and property receivable upon such reclassification, change or merger by a holder of the number of shares of Common Stock, then purchasable under this Warrant. Such new Warrant shall provide for adjustments that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 4 and, in the case of a new Warrant issuable after conversion of the authorized shares of the Common Stock shall provide for antidilution protection that shall be as nearly equivalent as may be practicable to the antidilution provisions applicable to the Series Preferred on the Date of Grant. The provisions of this subparagraph (a) shall similarly apply to successive reclassifications, changes, mergers and transfers. (b) Subdivision or Combination of Shares. If the Company at any time while this Warrant remains outstanding and unexpired shall subdivide or combine its outstanding shares of Common Stock, the Warrant Price shall be proportionately decreased in the case of a subdivision or increased in the case of a combination, effective at the close of business on the date the subdivision or combination becomes effective. (c) Stock Dividends and Other Distributions. If the Company at any time while this Warrant is outstanding and unexpired shall (i) pay a dividend with respect to Common Stock payable in Common Stock, or (ii) make any other distribution with respect to Common Stock (except any distribution specifically provided for in Sections 4(a) and 4(b)), of Common Stock then the Warrant Price shall be adjusted, from and after the date of determination of shareholders entitled to receive such dividend or distribution, to that price determined by multiplying the Warrant Price in effect immediately prior to such date of determination by a fraction (i) the numerator of which shall be the total number of shares of Common Stock outstanding immediately prior to such dividend or distribution, and (ii) the denominator of which shall be the total number of shares of Common Stock outstanding immediately after such dividend or distribution. (d) Adjustment of Number of Shares. Upon each adjustment in the Warrant Price, the number of Shares of Common Stock purchasable hereunder shall be adjusted, to the nearest whole share, to the product obtained by multiplying the number of Shares purchasable immediately prior to such adjustment in the Warrant Price by a fraction, the numerator of which shall be the Warrant Price immediately prior to such adjustment and the denominator of which shall be the Warrant Price immediately thereafter. 5. Notice of Adjustments. Whenever the Warrant Price or the --------------------- number of Shares purchasable hereunder shall be adjusted pursuant to Section 4 hereof, the Company shall make a certificate signed by its chief financial officer setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the Warrant Price and the number of Shares purchasable hereunder after giving effect to such adjustment, and shall cause copies of such certificate to be mailed (without regard to Section 13 hereof, by first class mail, postage prepaid) -3- to the holder of this Warrant. In addition, whenever the conversion price or conversion ratio of the Common Stock shall be adjusted, the Company shall make a certificate signed by its chief financial officer setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the conversion price or ratio of the Common Stock after giving effect to such adjustment, and shall cause copies of such certificate to be mailed (without regard to Section 13 hereof, by first class mail, postage prepaid) to the holder of this Warrant. 6. Fractional Shares. No fractional shares of Common Stock ----------------- will be issued in connection with any exercise hereunder, but in lieu of such fractional shares the Company shall make a cash payment therefor based on the fair market value of the Common Stock on the date of exercise as reasonably determined in good faith by the Company's Board of Directors. 7. Compliance with Act; Disposition of Warrant or Shares of -------------------------------------------------------- Common Stock. - ------------ (a) Compliance with Act. The holder of this Warrant, by acceptance hereof, agrees that this Warrant, and the shares of Common Stock to be issued upon exercise hereof are being acquired for investment and that such holder will not offer, sell or otherwise dispose of this Warrant, or any shares of Common Stock to be issued upon exercise hereof except under circumstances which will not result in a violation of the Act or any applicable state securities laws. Upon exercise of this Warrant, unless the Shares being acquired are registered under the Act and any applicable state securities laws or an exemption from such registration is available, the holder hereof shall confirm in writing that the shares of Common Stock so purchased are being acquired for investment and not with a view toward distribution or resale in violation of the Act and shall confirm such other matters related thereto as may be reasonably requested by the Company. This Warrant and all shares of Common Stock issued upon exercise of this Warrant (unless registered under the Act and any applicable state securities laws) shall be stamped or imprinted with a legend in substantially the following form: "THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT (i) EFFECTIVE REGISTRATION STATEMENTS RELATED THERETO, (ii) AN OPINION OF COUNSEL OR OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATIONS ARE NOT REQUIRED, (iii) RECEIPT OF NO-ACTION LETTERS FROM THE APPROPRIATE GOVERNMENTAL AUTHORITIES, OR (iv) OTHERWISE COMPLYING WITH THE PROVISIONS OF SECTION 7 OF THE WARRANT UNDER WHICH THESE SECURITIES WERE ISSUED, DIRECTLY OR INDIRECTLY." Said legend shall be removed by the Company, upon the request of a holder, at such time as the restrictions on the transfer of the applicable security shall have terminated. In addition, in connection with the issuance of this Warrant, the holder specifically represents to the Company by acceptance of this Warrant as follows: (1) The holder is aware of the Company's business affairs and financial condition, and has acquired information about the Company sufficient to reach an informed and knowledgeable decision to -4- acquire this Warrant. The holder is acquiring this Warrant for its own account for investment purposes only and not with a view to, or for the resale in connection with, any "distribution" thereof in violation of the Act. (2) The holder understands that this Warrant has not been registered under the Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of the holder's investment intent as expressed herein. (3) The holder further understands that this Warrant must be held indefinitely unless subsequently registered under the Act and qualified under any applicable state securities laws, or unless exemptions from registration and qualification are otherwise available. The holder is aware of the provisions of Rule 144, promulgated under the Act. (b) Disposition of Warrant or Shares. With respect to any offer, sale or other disposition of this Warrant or any shares of Common Stock acquired pursuant to the exercise of this Warrant prior to registration of such Warrant or shares, the holder hereof agrees to give written notice to the Company prior thereto, describing briefly the manner thereof, together with a written opinion of such holder's counsel, or other evidence, if reasonably requested by the Company, to the effect that such offer, sale or other disposition may be effected without registration or qualification (under the Act as then in effect or any federal or state securities law then in effect) of this Warrant or such shares Common Stock and indicating whether or not under the Act certificates for this Warrant or such shares of Common Stock to be sold or otherwise disposed of require any restrictive legend as to applicable restrictions on transferability in order to ensure compliance with such law. Promptly upon receiving such written notice and reasonably satisfactory opinion or other evidence, if so requested, the Company, as promptly as practicable but no later than fifteen (15) days after receipt of the written notice, shall notify such holder that such holder may sell or otherwise dispose of this Warrant or such shares of Common Stock, all in accordance with the terms of the notice delivered to the Company. If a determination has been made pursuant to this Section 7(b) that the opinion of counsel for the holder or other evidence is not reasonably satisfactory to the Company, the Company shall so notify the holder promptly with details thereof after such determination has been made. Notwithstanding the foregoing, this Warrant or such shares of Common Stock may, as to such federal laws, be offered, sold or otherwise disposed of in accordance with Rule 144 or 144A under the Act, provided that the Company shall have been furnished with such information as the Company may reasonably request to provide a reasonable assurance that the provisions of Rule 144 or 144A have been satisfied. Each certificate representing this Warrant or the shares of Common Stock thus transferred (except a transfer pursuant to Rule 144 or 144A) shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with such laws, unless in the aforesaid opinion of counsel for the holder, such legend is not required in order to ensure compliance with such laws. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions. (c) Applicability of restrictions. Neither any restrictions of any legend described in this Warrant nor the requirements of Section 7(b) above shall apply to any transfer of, or grant of a security interest in, this Warrant (or the Common Stock obtainable upon exercise thereof) or any part hereof (i) to a partner of the holder if the holder is a partnership, (ii) to a partnership of which the holder is a partner, or (iii) to any affiliate of the holder if the holder is a corporation; provided, however, -------- ------- in any such transfer, if applicable, the transferee shall on the Company's request agree in writing to be bound by the terms of this Warrant as if an original signatory hereto. -5- 8. Rights as Stockholders; Information. No holder of this ----------------------------------- Warrant, as such, shall be entitled to vote or receive dividends or be deemed the holder of Common Stock or any other securities of the Company which may at any time be issuable on the exercise hereof for any purpose, nor shall anything contained herein be construed to confer upon the holder of this Warrant, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to receive notice of meetings, or to receive dividends or subscription rights or otherwise until this Warrant shall have been exercised and the Shares purchasable upon the exercise hereof shall have become deliverable, as provided herein. Notwithstanding the foregoing, the Company will transmit to the holder of this Warrant such information, documents and reports as are generally distributed to the holders of any class or series of the securities of the Company concurrently with the distribution thereof to the stockholders. 9. Additional Rights. ----------------- 9.1 Secondary Sales. The Company agrees that it will not --------------- interfere with the holder of this Warrant in obtaining liquidity if opportunities to make secondary sales of the Company's securities become available. To this end, the Company will promptly provide the holder of this Warrant with notice of any offer (of which it has knowledge) to acquire from the Company's security holders more than five percent (5%) of the total voting power of the Company and will not interfere with any attempt by the holder in arranging the sale of this Warrant to the person or persons making such offer. 9.2 Mergers. The Company shall provide the holder of ------- this Warrant with at least twenty (20) days' notice of the terms and conditions of any of the following potential transactions: (i) the sale, lease, exchange, conveyance or other disposition of all or substantially all of the Company's property or business, or (ii) its merger into or consolidation with any other corporation (other than a wholly owned subsidiary of the Company), or any transaction (including a merger or other reorganization) or series of related transactions, in which more than 50% of the voting power of the Company is disposed of. The Company will reasonably cooperate with the holder in arranging the sale of this Warrant in connection with any such transaction. 9.3 Right to Convert Warrant into Stock: Net Issuance. -------------------------------------------------- (a) Right to Convert. In addition to and without limiting the rights of the holder under the terms of this Warrant, the holder shall have the right to convert this Warrant or any portion thereof (the "Conversion Right") into shares of Common Stock as provided in this Section 10.3 at any time or from time to time during the term of this Warrant. Upon exercise of the Conversion Right with respect to a particular number of shares subject to this Warrant (the "Converted Warrant Shares"), the Company shall deliver to the holder (without payment by the holder of any exercise price or any cash or other consideration) (X) that number of shares of fully paid and nonassessable Common Stock equal to the quotient obtained by dividing the value of this Warrant (or the specified portion hereof) on the Conversion Date (as defined in subsection (b) hereof), which value shall be determined by subtracting (A) the aggregate Warrant Price of the Converted Warrant Shares immediately prior to the exercise of the Conversion Right from (B) the aggregate fair market value of the Converted Warrant Shares issuable upon exercise of this -6- Warrant (or the specified portion hereof) on the Conversion Date (as herein defined) by (Y) the fair market value of one share of or Common Stock on the Conversion Date (as herein defined). Expressed as a formula, such conversion shall be computed as follows: X = B - A ------- Y Where: X = the number of shares of Common Stock that may be issued to holder Y = the fair market value of one share of Common Stock A = the aggregate Warrant Price (i.e., Converted Warrant Shares x Warrant Price) B = the aggregate fair market value (i.e., fair market value x Converted Warrant Shares) No fractional shares shall be issuable upon exercise of the Conversion Right, and, if the number of shares to be issued determined in accordance with the foregoing formula is other than a whole number, the Company shall pay to the holder an amount in cash equal to the fair market value of the resulting fractional share on the Conversion Date (as hereinafter defined). For purposes of Section 9 of this Warrant, shares issued pursuant to the Conversion Right shall be treated as if they were issued upon the exercise of this Warrant. (b) Method of Exercise. The Conversion Right may be exercised by the holder by the surrender of this Warrant at the principal office of the Company together with a written statement specifying that the holder thereby intends to exercise the Conversion Right and indicating the number of shares subject to this Warrant which are being surrendered (referred to in Section 10.3(a) hereof as the Converted Warrant Shares) in exercise of the Conversion Right. Such conversion shall be effective upon receipt by the Company of this Warrant together with the aforesaid written statement, or on such later date as is specified therein (the "Conversion Date"). Certificates for the shares issuable upon exercise of the Conversion Right and, if applicable, a new warrant evidencing the balance of the shares remaining subject to this Warrant, shall be issued as of the Conversion Date and shall be delivered to the holder within thirty (30) days following the Conversion Date. (c) Determination of Fair Market Value. For purposes of this Section 10.3, "fair market value" of a share of Common Stock, as applicable, as of a particular date (the "Determination Date") shall mean: (i) If the Conversion Right is exercised in connection with and contingent upon a Public Offering, and if the Company's Registration Statement relating to such Public Offering -7- ("Registration Statement") has been declared effective by the SEC, then the initial "Price to Public" specified in the final prospectus with respect to such offering. (ii) If the Conversion Right is not exercised in connection with and contingent upon a Public Offering, then as follows: (A) If traded on a securities exchange, the fair market value of the Common Stock shall be deemed to be the average of the closing prices of the Common Stock on such exchange over the 30-day period ending five business days prior to the Determination Date; (B) If traded over-the-counter, the fair market value of the Common Stock shall be deemed to be the average of the closing bid prices of the Common Stock over the 30-day period ending five business days prior to the Determination Date; and (C) If there is no public market for the Common Stock, then fair market value shall be determined by mutual agreement of the holder of this Warrant and the Company. 10. Representations and Warranties. The Company represents and ------------------------------ warrants to the holder of this Warrant as follows: (a) This Warrant has been duly authorized and executed by the Company and is a valid and binding obligation of the Company enforceable in accordance with its terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and the rules of law or principles at equity governing specific performance, injunctive relief and other equitable remedies; (b) The shares of Common Stock have been duly authorized and reserved for issuance by the Company and, when issued in accordance with the terms hereof, will be validly issued, fully paid and non-assessable; (c) The execution and delivery of this Warrant are not, and the issuance of the Shares upon exercise of this Warrant in accordance with the terms hereof will not be, inconsistent with the Company's Certificate or by-laws, do not and will not contravene any law, governmental rule or regulation, judgment or order applicable to the Company, and do not and will not conflict with or contravene any provision of, or constitute a default under, any material indenture, mortgage, contract or other instrument of which the Company is a party or by which it is bound or require the consent or approval of, the giving of notice to, the registration or filing with or the taking of any action in respect of or by, any Federal, state or local government authority or agency or other person, except for the filing of notices pursuant to federal and state securities laws, which filings will be effected by the time required thereby; and (d) There are no actions, suits, audits, investigations or proceedings pending or, to the knowledge of the Company, threatened against the Company in any court or before any governmental commission, board or authority which, if adversely determined, will have a material adverse effect on the ability of the Company to perform its obligations under this Warrant. -8- 11. Modification and Waiver. This Warrant and any provision ----------------------- hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the same is sought. 12. Notices. Any notice, request, communication or other ------- document required or permitted to be given or delivered to the holder hereof or the Company shall be delivered, or shall be sent by certified or registered mail, postage prepaid, to each such holder at its address as shown on the books of the Company or to the Company at the address indicated therefor on the signature page of this Warrant. 13. Binding Effect on Successors. This Warrant shall be binding ---------------------------- upon any corporation succeeding the Company by merger, consolidation or acquisition of all or substantially all of the Company's assets, and all of the obligations of the Company relating to the Common Stock issuable upon the exercise or conversion of this Warrant shall survive the exercise, conversion and termination of this Warrant and all of the covenants and agreements of the Company shall inure to the benefit of the successors and assigns of the holder hereof. The Company will, at the time of the exercise or conversion of this Warrant, in whole or in part, upon request of the holder hereof but at the Company's expense, acknowledge in writing its continuing obligation to the holder hereof in respect of any rights (including, without limitation, any right to registration of the Shares) to which the holder hereof shall continue to be entitled after such exercise or conversion in accordance with this Warrant; provided, that the failure of the holder hereof to make any such request shall not affect the continuing obligation of the Company to the holder hereof in respect of such rights. 14. Lost Warrants or Stock Certificates. The Company covenants ----------------------------------- to the holder hereof that, upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant or any stock certificate and, in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to the Company, or in the case of any such mutilation upon surrender and cancellation of such Warrant or stock certificate, the Company will make and deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or stock certificate. 15. Descriptive Headings. The descriptive headings of the -------------------- several paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. The language in this Warrant shall be construed as to its fair meaning without regard to which party drafted this Warrant. 16. Governing Law. This Warrant shall be construed and ------------- enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of Delaware. 17. Survival of Representations, Warranties and Agreements. ------------------------------------------------------ All representations and warranties of the Company and the holder hereof contained herein shall survive the Date of Grant, the exercise or conversion of this Warrant (or any part hereof) or the termination or expiration of rights hereunder. All agreements of the Company and the holder hereof contained herein shall survive indefinitely until, by their respective terms, they are no longer operative. 18. Remedies. In case any one or more of the covenants and -------- agreements contained in this Warrant shall have been breached, the holders hereof (in the case of a breach by the Company), or the -9- Company (in the case of a breach by a holder), may proceed to protect and enforce their or its rights either by suit in equity and/or by action at law, including, but not limited to, an action for damages as a result of any such breach and/or an action for specific performance of any such covenant or agreement contained in this Warrant. 19. No Impairment of Rights. The Company will not, by ----------------------- amendment of its Charter or through any other means, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of this Warrant against impairment. 20. Severability. The invalidity or unenforceability of any ------------ provision of this Warrant in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction, or affect any other provision of this Warrant, which shall remain in full force and effect. 21. Recovery of Litigation Costs. If any legal action or other ---------------------------- proceeding is brought for the enforcement of this Warrant, or because of an alleged dispute, breach, default, or misrepresentation in connection with any of the provisions of this Warrant, the successful or prevailing party or parties shall be entitled to recover reasonable attorneys' fees and other costs incurred in that action or proceeding, in addition to any other relief to which it or they may be entitled. 22. Entire Agreement; Modification. This Warrant constitutes ------------------------------ the entire agreement between the parties pertaining to the subject matter contained in it and supersedes all prior and contemporaneous agreements, representations, and undertakings of the parties, whether oral or written, with respect to such subject matter. AIRGATE PCS, INC. a Delaware corporation By --------------------------------- Title ------------------------------ Address: --------------------------- --------------------------- Date of Grant: [_____], 1999 -10- EXHIBIT A NOTICE OF EXERCISE To: AirGate PCS, Inc. 1. The undersigned hereby: [_] elects to purchase____shares of Common Stock of AirGate PCS, Inc. pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price of such shares in full, or [_] elects to exercise its net issuance rights pursuant to Section 10.3 of the attached Warrant with respect to____shares of Common Stock. 2. Please issue a certificate or certificates representing said shares in the name of the undersigned or in such other name or names as are specified below: ------------------------- (Name) ------------------------- ------------------------- (Address) 3. The undersigned represents that the aforesaid shares are being acquired for the account of the undersigned for investment and not with a view to, or for resale in connection with, the distribution thereof and that the undersigned has no present intention of distributing or reselling such shares, all except as in compliance with applicable securities laws. (Signature) (Date) -11- EXHIBIT A-1 NOTICE OF EXERCISE To: AirGate PCS, Inc. (the "Company") 1. Contingent upon and effective immediately prior to the closing (the "Closing") of the Company's public offering contemplated by the Registration Statement on Form S ____, filed ______, ______, ______ , the undersigned hereby: [_] elects to purchase _____ shares of Common Stock of the Company (or such lesser number of shares as may be sold on behalf of the undersigned at the Closing) pursuant to the terms of the attached Warrant, or [_] elects to exercise its net issuance rights pursuant to Section 10.3 of the attached Warrant with respect to shares of Common Stock. 2. Please deliver to the custodian for the selling stockholders a stock certificate representing such _____ shares. 3. The undersigned has instructed the custodian for the selling stockholders to deliver to the Company $________ or, if less, the net proceeds due the undersigned from the sale of shares in the aforesaid public offering. If such net proceeds are less than the purchase price for such shares, the undersigned agrees to deliver the difference to the Company prior to the Closing. ------------------------ (Signature) (Date) -12- EX-5.1 4 OPINION OF PATTON BOGGS/COMMON July 9, 1999 AirGate PCS, Inc. Harris Tower 233 Peachtree Street, N.W. Suite 1700 Atlanta, Georgia 30303 Re: AirGate PCS, Inc. Registration Statement on Form S-1 Ladies and Gentlemen: We have acted as special counsel to AirGate PCS, Inc., a Delaware corporation, originally incorporated under the name AirGate Wireless, Inc. (the "Company") in connection with a Registration Statement on Form S-1 (the "Registration Statement") pertaining to the registration of $106.7 million of the Company's common stock, par value $0.01 per share (the "Common Stock"), and $150 million of the Company's Senior Subordinated Discount Notes (the "Notes") due 2009 being offered by the Company or such additional amounts of Common Stock and Notes as may be registered in connection with this offering and pursuant to an abbreviated registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933 (the "Securities Act"). We have examined such documents and records as we deemed appropriate, including the following: (i) The Company's Amended and Restated Certificate of Incorporation. (ii) The Company's Amended and Restated Bylaws. (iii) Resolutions duly adopted by the Board of Directors of the Company authorizing the filing of the Registration Statement. In the course of our examination, we have assumed the legal capacity of all natural persons, the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified or photostatic copies and the authenticity of the originals of such latter documents. In making our examination of documents executed by parties other than the Company, we have assumed that such parties had the power, corporate or other, to enter into and perform all obligations thereunder and have also assumed the due authorization by all requisite action, corporate or other, and execution and delivery by such parties of such documents and the validity, binding effect and enforceability thereof on such parties. AirGate PCS, Inc. July 9, 1999 Page 2 Based upon the foregoing, we are of the opinion that: The shares of Common Stock have been duly authorized, and when issued subject to effectiveness of the Registration Statement and compliance with applicable state securities laws, will be validly issued by the Company, fully paid and nonassessable. We express no opinion as to the laws of any jurisdiction other than the State of Delaware and the federal laws of the United States of America. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement, to the incorporation by reference of this opinion in any abbreviated registration statement, in connection with the offering covered by the Registration Statement, filed pursuant to Rule 462(b) under the Securities Act and to the reference to our firm under the caption "Legal Matters" contained in the Prospectus included therein. Very truly yours, PATTON BOGGS LLP By: /s/ Mary M. Sjoquist ------------------------------------- Mary M. Sjoquist EX-5.2 5 OPINION OF PATTON BOGGS/SENIOR NOTES July 9, 1999 AirGate PCS, Inc. Harris Tower 233 Peachtree Street, N.W. Suite 1700 Atlanta, Georgia 30303 Re: AirGate PCS, Inc. Registration Statement on Form S-1 Ladies and Gentlemen: We have acted as special counsel to AirGate PCS, Inc., a Delaware corporation, originally incorporated under the name AirGate Wireless, Inc. (the "Company") in connection with a Registration Statement on Form S-1 (the "Registration Statement") pertaining to the registration of $106.7 million of the Company's common stock, par value $0.01 per share (the "Common Stock"), and $150 million of the Company's Senior Subordinated Discount Notes (the "Notes") due 2009, being offered by the Company or such additional amounts of Common Stock and Notes as may be registered in connection with this offering and pursuant to an abbreviated registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933 (the "Securities Act"). We have examined such documents and records as we deemed appropriate, including the following: (i) The Company's Amended and Restated Certificate of Incorporation. (ii) The Company's Amended and Restated Bylaws. (iii) Resolutions duly adopted by the Board of Directors of the Company authorizing the filing of the Registration Statement. In the course of our examination, we have assumed the legal capacity of all natural persons, the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified or photostatic copies and the authenticity of the originals of such latter documents. In making our examination of documents executed by parties other than the Company, we have assumed that such parties had the power, corporate or other, to enter into and perform all obligations thereunder and have also assumed the due authorization by all requisite action, corporate or other, and execution and delivery by such parties of such documents and the validity, binding effect and enforceability thereof on such parties. AirGate PCS, Inc. July 9, 1999 Page 2 Based upon the foregoing, we are of the opinion that: The Notes have been duly authorized, and when issued subject to effectiveness of the Registration Statement and compliance with applicable state securities laws, will be binding obligations of the Company. We express no opinion as to the laws of any jurisdiction other than the State of Delaware and the federal laws of the United States of America. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement, to the incorporation by reference of this opinion in any abbreviated registration statement, in connection with the offering covered by the Registration Statement, filed pursuant to Rule 462(b) under the Securities Act and to the reference to our firm under the caption "Legal Matters" contained in the Prospectus included therein. Very truly yours, PATTON BOGGS LLP By: /s/ Mary M. Sjoquist ----------------------------------- Mary M. Sjoquist EX-10.7 6 COMMERCIAL REAL ESTATE LEASE DATED 08/07/98 Edens & 900 NationsBank Plaza Avant Realty, Inc 1901 Main Street Commercial Real Estate Post Office Box 528 Columbia, SC 29202 (803)779-4420 STATE OF SOUTH CAROLINA ) ) LEASE COUNTY OF RICHLAND ) THIS AGREEMENT, made this 7th day of August 1998, by and between Perry Company of Columbia, Inc., hereinafter called "Landlord," and AirGate Wireless, LLC, hereinafter called "Tenant." WITNESSETH In consideration of the covenants and agreement of the respective parties herein contained, the parties hereto, for themselves, their heirs, successors, distributees, executors, administrators, legal representatives and permitted assigns, do hereby agree as follows: A. Deemed Premises: Landlord by these presents does hereby demise and let unto Tenant, and Tenant leases and hires from Landlord all those certain premises, together with the buildings and other improvements thereon, for the term and upon the rental and the covenant and agreements of the respective parties herein set forth. Said premises are situate, lying and being in the State of South Carolina, County of Richland City of Columbia located at 411 Huger Street and more fully described as appropriately 1.47 acres of land together with improvements thereon said improvements consisting of a warehouse distribution facility containing the following types and sizes, more or less: Corporate offices/Sales-Showroom 11,174 square feet Warehouse 13,475 square feet ------------------ Total 24,649 square feet B. Term and Delivery of Premises: TO HAVE AND TO HOLD said premises unto Tenant for a term of Ten (10) years, beginning on the 1st day of September 1998, and ending on the 31st day of August 2008. C. Covenants and Conditions of Lease: This Lease is made on the following covenants and conditions which are expressly agreed to by Landlord and Tenant: 1. Rent: Tenant covenants to pay as rental to Landlord the annual sum of See Rent Schedule, Page 6, Paragraph 29(b) Dollars and sum to be in lawful money of the United States, payable in equal monthly installments of --- Dollars. Said rental shall be payable monthly in advance at the offices of Edens & Avant Realty, Inc. Agents for Landlord. Rent is due on the first day of each month and shall not be withheld for any reason whatsoever. In the event Tenant shall fail to pay each rental on the due date, a late charge of two (2%) percent of the monthly rental, compounded monthly but a minimum of ten ($10.00) dollars per month, shall be added to the rental and paid to Landlord for each such late payment, and the same shall be treated as additional rent. 2. Authorized Use: Tenant agrees not to abandon or vacate the demised premises and shall use the demised premises for the following purpose, and for no other purpose whatsoever, without the written consent of Landlord first had and obtained: operation and storage of electronic telecommunication equipment. 3. Condition of the Premises: Tenant has inspected and accepts the leased premises in the same condition they are in at the time of commencement of the term of this Lease. Tenant agrees if, during said term, Tenant shall change the usual method of conducting Tenant's business on the leased premises, or should Tenant install thereon or therein any new facilities, Tenant will, at the cost and expense of Tenant, make alterations or improvements in or to the demised premises which may be required by reason of any Federal or State Law, or by any municipal ordinance, or regulation applicable thereto. 1 4. Repair and Care of Building by Tenant: Tenant shall, throughout the initial term of this lease and any renewals thereof, at its own expense, maintain in good order and repair the leased premises, including the building and other improvements located thereon. Such repairs by Tenant shall include as applicable but not limited to, repairs and replacements to electrical plumbing systems and fixtures, air-conditioning and heating systems, loading doors, paved parking areas and drives, mowing of grass and care of shrubs, the roof, foundations, exterior walls or any portion of the premises in which neglect would contribute to an unmatured depreciation of the premises. Tenant shall at its expense contract with a reputable firm for periodic servicing of the heating, air-conditioning and ventilation systems as recommended by the manufacturer of such equipment and shall keep on file with Landlord or its agent a copy of said contract or other substantial proof of such servicing. Tenant shall be responsible for all repairs and replacements to heating and air-conditioning equipment. Tenant shall also maintain pest control (including termite) inspection and treatment of the premises as required. Tenant agrees to return said premises to Landlord at the expiration or prior termination of this lease in as good condition and repair as when received, natural wear and tear, damage by storm, fire, lightning, or other natural casualty excepted. 5. Landlord's Right to Inspect: Landlord gives Tenant exclusive control of the premises and shall be under no obligation to repair, replace or maintain the premises or any part thereof, but reserves the right to inspect the premises during reasonable business hours and may subsequently require Tenant, by written notice, to make any such repairs necessary, and in a good workmanship like manner, for proper and reasonable upkeep of the premises as agreed in Paragraph 4 of this Lease. If said required work is not completed within thirty (30) days of said notice, Landlord may contract with any firm of his choice and have said work completed, the cost of which will be considered as additional rent and will be billed to Tenant and payable immediately. 6. Alteration of Buildings and Installation of Fixtures and Other Appurtenances: Tenant may, with consent of Landlord, but at its own cost and expense in a good, workmanlike manner, make such alterations and repairs in the building as Tenant may require for the conduct of its business without, however, materially altering the basic character of the building or improvements, or weakening any structure on the demised premises. Tenant shall have the right, without the permission of Landlord, to erect or remove, at Tenant's sole cost and expense, such temporary partitions, including office partitions, as may be necessary to facilitate the handling of Tenant's business and to install electrical fixtures, additional lights and wiring as necessary to conduct Tenant's business. Any alterations or improvements to the leased premises, including but not limited to partitions, all electrical fixtures, lights and wiring, shall at the option of Landlord, become the property of Landlord, at the expiration or sooner termination of this Lease. Should Landlord request Tenant to remove all or any part of the above mentioned items, Tenant shall do so prior to the expiration of this Lease and repair the premises as described below. Temporary shelves, bins and machinery installed by Tenant as well as all telecommunications equipment and any related ancillary equipment installed by tenant shall remain property of Tenant any may be removed by Tenant at any time; provided, however, that all covenants, including rent, due hereunder to Landlord shall have complied with and paid. At the expiration or sooner termination of this Lease, or any extension thereof, Tenant shall remove said shelves, bins and machinery, as well as all other herein named telecommunications and ancillary equipment and repair, in good and workmanlike manner, all damage done to the leased premises by such removal. Tenant shall not exercise the right and privilege granted by this Article 6 in such manner as to damage or affect the structural qualities of the building. Before any work is begun, Tenant agrees to furnish Landlord with hold harmless agreements from all contractors protecting against mechanics liens. 7. Payment of Taxes and Other Assessments; Landlord shall pay annually all real estate taxes on the demised premises. However, Tenant shall upon demand, reimburse Landlord for all taxes and other assessments assessed or levied against the premises. Such payment shall be made by Tenant to landlord not later than ten (10) days following the date on which Landlord provides Tenant with written evidence of such taxes or assessments. If the final year of the Lease term fails to coincide with the tax year, than any tax during which the term ends shall be reduced by the pro rata part of such tax beyond the Lease term. Additionally, if the lease year begins in the middle of a tax year or some portion thereof, then taxes will be pro-rated accordingly. For the purpose of this convenant, it is agreed that the premises hereunder contains 24.649 square feet and the total area contains 24.649 square feet. - -------- -------- Tenant's Pro Rata Share is 100 %. ------- In the event that any documentary stamp tax, or tax levied on the rental, leasing or letting of the premises whether local, state or federal is required to be paid to the execution hereof, the cost thereof shall be borne by the Tenant. 8. Condemnation: In the event any part of the premises shall be taken or condemned at any time during the term hereof through the exercise of power of eminent domain, with or without litigation, and Tenant shall determine that the remaining portion of premises are not reasonably suitable for its use and occupation, Tenant may, be giving written notice to Landlord within sixty (60) days after the date of such taking or condemnation, terminate this Lease as of a date to be set forth in said notice) not earlier than thirty (30) days after the date of the notice, and Landlord shall refund any unearned rent paid in advance by Tenant. If the Tenant does not terminate this Lease as provided above, this Lease shall continue in force as to the remaining portion of the demised premises and in such event the monthly rental thereafter payable by Tenant hereunder shall be adjusted and pro-rated in the exact ratio which the value of the premises remaining after such taking or condemnation bears to the value of the premises immediately preceding the taking or condemnation, and Landlord shall, at its own expense, make any repairs or alterations to said premises which may be necessary to restore the premises, in so far as possible, to their condition prior to the taking or condemnation. In the event any part of the premises shall be taken or condemned at any time during the term hereof through the exercise of power of eminent domain, with or without litigation, and the remainder of the premises shall not, in the option of Landlord, constitute any economically feasible operating unit, Landlord may, by giving notice to Tenant within sixty (60) days after the date of such taking or condemnation terminate this Lease as of a date (to be set forth in said notice) not earlier than thirty (30) days after the date of the notice; rent shall be apportioned as of the termination date. In the event of the taking or condemnation of all or any portion of the premises and if the Landlord and/or Tenant 2 terminates the Lease as provided above, Landlord and Tenant shall together pursue the claim against the condemning or taking authority for the value of the property taken or condemnation and Tenant shall receive from the condemnation award the value of his improvements. If any, so taken; Tenant shall receive no other part of the condemnation award. If the Lease is not terminated, Landlord shall receive the entire aware in the condemnation proceeding. 9. Erection and Removal of Signs: Tenant may place suitable signs on the leased premises for the purpose of indicating the nature of the business carried on by Tenant in said premises; provided, however, that such signs shall be in keeping with other signs in the district where the leased premises are located; and provided, further that the location prior to their erection shall be approved in writing by landlord, and shall not damage the leased premises in any manner. At the termination of this Lease, Landlord may require that Tenant remove his sign, and any damage to the premises caused by removal shall be promptly repaired by Tenant. 10. Glass Breakage and Vandalism: Tenant agrees to immediately replace broken or damaged glass with glass of comparable quality and characteristics which meets appropriate agency building code requirements, excepting breakage covered under Landlord's normal fire and extended coverage insurance policy. Tenant shall make any repairs or replacements caused by vandalism to the premises or any part thereof, if said damage is not covered by Landlord's insurance. 11. Right of Entry by Landlord: Sixty (60) days prior to the expiration of this Lease, Landlord may post suitable notice on the demised premises that the same are "For Rent" and may show the premises to prospective tenants at reasonable times. Landlord may not, however, thereby unnecessarily interfere with the use of demised premises by Tenant. 12. Payment of Utilities: Tenant shall contract for and pay all charges for sewerage, water, gas, electricity, and other public utilities used on the leased premises, including all replacements of light bulbs, tubes, ballasts and starters. Landlord may pay any delinquent bills incurred by Tenant during the lease term which bills may create a lien on the demised premises and shall upon demand be immediately reimbursed by Tenant. Said payments shall be treated as additional rental even though the lease term may have expired. 13. Assignment and Subletting: Neither this Lease nor any interest herein may be assigned by Tenant voluntarily or involuntarily, by operation of law, and neither all nor any part of the leased premises shall be sublet by Tenant without the written consent of Landlord first had and obtained; however, Landlord agrees not to withhold its consent unreasonably for Tenant to sublet the demised premises. Additionally, Tenant shall have the specific right to assign this lease to SprintCom, Inc., its successors, affiliates and related parties with prior written Landlord consent such consent not to be unreasonably withheld. 14. Insurance: a. Tenant agrees to keep the premises fully insured (appraised value) against all perils covered under a normal fire and extended coverage insurance policy including loss of rents; and will name Landlord as additional insured under Tenant's policy. b. If the demised premises or any part thereof shall be damaged or destroyed by fire or other casualty, Landlord shall promptly repair all such damage and restore the demised premises without expense to Tenant, subject to delays due to adjustment of insurance claims, strikes and other causes beyond Landlord's control. If such damage or destruction shall render the premises untenantable in whole or in part, the rent shall be abated wholly or proportionately as the case may be until the damage shall be repaired and the premises restored. If the damage or destruction shall be so extensive as to require the substantial rebuilding (i.e., expenditure of fifty (50%) percent or more of the replacement cost) of the building or buildings on the demised premises, Landlord or Tenant may elect to terminate this Lease by written notice to the other given within thirty (30) days after the occurrence of such damage or destruction. c. Landlord and Tenant hereby release each other from liability for loss or damage occurring on or to the leased premises or the premises of which they are a part or to the contents of either thereof, caused by fire or other hazards ordinarily covered by fire and extended coverage insurance policies and each waives all rights of recovery against the other for such loss or damage. Willful misconduct lawfully attributable to either party, whether in whole or in part a contributing cause of the casualty giving rise to the loss or damage, shall not be excused under the foregoing release. However, all of the foregoing notwithstanding nothing shall constitute a waiver by a landlord or tenant as to any rights of subrogation by any insurer. d. Tenant agrees to indemnify and hold Landlord harmless of and from any and all claims of any kind or nature arising from Tenant's use of the demised premises during the term hereof, and Tenant hereby waives all claims against Landlord for damage to goods wares or merchandise or for injury to persons in and upon the premises from any cause whatsoever, except such as might result from the negligence of Landlord or Landlord's representatives or from failure of Landlord to perform its obligation hereunder within a reasonable time after notice in writing by Tenant requiring such performance by Landlord. Tenant shall at all times during the term hereof keep in effect in responsible companies liability insurance in the names of and for the benefit of Tenant and Landlord with limits as follows: Bodily Injury ____________________ $1,000,000 Single Limit Property Damage __________________ $150,000 and shall provide Landlord with all applicable policies or certified copies thereof. e. Tenant will not permit said demised premises to be used for any purpose which would render the insurance thereon void or cause cancellation thereof. Tenant will not keep, use or sell, or allow to be kept, used or sold in or about the leased premises, any article or material which is prohibited by law or by standard fire insurance policies of the kind customarily 3 in force with respect to premises of the same general type as those covered by this Lease. Such insurance may, at Tenant's election, be carried under any general blanket coverage of Tenant. A renewal policy shall be procured not less than ten (10) days prior to the expiration of any policy. Each original policy or a certified copy thereof, or a satisfactory certificate or the insurer evidencing insurance carried with proof of payment of the premium shall be deposited with Landlord. Tenant shall have the right to settle and adjust all liability claims and all claims against the insuring companies, but without subjecting Landlord to any liability or obligation. 15. Surrender of Premises: Tenant agrees to deliver all keys and to surrender the leased premises at the expiration, or sooner termination, of this Lease, or any extension thereof, broom-clean in the same condition as when said premises were delivered to Tenant, or as altered, pursuant to the provisions of this Lease, ordinary wear and tear and damage by the elements excepted, and Tenant shall remove all of its property. Tenant agrees to pay a reasonable cleaning charge should it be necessary for Landlord to restore or cause to be restored the premises to the same condition as when said premises were delivered to Tenant. 16. Holdover: Should Tenant hold over the leased premises or any part thereof after the expiration of the term of this Lease, unless otherwise agreed in writing, such holding over shall constitute a tenancy from month to month only, and Tenant shall pay as monthly rental the then reasonable value of the use of and occupation of the leased premises which shall not be less, however, than the rent to be paid for the last month under this Lease. Tenant agrees to give Landlord thirty (30) days' prior written notice of intent to vacate premises. 17. Quiet Enjoyment: If and so long as Tenant pays the rents reserved by this lease and performs and observes all the covenants and provisions hereof, Tenant shall quietly enjoy the demised premises, subject, however, to the terms of this Lease, and Landlord will warrant and defend Tenant in the enjoyment and peaceful possession of the demised premises throughout the term of this Lease. 18. Waiver of Covenants: It is agreed that the waiving of any of the covenants of this Lease agreement by either party shall be limited to the particular instance and shall not be deemed to waive any other breaches of such covenant or any provision herein contained. 19. Default by Tenant: This Lease is made upon the condition that the Tenant shall punctually and faithfully perform all of the covenants and agreements by it is to be performed as herein set forth, and if any of the following events of default shall occur, to-wit: (a) there be any default on the part of Tenant in the observance or performance of any of the covenants, agreements, or conditions of this Lease on the part of Tenant to be kept and performed, and said default shall continue for a period of fifteen (15) days after written notice thereof from Landlord to Tenant (unless such default cannot reasonably be cured within fifteen (15) days and Tenant shall have commenced to cure said default within said fifteen (15) days and continues diligently to pursue the curing of the same), or (b) Tenant shall file a petition in bankruptcy or be adjudicated a bankrupt, or file any petition or answer seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief for itself under any present or future federal, state or other statute, law or regulation, or make an assignment for the benefit of creditors, or (c) any trustee, receiver or liquidator or Tenant or of all or any substantial part of its properties or of the leased premises shall be appointed in any action, suit or proceeding by or against Tenant and such proceeding or action shall not have been dismissed within thirty (30) days after such appointment, or (d) the leasehold estate hereby created shall be taken on execution or by other process of law, or (e) Tenant shall admit in writing its inability to pay its obligations generally as they become due, or (f) Tenant shall vacate or abandon the leased premises, then and in any of said cases, Landlord at its option may terminate this lease and re-enter upon the leased premises and take possession thereof with full right to sue for and collect all sums or amounts with respect to which Tenant may be in default and accrued up to the time of such entry, including damages to Landlord by reason of any breach or default on the part of Tenant, or Landlord may, if it elects to do so, bring suit for the collection of such rents and damages without entering into possession of the leased premises or voiding this Lease. In addition to, but not in limitation of, any of the remedies set forth in this lease or given to Landlord by law or in equity, Landlord shall also have the right and option, in the event of any default by Tenant under this lease and the continuance of such default after the period of notice above provided, to retake possession of the leased premises from Tenant without process of law, by summary proceeding or otherwise, and it is agreed that the commencement and prosecution of any action by Landlord in forcible entry and detainer, ejectment or otherwise, or any execution of any judgement or decree obtained in any action to recover possession of the leased premises, shall not be construed as an election to terminate this lease unless Landlord expressly exercises its option hereinabove provided to declare the term hereof ended, whether, or not such entry or re-entry be had or taken under summary proceedings or otherwise, and shall not be deemed to have absolved or discharged Tenant from any of its obligations and liabilities for the remainder of the term of this lease, and Tenant shall, notwithstanding such entry or re-entry, continue to be liable for the payment of the rents and performance of the other covenants and conditions hereof and shall pay to Landlord all monthly deficits after any such re-entry in monthly installments as the amounts of such deficits from time to time are ascertained and, in the event of any such ouster, Landlord rents or leases the leased premises to some other person, firm or corporation (whether for a term greater, less than or equal to the unexpired portion of the term created hereunder) for an aggregate rent during the portion of such new lease co-extensive with the term created hereunder which is less than the rent and other charges which Tenant would pay hereunder for such period, Landlord may immediately upon the making of such new lease of the creation of such new tenancy sue for and recover the difference between the aggregate rental provided for in said new lease for the portion of the term co-extensive with the term created hereunder and the rent which Tenant would pay hereunder for such period, together with any expenses to which Landlord may be put for brokerage commission, placing the leased premises in tenantable conditions or otherwise. If such new lease or tenancy is made for shorter term than the balance of the term of this lease, any such action brought by Landlord to collect the deficit for that period shall not bar Landlord from thereafter suing for any loss accruing during the balance of the unexpired term of this Lease. 4 If Tenant at any time shall fail to pay any taxes, assessments, or liens, or to make any payment or perform any act required by this Lease to be made or performed by it, Landlord, without waiving or releasing Tenant from any obligation or default under this lease, may (but shall be under no obligation to) at any time thereafter make such payment or perform such act for the account and at the expense of Tenant. All sums so paid by Landlord and all costs and expenses so incurred shall accrue interest at the rate of eight percent (8%) from the date of payment or incurring thereof by Landlord and shall constitute additional rent payable by Tenant under this lease and shall be paid by Tenant to Landlord upon demand. All other sums payable by Tenant to Landlord under this lease, if not paid when due, shall accrue interest at the rate of eight percent (8%) from their due date until paid, said interest to be so much additional rent under this lease and shall be paid to Landlord by Tenant upon demand. All rights and remedies of Landlord herein enumerated shall be cumulative, and none shall exclude any other remedies allowed at law or in equity. Tenant agrees to pay a reasonable attorney's fee and all costs if Landlord, in its sole discretion, employs an attorney to collect any rent, additional rent, or any other sums payable under this Lease agreement or to enforce any covenants, agreements, or conditions on the part of the Tenant to be kept and performed; and Tenant expressly waives all exemptions secured to the Tenant under the laws of the State of South Carolina or of any other State of the United States as against the collection of any debt herein or hereby incurred or secured. 20. Default in Rent, Insolvency of Tenant: If Tenant shall make default on any payment herein provided for other than rent, and any such default shall continue for a period of fifteen (15) days or if the leased premises or any part thereof shall be abandoned or vacated or if Tenant shall be dismissed therefrom by or under any authority other than Landlord, or if Tenant shall file a voluntary petition in bankruptcy or if Tenant shall file a petition or institute any proceedings under any insolvency or Bankruptcy Act or any amendment thereto hereafter made, seeking to effect its reorganization or a composition with its creditors or if, in any proceedings based on the insolvency of Tenant or relating to bankruptcy proceedings, a receiver or trustee shall be appointed for Tenant or the leased premises or if any proceedings shall be commenced for the reorganization of Tenant or if the leasehold estate created hereby shall be taken on execution or by any process of law or if Tenant shall admit in writing its inability to pay its obligations generally as they become due, then Landlord may, at its option, terminate this Lease, without notice, and Landlord or Landlord's agents and servants may immediately, or at any time thereafter, re-enter the leased premises by force, summary proceedings and otherwise, and remove all persons and property therein, without being liable to indictment, prosecution or damage therefor, and Tenant hereby expressly waives the service of any notice in writing of intention to re-enter said premises. Landlord may, in addition to any other remedy provided by law or permitted herein, at its option re-let said premises on behalf of Tenant, applying any moneys collected first to the payment of expenses of resuming or obtaining permission, and second to the payment of costs of placing the leased premises in rentable condition, including leasing commission, and third to the payment of rent due hereunder, and any other charges due to Landlord. Any surplus remaining thereafter shall be paid to Tenant and Tenant shall remain liable for any deficiency in rental which shall be paid upon demand therefor to Landlord. 21. Enforcement: In the event party shall enforce the terms of this Lease by suit or otherwise, the party at fault shall pay the costs and expenses incident thereto, including a reasonable attorney's fee. 22. Failure to Perform Covenant: Any failure on the part of either party to this Lease to perform any obligation hereunder, and any delay in doing any act required hereby shall be excused if such failure or delay is caused by any strike, lockout, governmental restriction or any other similar cause beyond the control of the party so failing to perform, to the extent and for the period that such continues, save and except that the provisions of this paragraph shall not excuse a non-payment of rent or other sums due hereunder on its due date. 23. Rights of Successors and Assigns: The covenants and agreements contained in the within Lease shall apply to, inure to the benefit of, and be binding upon the parties hereto, their heirs, successors, distributes, executors, administrators, legal representatives, assigns and upon their respective successors, in interest, except as expressly otherwise hereinbefore provided. 24. Liens: Tenant will not permit any lien for moneys owing by Tenant to remain against the leased premises for a period of more than thirty (30) days following discovery of the same by Tenant. Should any such lien be filed and not released or discharged within thirty (30) days after discovery of the same by Tenant, Landlord may at Landlord's option (but without any obligation to do so) pay and discharge such lien and may likewise pay and discharge any taxes, assessments or other charges against the leased premises which Tenant is obligated hereunder to pay and which may or might become a lien on said premises. Tenant agrees to repay any sums so paid by Landlord upon demand therefor, together with interest at the rate of ten (10%) percent per annum from the date any such payment is made. 25. Construction of Lease: The word "Landlord" is used herein shall refer to the individual, individuals, partnership or corporation called "Landlord" at the commencement of this Lease, and the word "Tenant" shall likewise refer to the individual, individuals, partnership, or corporation called "Tenant". Words of any gender used in this Lease shall be held to include any other gender, and words in the singular number shall be held to include the plural when the sense requires. 26. Paragraph Headings: The paragraph headings as to the contents of particular paragraphs herein, are inserted only for convenience and are in no way to be construed as part of such paragraph or as a limitation on the scope of the particular paragraph to which they refer. 27. Commissions: Landlord acknowledges the service of Edens & Avant Realty, Inc. and ICON Commercial Interests, L.L.C. as Real Estate Brokers in this transaction and in the consideration of the effort of said brokers in obtaining Tenant herein does hereby agree to pay said brokers for services rendered, commission on the rental of the demised premises 5 in accordance with their separate agreement. 28. Notices: It is agreed that the legal address of the parties for all notices required or permitted to be given hereunder, or for all purposes of billing, process, correspondence, and any other legal purposes whatsoever, shall be deemed sufficient, if given by a communication in writing by United States mail, postage prepaid and certified, and addressed as follows: To the Landlord at the following address: Perry Company of Columbia c/o Mr. Thomas E. McCutchen Post Office Box 11209 Columbia, South Carolina 29211-1209 To the Tenant at the following address: AirGate Wireless, LLC 230 Peachtree Street, NW Suite 1700 Atlanta, GA 30303 29. Additional Provisions: Insofar as the following provisions conflict with any other provisions of the Lease, the following shall control: (a) The submission of this document for examination does not constitute an option or offer to lease space at the Property. This document shall have no binding effect on the parties unless executed by the Landlord and the Tenant and a fully executed copy is delivered to the Tenant. (b) Rent: Date Monthly Annual ---- ------- ------ 9/1/98-8/31/03 $8,216.00 $98,592.00 9/1/03-8/31/08 $10,270.00 $123,240.00 It is anticipated that the actual rent start date will be August 15, 1998, so that the first two week period will be outside the term with rent for that period pro-rated in the amount of $4,108.00. (c) Tenant is hereby granted immediate access to the premises for a period beginning July 1, 1998 through August 14, 1998, to perform certain acts of due diligence in order to determine suitability of demised premises for tenant's occupancy. Immediately upon completion of said due diligence, tenant is to so notify landlord in writing so that lease shall either be voided or come into full force and effect not later than August 15, 1998. (d) The provisions of Paragraph 6 notwithstanding, Tenant will be permitted by Landlord, to make certain interior changes to building required by tenant's occupancy up to and including construction of an enclosed "peril proof" area within the building. Tenant expressly agrees to remove or cause to be removed this specific area as well as the other items specifically designated in paragraph 6 upon request by landlord at the end of the lease term and such removal shall be at tenant's sole expense. (e) Landlord hereby agrees to provide tenant a cosmetic improvement allowance of $12,000.00 to be paid upon submission of properly approved contractor invoices. (f) Landlord hereby grants to Tenant renewal options of two five year terms each at rental rates to be negotiated not less than 6 months prior to expiration of the then current term. Rental rates are to be determined by the then prevailing rates for comparable space in the same market area at that time. (g) Landlord hereby grants to Tenant a right of first refusal to purchase the building. However, such right shall not apply in the event of sale or otherwise transfer to heirs or family members or entities in which family members have a major interest. IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the day and year first above written. WITNESSES: LANDLORD: Perry Company of Columbia, Inc. /s/ K. R. Young BY: /s/ Thomas E. McCutchen - ----------------------------- ----------------------------------- ITS: Chairman - ----------------------------- ----------------------------------- TENANT: AirGate Wireless, LLC /s/ Barry A. Flood By: /s/ L. Chris Blane - ----------------------------- ----------------------------------- ITS: Manager - ----------------------------- ----------------------------------- 6 CONSENT TO ASSIGNMENT AND AMENDMENT TO LEASE AGREEMENT -------------------------------- This Agreement is made this 27th day of April, 1999 by and between the Perry Company of Columbia, Inc. ("Landlord"), AirGate Wireless, L.L.C. and AirGate Wireless, Inc. WHEREAS, Landlord and AirGate Wireless, L.L.C. are parties to that certain Lease Agreement dated August 7, 1998 that provides for the lease of property by AirGate Wireless, L.L.C. from the Landlord for a term of ten (10) years beginning on August 1, 1998 (the "Lease"). WHEREAS, AirGate Wireless, L.L.C. has entered into an agreement with AirGate Wireless, Inc. pursuant to which AirGate Wireless, Inc. has agreed to assume from AirGate Wireless, L.L.C. all of AirGate Wireless, L.L.C's obligations and liabilities arising pursuant to that certain Sprint PCS Management Agreement between SprintCom, Inc. and AirGate Wireless, L.L.C. that authorizes AirGate Wireless, L.L.C. to manage a PCS network for SprintPCS including the Lease. WHEREAS, AirGate Wireless, L.L.C. has asked the Landlord to consent to the assignment of the Lease from AirGate Wireless, L.L.C. to AirGate Wireless, Inc. NOW, THEREFORE, the parties agree as follows: 1. AirGate Wireless, L.L.C. represents and warrants that it has entered into an agreement with AirGate Wireless, Inc. pursuant to which AirGate Wireless, Inc. has assumed from AirGate Wireless, L.L.C. all of AirGate Wireless, L.L.C's obligations and liabilities arising pursuant to that certain Sprint PCS Management Agreement between SprintCom, Inc. and AirGate Wireless, L.L.C. that authorizes AirGate Wireless, L.L.C. to manage a PCS network for SprintPCS including the Lease. 2. AirGate Wireless, Inc. hereby assumes from AirGate Wireless, L.L.C. the performance of, and agrees to be bound by, all of the terms, covenants and conditions of the Lease and assumes all obligations and liabilities thereunder as if an original party thereto. 3. Landlord, pursuant to Section 13 of the Lease, consents to the assignment of the Lease from AirGate Wireless, L.L.C. to AirGate Wireless, Inc. provided AirGate Wireless, L.L.C. shall remain liable for the obligations and liabilities under the Lease until released by the Landlord. In Witness Whereof, the parties hereto have executed this Agreement as of the day and year first above written. WITNESSES LANDLORD: Perry Company of Columbia, Inc. [SIGNATURE APPEARS HERE] By: [SIGNATURE APPEARS HERE] - ---------------------------- -------------------------------------- [SIGNATURE APPEARS HERE] Its: its [XXXXX] - ---------------------------- ------------------------------------- 1 Tenant: AirGate Wireless, Inc. M. Ahmadi By: Shelley Spencer ---------------- ------------------------------------- E.Ahmadi Its: Corporate Secretary ---------------- ------------------------------------- AirGate Wireless, L.L.C. M.Ahmadi By: Shelley Spencer ---------------- ------------------------------------- E.Ahmadi Its: Corporate Secretary ---------------- ------------------------------------- 2 EX-10.10 7 EXECUTIVE EMPLOYMENT AGREEMENT Exhibit 10.10 AIRGATE PCS, INC. FORM OF EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into on July __, 1999 by and between AirGate PCS , Inc., a Delaware corporation (the "Company"), and ___________________("Executive") for the period of four years through July 22, 2003. RECITALS A. Executive has been employed by the Company as the _____________________ for the Company. B. Executive currently beneficially owns an indirect interest in the capital stock of the Company equal to _______. C. The Company filed on May 24, 1999 a registration statement with the Securities and Exchange Commission to undertake an initial public offering of the capital stock of the Company that will reduce the Executive's current ownership interest in the Company (the "IPO"). D. The Company and SprintCom, Inc. ("Sprint PCS") have entered into the Sprint PCS Management Agreement (the "Management Agreement") dated July 22, 1998. Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Management Agreement. E. As an inducement to the Company entering into the Management Agreement, Executive agreed to certain retention of ownership restrictions, restrictions on other business interests (the "Primary Business Restriction") and certain restrictions on her employment. Executive and the Company acknowledge that the promises and restrictive covenants Executive is providing in this Agreement are necessary to the Company's protection of its legitimate interests in connection with the Management Agreement. Accordingly, Executive and the Company agree to enter into this Agreement. NOW, THEREFORE, in consideration of the foregoing and the covenants and agreements herein set forth, the parties hereto agree as follows: 1. Duties and Scope of Employment. The Company shall employ the Executive as ------------------------------ ______________for the Company reporting to the chief executive officer. The Executive shall render such business and professional services in the performance of his duties consistent with Executive's position within the Company and as the Company's chief executive officer or Board of Directors may reasonably request from time to time. 2. Employee Benefits. Executive shall be eligible for (i) all employee benefit ----------------- plans and policies currently and hereafter maintained by the Company for its employees of comparable positions, subject to the terms and conditions of such plans and policies, and (ii) such other employee benefits as are set forth in this Agreement. 3. At-Will Employment. Executive and the Company understand and acknowledge ------------------ that Executive's employment with the Company constitutes "at-will" employment. Executive and the Company acknowledge that this employment relationship may be terminated at any time, upon four weeks written notice to the other party (or immediate notice if termination is for cause pursuant to Section 4(g)), with or without cause or for any or no cause, at the option either of the Company or Executive. 4. Compensation. ------------ (a) Base Salary. While employed by the Company pursuant to this Agreement, the Company shall pay the Executive as compensation for his services a base salary at the annualized rate of $120,000.00 (the "Base Salary"). Upon completion of the IPO, Executive's salary will be adjusted to increase his Base Salary to reflect market conditions and at a minimum to $________ . The Base Salary shall be adjusted annually to increase the Executive's Base Salary by a minimum of the greater of (i) the consumer price index; or (ii) 5%. Such salary shall be paid periodically in accordance with normal Company payroll practices and subject to the usual, required withholding and deductions. Executive understands and agrees that neither his job performance nor promotions, commendations, bonuses or the like from the Company give rise to or in any way serve as the basis for modification, amendment, waiver, or extension, by implication or otherwise, of this Agreement. (b) Bonuses. In addition to Executive's Base Salary, Executive shall be eligible to receive an annual bonus (the "Bonus") at a level generally established in the industry for the Executive's position and in the target range of 35% of Executive's Base Salary then in effect, as determined by the Board (in its sole discretion) in consultation with Executive, and according to the terms of any applicable Company executive bonus plans. The Bonus shall be payable in accordance with the Company's normal practices and policies. (c) Stock Option. Executive shall be eligible to participate in the Company's stock option plan at the level established for the position held by the Executive and in accordance with the Company's stock option plan, irrespective of his ownership interest in the Company predating the date of this Agreement. If the stock option plan is not adopted by the Company at the time of execution of this Agreement, the Company agrees to award or cause to be awarded to the Executive an option to purchase stock at a minimum a total number of ____ shares as of the effective date of the stock option plan and pursuant to its terms that apply to senior executives of the Company (subject to adjustment depending on the number of shares issued in the IPO). (d) Annual Benefits Program. Executive shall be eligible to participate in an executive benefit/perquisite program as established by the Company at the level of a senior executive and for a minimum aggregate annual benefit equal to $ 10,000. In 2 addition, Executive will be provided health, dental, disability and life insurance for his and his family under Company policies. (e) Termination of Employment. If the Company terminates the Executive's employment, the Company shall continue until July 22, 2003 to pay the Executive his Base Salary (with an annual adjustment equal to the greater of (i) the consumer price index; or (ii) 5%) plus his average bonus as determined over the course of this Agreement, or if no bonuses have been awarded, at a rate of 20% of Executive's Base Salary (the "Salary Continuation") unless: (i) Executive voluntarily terminates his employment with the Company; or (ii) the Company terminates the Executive or the Salary Continuation for cause pursuant to Section 4(g) of this Agreement; or (iii) the Primary Business Restriction expires, is eliminated or is waived by Sprint PCS. Notwithstanding the foregoing, if the Company terminates Executive's employment without cause and the requirements of Section 4(e)(iii) are met, Executive shall receive six months Base Salary at the rate in effect on the date of termination. In addition, Executive shall be entitled to stock options to the extent provided pursuant to the terms of the Company's stock option plan as an employee under the stock option plan for the duration of the period of payment of Salary Continuation. The Executive shall also continue to receive health, dental, disability and life insurance under the Company's policies so long as the Company continues to pay his Salary Continuation. (f) Continued Employment Obligations. So long as the Company continues to pay Salary Continuation, Executive agrees to perform such duties as the Company reasonably requests from time to time, subject to the direction and control of the Company. Therefore, notwithstanding Executive's termination of employment with respect to the capacity in which Executive was then serving. Executive shall continue in his status as an employee of the Company so long as the Salary Continuation is paid. (g) Termination for Cause. The Company may terminate Executive's employment or the Salary Continuation for cause if the Executive is found to have violated the requirements set forth in Section 8, Section 9(b) or Section 9(c) of this Agreement. If the Executive's employment or the Salary Continuation is terminated pursuant to this Section 4(g), the Executive shall not be entitled to any additional compensation or benefits thereafter. 5. Expenses. The Company will pay or reimburse Executive for reasonable -------- travel, entertainment or other expenses incurred by Executive in the furtherance of or in connection with the performance of Executive's duties hereunder in accordance with the Company's established policies. 6. Assignment. This Agreement shall be binding upon and inure to the benefit ---------- of (a) the heirs, executors and legal representatives of Executive upon Executive's death or incapacity, and (b) any successor or assign of the Company. Any such successor of the Company shall be deemed substituted for the Company under the terms of this Agreement for all purposes. As used herein, "successor" shall include any person, firm, corporation or other business entity which at any time, whether by purchase, merger or 3 otherwise, directly or indirectly acquires all or substantially all of the assets of business of the Company. None of the rights of Executive to receive any form of compensation payable pursuant to this Agreement shall be assignable or transferable except through a testamentary disposition or by the laws of descent and distribution upon the death of Executive. Any attempted assignment, transfer, conveyance or other disposition (other than as aforesaid) of any interest in the rights of Executive to receive any form of compensation hereunder shall be null and void. 7. Notices. All notices, requests, demands and other communications called for ------- hereunder shall be in writing and shall be deemed given if delivered personally or via overnight delivery with proof of receipt or three (3) days after being mailed by registered or certified mail, return receipt requested, prepaid and addressed to the parties or their successors in interest at the following addresses, or at such other addresses as the parties may designate by written notice: If to the Company: AirGate PCS , Inc. Harris Tower 233 Peachtree Street, N.E., Suite 1700 Atlanta, Georgia 30303 Attn: Board of Directors If to Executive: 8. Ownership Interest Restrictions. ------------------------------- (a) Retention of Ownership Interest. Pursuant to Section 13 of Addendum II to the Management Agreement ("Addendum II"), Executive agrees that Executive shall not sell, transfer (except as otherwise provided in subsection (b) below), assign, gift or pledge any of Executive's equity or voting interest in any of the entities listed in Schedule 13 to Addendum II ("Schedule 13") until July 22, 2003 except for those shares granted to Executive pursuant to the terms of the Company's stock option plan and such other equity and voting interests that are not within the scope of Addendum II and Schedule 13. (b) Permitted Transfers. Notwithstanding the provisions of Section 8(a), Executive shall be permitted to execute the following transfers: (i) a transfer of a direct or indirect ownership interest in a Schedule 13 Company to Executive's spouse, child, adopted child, stepchild, grandchild, parent or sibling, or to a trust established for the benefit of any of the foregoing, provided that Executive retains control of the voting rights associated with the ownership interest and remains bound by the terms of Addendum II; (ii) a transfer upon the death of Executive, provided that such transfer is to one of the Principals named in Addendum II or to a person who agrees to be bound by the 4 requirements of Addendum II; or (iii) a transfer of up to a maximum of thirty percent (30%) of Executive's equity interest in the entities listed in Schedule 13 after July 22, 2001. (c) Penalties for Invalid Transfers. Executive acknowledges that his failure to comply with the ownership restrictions set forth in this Section 8 could be treated as a material default of the Management Agreement by Sprint PCS and result in irreparable harm to the Company. Executive agrees to maintain his ownership interests in compliance with the requirements of this Agreement and the Management Agreement and further agrees that any attempted transfer of his ownership interests in violation of the requirements of this Agreement or the Management Agreement shall be invalid and void and agrees that a legend to this effect will be placed on any certificates or other evidence of such ownership interests. Executive further agrees to indemnify and hold harmless the Company and other shareholders of the Company from and against any and all liabilities, damages, penalties, costs and expenses (including reasonable attorney's fees) suffered or incurred by reason of Executive's noncompliance and breach of this Section and and to release the Company for any claims relating to termination of his employment or Salary Continuation pursuant to Section 4(g) of this Agreement. Executive acknowledges that the foregoing indemnity could amount to tens of millions of dollars. The foregoing indemnity shall not be the Company's or other shareholders' exclusive remedy in the event of such noncompliance or breach, such indemnity being cumulative and not in limitation of any and all other remedies at law or in equity. Any penalty paid by the Executive to the Company shall not release or waive any claims that the Company may have against the Executive 9. Restrictions on Employment. -------------------------- (a) Use and Disclosure of Confidential Information. During the period of two (2) years after Executive's employment has terminated for any reason whatsoever (or, in the case of trade secrets, for so long as the information in question remains a trade secret) and during any period Executive is employed by Employer, Executive shall not, without the prior written consent of the Company, directly or indirectly, divulge, disclose or publish to any person or entity, or reproduce or use in any way, except only as required for the benefit of the Company, any Confidential Information (as defined herein). Upon the Company's request and, in any event, upon the termination of Executive's employment with the Company for any reason whatsoever, Executive shall immediately return any reproductions of Confidential Information to the Company. For purposes of this Agreement, "Confidential Information" means any trade secrets and any information relating to the Company's business that is competitively sensitive and not generally known by the public, including processes, policies, procedures, techniques, designs, drawings, know-how, show-how, technical information, technology, specifications, products, computer programs (including computer programs developed, improved or modified by Executive for or on behalf of the Company for use in the Company's business), algorithms, systems, methods of operation, order entry forms, price lists, customer lists, customer information, solicitation leads, marketing research data, marketing and advertising materials and methods and manuals and forms, all of which 5 pertain to the Company's business. Confidential Information does not include any information which (i) is available in published print or otherwise known to the public, unless published or made known as a result of acts or omissions of Executive, or (ii) is lawfully obtained by Executive in writing from a third party who did not acquire such confidential information or trade secret, directly or indirectly, from Executive or the Company. (b) Primary Business Restriction. Pursuant to Section 14(a) of Addendum II, Executive agrees that prior to July 22, 2003, unless the Primary Business Restriction expires or is eliminated or waived by Sprint PCS, Executive shall not have a primary business other than his involvement with the Company, regardless of whether he is currently employed by the Company. Executive acknowledges that his failure to comply with the ownership restrictions set forth in this Section 9(b) could be treated as a material default of the Management Agreement by Sprint PCS and result in irreparable harm to the Company. Executive agrees to release the Company for any claims relating to termination of his employment or Salary Continuation pursuant to Section 4(g) of this Agreement. Executive acknowledges that the foregoing indemnity could amount to tens of millions of dollars. The foregoing indemnity shall not be the Company's or other shareholders' exclusive remedy in the event of such noncompliance or breach, such indemnity being cumulative and not in limitation of any and all other remedies at law or in equity. (c) Covenant Not to Compete (the "Covenant Not to Compete"). In addition to the requirements set forth in Section 9(b), during Executive's employment with the Company and for a period of eighteen (18) months after Executive's employment is terminated, Executive shall not, directly, indirectly, for himself or on behalf of or in conjunction with any other person, firm or entity. (i) engage in the wireless telecommunications business (the "Business") anywhere within the Service Area as defined in Addendum 1 of the Management Agreement (the "Territory"). (ii) initiate any action to solicit in competition with the Business of the Company or to divert or attempt to divert from the Company the Business of any person, firm or entity for which the Company provided services in connection with the Business at any time during the period of twenty four (24) months immediately preceding the time of such solicitation diversion or attempt to divert and with whom Executive had material contact in the course of Executive's employment with the Company; or (iii) initiate any action to hire for any other employer any employee of the Company cause any employee of the Company to leave his employment in order to work for another. Executive acknowledges that the Company has conducted and expects to conduct its business throughout the Territory and that the Company expects that during the aforesaid period, the Company will continue to expand its Business throughout the Territory and that this expectation is realistic; that Executive shall be engaged in the Company's business in his capacity with respect to the Company's activities throughout the Territory; 6 and that because of Executive's association with the Company, the Company's business would be seriously and irreparably harmed if Executive were to compete with the Company in the manner prohibited above. (d) Change of Control. The restrictions set forth in Section 8 hereof (entitled "Ownership Interest Restrictions"), and the obligation of Executive to comply with the Primary Business Restriction (but not the restrictions set forth in Section 9(a) and 9(c) hereof), shall lapse immediately if at least one-third (1/3) of the persons who are corporate officers of Sprint and/or Sprint PCS immediately before an Applicable Change of Control terminate their employment for any reason within one year following an Applicable Change of Control. For purposes of this Agreement, (i) "Change of Control" shall have the meaning set forth in Section 17.15.3(e) of the Management Agreement, and (ii) "Applicable Change of Control" shall mean a Change of Control of Sprint or Sprint PCS (other than the Change of Control between Sprint Enterprises, L.P., TCI Telephony Services, Inc., Comcast Telephony Services and Cox Telephony Partnership, Sprint Spectrum L.P., SprintCom. Inc., PhillieCo Partners I, L.P., and Cox Communications PCS, L.P.). (e) Injunction; Attorneys' Fees; Setoff. As any breach by Executive of any of the covenants contained in this Agreement would result in irreparable injury to the Company, and as the damages arising out of any such breach would be difficult to ascertain, Executive agrees that, in addition to all other remedies provided by law or in equity, the Company shall be entitled to an injunction against any such breach, whether actual or contemplated. If the Company takes any action at law or in equity to enforce its rights under this Agreement, then in addition to any other relief to which the Company may be entitled, the Company shall be entitled to reasonable attorneys' fees, costs and necessary expenses incurred in connection therewith. The Company shall be entitled to set off against any compensation and other payments of any kind owed to Executive any amounts owing to the Company as a result of a breach of this Agreement or otherwise. 10. Termination. If the Company does not complete its financing, including but not limited to, completion of the IPO, a high yield debt offering and closing of a senior debt facility by September 30, 1999, or if the Management Agreement is terminated by Sprint PCS, Executive (if Executive is not then in breach of this Agreement) may terminate this Agreement. 11. Entire Agreement. This Agreement and the documents referenced herein ---------------- represent the entire agreement and understanding between the Company and Executive concerning the subject matter hereof, and supersede and replace any and all prior agreements and understandings concerning such subject matter. 12. Arbitration and Equitable Relief. -------------------------------- (a) To the extent permitted by applicable law, Executive agrees that any dispute or controversy arising out of, relating to, or in connection with this Agreement, or the 7 interpretation, validity, construction, performance, breach or termination thereof shall be settled by arbitration to be held in Fulton County, Georgia, in accordance with the National Rules for the Resolution of Employment Disputes then in effect of the American Arbitration Association (the "Rules"). The arbitrator may grant injunctions or other relief in such dispute or controversy. The decision of the arbitrator shall be final, conclusive and binding on the parties to the arbitration. Judgment may be entered on the arbitrator's decision in any court having jurisdiction. (b) The arbitrator shall apply Georgia law to the merits of any dispute or claim, without reference to rules of conflict of law. Executive hereby expressly consents to the personal jurisdiction of the state and federal courts located in Georgia for any action or proceeding arising from or relating to this Agreement and/or relating to any arbitration in which the parties are participants. (c) Executive understands that nothing in Section 12 modifies Executive's at-will status. Subject to Section 3, either the Company or Executive can terminate the employment relationship at any time, with or without cause. (d) EXECUTIVE HAS READ AND UNDERSTANDS SECTION 12, WHICH DISCUSSES ARBITRATION. EXECUTIVE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT, EXECUTIVE AGREES TO SUBMIT ANY FUTURE CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH, OR TERMINATION THEREOF TO BINDING ARBITRATION, AND THAT THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF EXECUTIVE'S RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE EMPLOYER/EMPLOYEE RELATIONSHIP, INCLUDING BUT NOT LIMITED TO, THE FOLLOWING CLAIMS: (i) ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF EMPLOYMENT; BREACH OF CONTRACT, BOTH EXPRESS OR IMPLIED; BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING, BOTH EXPRESS AND IMPLIED; NEGLIGENT OR INTENTIONAL INFLICTION OF EMOTIONAL DISTRESS; NEGLIGENT OR INTENTIONAL MISREPRESENTATION; NEGLIGENT OR INTENTIONAL INTERFERENCE WITH CONTRACT OR PROSPECTIVE ECONOMIC ADVANTAGE; AND DEFAMATION. (ii) ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL STATE OR MUNICIPAL STATUTE, INCLUDING, BUT NOT LIMITED TO, TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, THE CIVIL RIGHTS ACT OF 1991, THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967, THE AMERICANS WITH DISABILITIES ACT OF 1990, AND THE FAIR LABOR STANDARDS ACT; (iii) ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER 8 LAWS AND REGULATIONS RELATING TO EMPLOYMENT OR EMPLOYMENT DISCRIMINATION. (e) Notwithstanding any provision herein to the contrary, this Section 12 shall not apply to any dispute or controversy arising under Section 9 (entitled "Restrictions on Employment") or the interpretation, validity, construction, performance, breach or termination thereof. 13. Severability. In the event that any provision hereof becomes or is ------------ declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision. 14. No Oral Modification, Cancellation or Discharge. This Agreement may only ----------------------------------------------- be amended, canceled or discharged in writing signed by Executive and the Company. 15. Withholding. The Company shall be entitled to deduct or withhold, or ----------- cause to be deducted or withheld, from payment any amount of withholding taxes or other amounts required by law with respect to payments made to Executive in connection with his employment hereunder. 16. Governing Law. This Agreement shall be governed by the laws of the State ------------- of Georgia. 17. Acknowledgment. Executive acknowledges that he has had the opportunity to -------------- discuss this matter with and obtain advice from his private attorney, has had sufficient time to, and has carefully read and fully understands all the provisions of this Agreement, and is knowingly and voluntarily entering into this Agreement. 18. Gender. Wherever the context requires, the masculine or feminine gender -------- shall include the other gender, and the singular shall include the plural and vice versa. [Execution on next page] 9 IN WITNESS WHEREOF, the undersigned have executed this Agreement on the respective dates set forth below. COMPANY: AIRGATE PCS, INC. By: ______________________________________ Name/Title: ________________________________ Date: _____________________________________ EXECUTIVE: __________________________________________ Date: _____________________________________ 10 EX-10.11 8 1999 STOCK OPTION PLAN Exhibit 10.11 AIRGATE PCS, INC. 1999 STOCK OPTION PLAN 1. Purpose of the Plan. The purposes of this Stock Option Plan are to ------------------- attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to such individuals, to reward such individuals for exemplary service and to promote the success of the Company's business by aligning employee financial interests with long-term shareholder value. Options granted hereunder may be either Incentive Stock Options or Nonqualified Stock Options, at the discretion of the Board and as reflected in the terms of the written option agreement. 2. Definitions. As used herein, the following definitions shall apply: ----------- (a) "Board" shall mean the Committee, if the Committee has been appointed, or the Board of Directors of the Company, if the Committee has not been appointed. (b) "Code" shall mean the Internal Revenue Code of 1986, as amended. (c) "Committee" shall mean the Compensation Committee appointed by the Board of Directors in accordance with Section 4(a) of the Plan, if one is appointed. (d) "Common Shares" shall mean the $.01 par value per share common capital stock of the Company. (e) "Company" shall mean AIRGATE PCS, INC., a Delaware corporation, and any successor thereto. (f) "Continuous Status as an Employee" shall mean the absence of any interruption or termination of service as an Employee. Continuous Status as an Employee shall continue to the extent provided in a written severance compensation payments are made to an Employee and shall not be considered interrupted in the case of any leave of absence authorized in writing by the Company prior to its commencement. (g) "Employee" shall mean any person, including officers and directors, employed by the Company or any Parent or Subsidiary of the Company. Notwithstanding the foregoing, for purposes of any Incentive Stock Option granted hereunder, "Employee" includes only employees within the meaning of Section 422 of the Code. (h) "Incentive Stock Option" shall mean any option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code. (i) "Non-Employee Director" shall have the same meaning as defined or interpreted for purposes of Rule 16b-3 (including amendments and successor provisions) as promulgated by the Securities and Exchange Commission pursuant to its authority under the Securities Exchange Act of 1934, as amended ("Rule 16b-3"). (j) "Nonqualified Stock Option" shall mean an option not intended to qualify as an Incentive Stock Option. (k) "Option" shall mean a stock option granted pursuant to the Plan and represented by a written option agreement. (l) "Optioned Shares" shall mean the Common Shares subject to an Option. (m) "Optionee" shall mean an Employee who receives an Option. (n) "Outside Director" shall have the same meaning as defined or interpreted for purposes of Section 162(m) of the Code. (o) "Parent" shall mean a "parent corporation" whether now or hereafter existing, as defined in Section 424(e) of the Code. (p) "Plan" shall mean this 1999 Stock Option Plan, including any amendments hereto. (q) "Share" shall mean one Common Share, as adjusted in accordance with Section 11 of the Plan. (r) "Subsidiary" shall mean (i) in the case of an Incentive Stock Option, a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Code, and (ii) in the case of a Nonqualified Stock Option, in addition to a subsidiary corporation as defined in (i), a limited liability company, partnership or other entity in which the Company controls fifty percent (50%) or more of the voting power or equity interests. 3. Shares Subject to the Plan. Subject to the provisions of Section 11 of -------------------------- the Plan, the maximum aggregate number of shares which may be optioned and sold under the Plan is 1,500,000 Common Shares. The Shares may be authorized, but unissued, or reacquired Common Shares. If an Option should expire or become unexercisable for any reason without having been exercised in full, the unpurchased Shares which were subject thereto shall, unless the Plan shall have been terminated, become available for future grant under the Plan. 4. Administration of the Plan. -------------------------- (a) Procedure. The Plan shall be administered by the Board of Directors of --------- the Company. (i) The Board of Directors may appoint a Compensation Committee consisting of not less than two members of the Board of Directors to administer the Plan on behalf of the Board of Directors, subject to such terms and conditions as the Board of Directors may prescribe. Once appointed, the Committee shall continue to serve until otherwise directed by the Board of Directors. (ii) Any grants of Options to officers, directors and shareholders who are subject to Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange Act") shall be made by (A) a Committee of two or more directors, each of whom is a Non-Employee Director and an Outside Director or (B) as otherwise permitted by Rule 16b-3, Section 162(m) of the Code and other applicable laws, rules and regulations. (iii) From time to time the Board of Directors may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, or fill vacancies however caused. (b) Powers of the Board. Subject to the provisions of the Plan, the Board ------------------- shall have the authority, in its discretion (i) to grant Incentive Stock Options or Nonqualified Stock Options; (ii) to determine, in accordance with Section 8(b) of the Plan, the fair market value of the Shares; (iii) to determine, in accordance with Section 8(a) of the Plan, the exercise price per Share of Options to be granted; (iv) to determine the Employees to whom, and the time or times at which, Options shall be granted and the number of Shares to be represented by each Option; (v) to interpret the Plan; (vi) to prescribe, amend, and rescind rules and regulations relating to the Plan; (vii) to determine the terms and provisions of each Option granted (which need not be identical and may include, as conditions to exercise (as well as, in the case of Nonqualified Stock Options, conditions to grant), vesting, forfeiture, performance criteria, noncompete and such other restrictions, provisions and conditions as the Board may determine) and, with the consent of the holder thereof, modify or amend each Option; (viii) to reduce the exercise price per share of outstanding and unexercised Options; (ix) to accelerate or defer (with the consent of the Optionee) the exercise date of any Option; (x) to authorize any person to execute on behalf of the Company any instrument required to effectuate the grant of an Option previously granted by the Board; and (xi) to make all other determinations deemed necessary or advisable for the administration of the Plan. (c) Effect of Board's Decision. All decisions, determinations, and -------------------------- interpretations of the Board shall be final and binding on all Optionees and any other holders of any Options granted under the Plan. 5. Eligibility. ----------- (a) Options may be granted only to Employees. (b) Each Option shall be designated in the written option agreement as either an Incentive Stock Option or a Nonqualified Stock Option. However, notwithstanding such designations, to the extent that the aggregate fair market value of the stock with respect to which options designated as Incentive Stock Options are exercisable for the first time by any Optionee during any calendar year (under all plans of the Company and any Parent or Subsidiary of the Company) exceeds $100,000, such options shall be treated as Nonqualified Stock Options. (c) For purposes of Section 5(b), options shall be taken into account in the order in which they were granted, and the fair market value of stock shall be 2 determined as of the time the option with respect to such stock is granted. (d) Nothing in the Plan or any Option granted hereunder shall confer upon any Optionee any right with respect to continuation of employment with the Company, nor shall it interfere in any way with the Optionee's right or the Company's right to terminate the employment relationship at any time, with or without cause. 6. Term of Plan. The Plan shall become effective upon its adoption by the ------------ Board and the shareholders of the Company. It shall continue in effect until December 31, 2009, unless sooner terminated under Section 14 of the Plan. 7. Term of Option. The term of each Option shall be no more than ten (10) -------------- years from the date of grant. However, in the case of an Incentive Stock Option granted to an Optionee who, at the time the Option is granted, owns Shares representing more than ten percent (10%) of the voting power of all classes of shares of the Company or any Parent or Subsidiary, the term of the Option shall be no more than five (5) years from the date of grant. 8. Exercise Price and Consideration. -------------------------------- (a) The per Share exercise price under each Option shall be such price as is determined by the Board, subject to the following: (i) In the case of an Incentive Stock Option: (A) granted to an Employee who, at the time of the grant of the Incentive Stock Option, owns shares representing more than ten percent (10%) of the voting power of all classes of shares of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than one hundred ten percent (110%) of the fair market value per Share on the date of grant. (B) granted to any other Employee, the per Share exercise price shall be no less than one hundred percent (100%) of the fair market value per Share on the date of grant. (ii) In the case of a Nonqualified Stock Option, the per Share exercise price may be less than, equal to, or greater than the fair market value per Share on the date of grant, as determined by the Board in its discretion. (b) The fair market value per Share shall be determined by the Board in its discretion and, in the case of an Incentive Stock Option, in accordance with Section 422 of the Code. (c) The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Board at the time of grant and may consist, without limitation, of cash and/or check and/or promissory note. In all cases, an Optionee (including, without limitation, an officer, director or shareholder of the Company who is subject to Section 16 of the Exchange Act) may in addition be allowed to pay all or part of the purchase price with Shares. Shares used to pay the exercise price shall be valued at their fair market value on the exercise date. (d) Prior to issuance of the Shares upon exercise of an Option, the Optionee shall pay any federal, state, and local withholding obligations of the Company, if applicable. An Optionee (including, without limitation, an officer, director or shareholder of the Company who is subject to Section 16 of the Exchange Act) may elect to pay such withholding tax obligations by having the Company withhold Shares having a value equal to the amount required to be withheld. The value of the Shares to be withheld shall equal the fair market value of the Shares on the day the option is exercised. The right of an officer, director or shareholder who is subject to Section 16 of the Exchange Act to dispose of Shares to the Company in satisfaction of withholding tax obligations shall be deemed to be approved as part of the initial grant of an Option, unless thereafter rescinded, and shall otherwise be made in compliance with Rule 16b-3 and other applicable regulations. 9. Exercise of Option. ------------------ (a) Procedure for Exercise; Rights as a Shareholder. Any Option granted ----------------------------------------------- hereunder shall be exercisable at such times and under such conditions as determined by the Board at the time of grant, and as shall not violate the terms of the Plan. An Option may not be exercised for a fraction of a Share. 3 An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may, as authorized by the Board, consist of any consideration and method of payment allowable under Section 8(c) of the Plan. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the share certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Shares, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such share certificate promptly upon exercise of the Option. In the event that the exercise of an Option is treated in part as the exercise of an Incentive Stock Option and in part as the exercise of a Nonqualified Stock Option pursuant to Section 5(b), the Company shall issue a share certificate evidencing the Shares treated as acquired upon the exercise of an Incentive Stock Option and a separate share certificate evidencing the Shares treated as acquired upon the exercise of a Nonqualified Stock Option, and shall identify each such certificate accordingly in its share transfer records. No adjustment will be made for a dividend or other right for which the record date is prior to the date the share certificate is issued, except as provided in Section 11 of the Plan. Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) Termination of Status as Employee. In the event of termination of an --------------------------------- Optionee's Continuous Status as an Employee, such Optionee may exercise Options to the extent exercisable on the date of termination. In the case of an Incentive Stock Option and unless specified otherwise in the Option Agreement in the case of a Nonqualified Stock Option, such exercise must occur within three (3) months (or such shorter time as may be specified in the grant) after the date of such termination (but in no event later than the date of expiration of the term of such Option as set forth in the Option Agreement). To the extent that the Optionee was not entitled to exercise the Option at the date of termination, or does not exercise the Option within the time specified herein or therein (whichever first occurs), the Option shall terminate. If the Optionee returns to Continuous Status as an Employee before his deadline for exercise pursuant to this Section 9(b), then Optionee shall be restored to the status as Optionee he held immediately prior to his termination (provided no employment credit will be earned for any period he was not in Continuous Status as an Employee). (c) Disability of Optionee. Notwithstanding the provisions of Section 9(b) ---------------------- above, in the event of termination of an Optionee's Continuous Status as an Employee as a result of total and permanent disability (i.e., the inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of twelve (12) months), the Optionee may exercise the Option, but only to the extent of the right to exercise that had accrued as of the date of termination. In the case of an Incentive Stock Option and unless specified otherwise in the Option Agreement in the case of a Nonqualified Stock Option, such exercise must occur within twelve (12) months (or such shorter time as is specified in the grant) from the date on which the Employee ceased working as a result of the total and permanent disability (but in no event later than the date of expiration of the term of such Option as set forth in the Option Agreement). To the extent that the Optionee was not entitled to exercise such Option within the time specified herein or therein (whichever first occurs), the Option shall terminate. If the Optionee returns to Continuous Status as an Employee before his deadline for exercise pursuant to this Section 9(c), then Optionee shall be restored to the status as Optionee he held immediately prior to his termination (provided no employment credit will be earned for any period he was not in Continuous Status as an Employee). (d) Death of Optionee. Notwithstanding the provisions of Section 9(b) ----------------- above, in the event of the death of an Optionee -- (i) who is at the time of death an Employee, the Option may be exercised, at any time within six (6) months following the date of death (but in no event later than the date of expiration of the term of such Option as set forth in the Option Agreement), by the Optionee's estate or by a person who acquired the right to exercise the option by bequest or inheritance, but 4 only to the extent of the right to exercise that had accrued as of the date of death; or (ii) whose Option has not yet expired but whose Continuous Status as an Employee terminated prior to the date of death, the Option may be exercised, at any time within six (6) months following the date of death (but in no event later than the date of expiration of the term of such Option as set forth in the Option Agreement), by the Optionee's estate or by a person who acquired the right to exercise the option by bequest or inheritance, but only to the extent of the right to exercise that had accrued at the date of termination. (e) Notwithstanding subsections (b), (c), and (d) above, the Board shall have the authority to extend the expiration date of any outstanding option in circumstances in which it deems such action to be appropriate (provided that no such extension shall extend the term of an Option beyond the date on which the Option would have expired if no termination of the Employee's Continuous Status as an Employee had occurred). 10. Non-Transferability of Options. An Option may not be sold, pledged, ------------------------------ assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee; provided, however, that the Board may permit further transferability, on a general or specific basis, and may impose conditions and limitations on any permitted transferability. 11. Adjustments Upon Changes in Capitalization or Merger. Subject to any ---------------------------------------------------- required action by the shareholders of the Company, the number of Shares covered by each outstanding Option, and the number of Shares which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per Share covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued Shares resulting from a stock split, reverse stock split, stock dividend, combination, or reclassification of the Shares, or any other increase or decrease in the number of issued Shares effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding, and conclusive. Except as expressly provided herein, no issuance by the Company of shares of any class, or securities convertible into shares of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares subject to an Option. In the event of the proposed dissolution or liquidation of the Company, the Option will terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Board. The Board may, in the exercise of its sole discretion in such instances, declare that any Option shall terminate as of a date fixed by the Board and give each Optionee the right to exercise an Option as to all or any part of the Optioned Shares, including Shares as to which the Option would not otherwise be exercisable. In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, each Option shall be assumed or an equivalent option shall be substituted by such successor corporation or a parent or subsidiary of such successor corporation, unless such successor corporation does not agree to assume the Option or to substitute an equivalent Option, in which case the Board shall, to the extent required by law or otherwise as determined by the Board, in lieu of such assumption or substitution, provide for the Optionee to have the right to exercise the Option as to all of the Optioned Shares, including Shares as to which the Option would not otherwise be exercisable. If the Board makes an Option fully exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Board shall notify the Optionee that the Option shall be fully exercisable for a period of thirty (30) days from the date of such notice, and the Option will terminate upon the expiration of such period. 12. Time of Granting Options. The date of grant of an Option shall, for all ------------------------ purposes, be the date on which the Company completes the corporate action relating to the grant of an Option and all conditions to the grant have been satisfied, provided that conditions to the exercise of an Option shall not defer the date of grant. Notice of a grant shall be given to each Employee to whom an Option is so granted within a reasonable time after the determination has been made. 5 13. Substitutions and Assumptions. The Board shall have the right to ----------------------------- substitute or assume Options in connection with mergers, reorganizations, separations, or other transactions to which Section 424(a) of the Code applies, provided such substitutions and assumptions are permitted by Section 424 of the Code and the regulations promulgated thereunder. The number of Shares reserved pursuant to Section 3 may be increased by the corresponding number of Options assumed and, in the case of a substitution, by the net increase in the number of Shares subject to Options before and after the substitution. 14. Amendment and Termination of the Plan. The Board may amend or terminate ------------------------------------- the Plan from time to time in such respects as the Board may deem advisable (including, but not limited to, amendments which the Board deems appropriate to enhance the Company's ability to claim deductions related to stock option exercises); provided, however, that any increase in the number of Shares subject to the Plan, other than in connection with an adjustment under Section 11 of the Plan, shall require approval of or ratification by the shareholders of the Company. (a) Employees in Foreign Countries. The Board shall have the authority to ------------------------------ adopt such modifications, procedures, and subplans as may be necessary or desirable to comply with provisions of the laws of foreign countries in which the Company or its Parent or Subsidiaries may operate to assure the viability of the benefits from Options granted to Employees employed in such countries and to meet the objectives of the Plan. (b) Effect of Amendment or Termination. Any such amendment or termination ---------------------------------- of the Plan shall not affect Options already granted and such Options shall remain in full force and effect as if this Plan had not been amended or terminated, unless mutually agreed otherwise between the Optionee and the Board, which agreement may be in writing and signed by the Optionee and the Company. 15. Conditions Upon Issuance of Shares. Shares shall not be issued pursuant ---------------------------------- to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, any applicable state securities laws, and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. 16. Reservation of Shares. The Company, during the term of this Plan, will --------------------- at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. 17. Shareholder and Board Approval. The Plan is subject to approval by the ------------------------------ shareholders and Board of the Company and shall become effective on the date of such approval. 18. Governing Law. The validity, construction, interpretation and effect of ------------- this Plan shall exclusively be governed by and determined in accordance with the laws of the State of Georgia, except to the extent preempted by federal law. 6 EX-21.1 9 SUBSIDIARIES OF AIRGATE PCS, INC. Exhibit 21.1 Subsidiaries of AirGate PCS, Inc. Name of Subsidiary State of Incorporation ------------------ ---------------------- AGW Leasing Company, Inc. Delaware EX-23.1 10 CONSENT OF KPMG EXHIBIT 23.1 Independent Accountants' Consent The Board of Directors AirGate PCS, Inc.: We consent to the use of our report dated April 28, 1999, except for note 12(g), which is as of July 9, 1999, related to the consolidated financial statements of AirGate PCS, Inc. and subsidiaries and predecessors included herein, and to the reference to our firm under the headings "Experts" and "Selected Financial Data" in this Registration Statement and the related prospectuses. Our report dated April 28, 1999, except for note 12(g), which is as of July 9, 1999, contains an explanatory paragraph that states the Company has incurred recurring losses from operations and has a working capital and an accumulated deficit that raise substantial doubt about its ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of that uncertainty. /s/ KPMG LLP -------------- KPMG LLP July 9, 1999 Atlanta, Georgia -----END PRIVACY-ENHANCED MESSAGE-----