-----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, AeIzr6wIz/x+pTnu41cBJspt3harkDVToCwO5aKE27mH0aFZ2o07cZOFRujH231/ 7URVVJpNDHKMQR54VjoTPw== 0001021408-00-004005.txt : 20001219 0001021408-00-004005.hdr.sgml : 20001219 ACCESSION NUMBER: 0001021408-00-004005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001218 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AIRGATE PCS INC /DE/ CENTRAL INDEX KEY: 0001086844 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 582422929 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-27455 FILM NUMBER: 791336 BUSINESS ADDRESS: STREET 1: 233 PEACHTREE ST NE STREET 2: SUITE 1700 CITY: ATLANTA STATE: GA ZIP: 30303 BUSINESS PHONE: 4045257272 MAIL ADDRESS: STREET 1: 233 PEACHTREE ST STREET 2: SUITE 1700 CITY: ATLANTA STATE: GA ZIP: 30303 10-K 1 0001.txt ANNUAL REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Fiscal Year Ended September 30, 2000. OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934. Commission File Number: 027455 AirGate PCS, Inc. --------------------------------------- (Exact name of registrant as specified in its charter) Delaware 58-2422929 ---------------------------------------------------- ------------------------------------------ (State or other jurisdiction of incorporation or (I.R.S. Employer Identification Number) organization) Harris Tower, 233 Peachtree St. NE, Suite 1700, Atlanta, Georgia 30303 ---------------------------------------------------- ------------------------------------------ (Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (404) 525-7272 ----------------------------- Securities registered pursuant to Section 12(b) of the Act: None. Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01 per share Title of Each Class Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] The aggregate market value of the voting stock held by non-affiliates of the registrant (based upon the closing sale price on the Nasdaq Stock Market on December 11, 2000) is approximately $383,936,000. (For purposes of determination of the foregoing amount, only our directors and executive officers have been deemed affiliates). As of December 11, 2000, there were 12,846,526 shares of common stock, $0.01 par value per share, outstanding. DOCUMENTS INCORPORATED BY REFERENCE 1. Portions of the AirGate PCS, Inc. Notice of Annual Meeting and Proxy Statement, dated December 20, 2000 (Part III of Form 10-K). AIRGATE PCS, INC. ANNUAL REPORT ON FORM 10-K TABLE OF CONTENTS
ITEM NO. PAGE NO. - -------- -------- PART I.................................................................................................. 3 ITEM 1. Business................................................................................... 3 ITEM 2. Properties................................................................................. 19 ITEM 3. Legal proceedings.......................................................................... 19 ITEM 4. Submission of Matters to a Vote of Security Holders........................................ 19 PART II................................................................................................. 19 ITEM 5. Market For Registrant's Common Equity And Related Stockholder Matters...................... 19 ITEM 6. Selected Financial Data.................................................................... 20 ITEM 7. Management's Discussion And Analysis Of Financial Condition And Results Of Operations...... 22 ITEM 7A. Quantitative And Qualitative Disclosures About Market Risk................................. 27 ITEM 8. Financial Statements....................................................................... 27 ITEM 9. Changes In And Disagreements With Accountants On Accounting And Financial Disclosure....... 27 PART III................................................................................................ 28 ITEM 10. Directors And Executive Officers Of The Registrant......................................... 28 ITEM 11. Executive Compensation..................................................................... 28 ITEM 12. Security Ownership Of Certain Beneficial Owners And Management............................. 28 ITEM 13. Certain Relationships And Related Transactions............................................. 28 PART IV................................................................................................. 28 ITEM 14. Exhibits, Financial Statements, Schedules, And Reports On Form 8-K......................... 28
PART I ITEM 1. Business Special Caution Regarding Forward-Looking Statements We believe that it is important to communicate our future expectations to our stockholders and to the public. This report, therefore, contains forward- looking statements within the meaning of Section 27A of the Securities Act of 1933 and 21E of the Securities and Exchange Act of 1934, including the statements about our plans, objectives, expectations and prospects under the headings "Item 1. Business" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." In addition, the "Letter to Stockholders" in our 2000 Annual Report contains forward-looking statements. You can identify these statements by forward-looking words such as "anticipate," "believe," "estimate," "expect," intend," "plan," "seek," and similar expressions. Although we believe that the plans, objectives, expectations and prospects reflected in or suggested by our forward-looking statements are reasonable, those statements involve uncertainties and risks, and we can give no assurance that our plans, objectives, expectations and prospects will be achieved. Important factors that could cause our actual results to differ materially from the results contemplated by the forward-looking statements are contained in the "Investment Considerations" section in this Item 1, in "Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this report. All written or oral forward-looking statements attributable to us are expressly qualified in their entirety by these cautionary statements. BUSINESS OVERVIEW We market and provide digital personal communication services, or PCS. We are a network affiliate of Sprint PCS, the personal communications services group of Sprint Corporation. Sprint PCS, directly and indirectly 3 through affiliates such as us, provides wireless services in more than 4,000 cities and communities across the country. Through our management agreement with Sprint PCS, we have the right to provide Sprint PCS products and services under the Sprint and Sprint PCS brand names in a territory that covers almost the entire state of South Carolina, parts of North Carolina and the eastern Georgia cities of Augusta and Savannah. Our Sprint PCS territory encompasses 21 contiguous markets and approximately 7.1 million residents. Our Sprint PCS territory is one of the fastest growing regions in the United States. Based upon population of our Sprint PCS territory, we are one of the largest Sprint PCS affiliates in the United States. In January 2000, we launched Sprint PCS service in the Greenville- Spartanburg and Anderson, South Carolina markets and the Asheville and Hickory, North Carolina markets. Since then, we have commenced service in all 17 of our remaining Sprint PCS markets (for more information on our existing markets and launch dates see "Markets"). Our Sprint PCS network currently covers approximately 5.4 million, or 76%, of the 7.1 million residents in our Sprint PCS territory. The number of residents covered by our Sprint PCS network does not represent an actual number of our subscribers that we expect to have in our territory, but instead represents the maximum number of potential subscribers in that territory. As of September 30, 2000, we were providing PCS service to 56,689 subscribers within our Sprint PCS territory. Our History AirGate PCS, Inc. (formerly AirGate Holdings, Inc.) and its subsidiaries and predecessors were formed for the purpose of becoming a leading provider of wireless PCS. In July 1998, our predecessor entered into a series of agreements with Sprint and Sprint PCS under which it agreed to construct and manage a PCS network using Sprint PCS' licensed spectrum and supporting Sprint PCS' services within a specified territory in the southeastern United States. Our predecessors formed our corporation, AirGate PCS, Inc., a Delaware corporation, in August 1998 to assume its responsibilities under the Sprint PCS agreements. In the course of our operations, we have formed two wholly-owned subsidiaries, AGW Leasing Co., Inc. and AirGate Network Services, LLC. Relationship with Sprint PCS Sprint PCS is a wholly-owned subsidiary of Sprint, a diversified telecommunications service provider, that operates a 100% digital PCS wireless network in the United States and holds the licenses to provide PCS nationwide using a single frequency and a single technology. Sprint PCS directly operates its PCS network in major metropolitan markets throughout the United States and has entered into independent agreements with various affiliates, such as us, under which the affiliate has agreed to construct and manage PCS networks in smaller metropolitan areas and along major highways. Markets We are one of the largest affiliates of Sprint PCS based on the resident population of our Sprint PCS territory. Our Sprint PCS markets consist of 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. We believe that connecting Sprint PCS' existing markets with our markets is an important part of Sprint PCS' on-going strategy to provide seamless, nationwide PCS service to its subscribers. 4 The following table sets forth the location, population and date on which we began providing commercial Sprint PCS service in each of the markets that comprise our Sprint PCS territory:
Territory (BTAs)* State Population(1) Market Launch Date ------------------------------ -------------- --------------- ------------------------ Greenville-Spartanburg South Carolina 874,000 January 2000 Savannah Georgia 725,000 May 2000 Charleston South Carolina 682,000 April 2000 Columbia South Carolina 656,000 June 2000 Asheville-Hendersonville North Carolina 589,000 January 2000 Augusta Georgia 579,000 June 2000 Anderson South Carolina 362,000 January 2000 Hickory-Lenoir-Morganton North Carolina 331,000 January 2000 Wilmington North Carolina 328,000 February 2000 Florence South Carolina 259,000 June 2000 Greenville-Washington North Carolina 244,000 July 2000 Goldsboro-Kinston North Carolina 238,000 March 2000 Rocky Mount-Wilson North Carolina 218,000 March 2000 Myrtle Beach South Carolina 186,000 February 2000 New Bern North Carolina 173,000 June 2000 Sumter South Carolina 159,000 July 2000 Jacksonville North Carolina 141,000 May 2000 Orangeburg South Carolina 119,000 June 2000 The Outer Banks(2) North Carolina 92,000 July 2000 Roanoke Rapids North Carolina 77,000 May 2000 Greenwood South Carolina 74,000 August 2000 --------- ----------- Total 7,106,000 =========
________________________ /*/ Basic Trading Areas (1) Based on 2000 U.S. Census Department data. (2) The Outer Banks territory covered by our Sprint PCS agreement does not comprise a complete BTA. Our Sprint PCS agreements require us to provide PCS coverage to certain percentages of the residents in each of the markets granted to us by those agreements. We are fully compliant with these build-out requirements. We believe our Sprint PCS territory, with 7.1 million residents, has attractive demographic characteristics. Our Sprint PCS territory has many vacation destinations, covers substantial highway mileage and includes a large student population, with at least 27 colleges and universities. Products and Services We offer Sprint PCS' products and services throughout our Sprint PCS territory. These products and services are designed to mirror the services offered by Sprint PCS and to provide seamless integration with the Sprint PCS nationwide network. Our primary service is wireless mobility coverage. As a Sprint PCS affiliate, our existing PCS network is part of the largest 100% digital PCS network in the United States. Sprint PCS customers in our territory may use Sprint PCS services throughout our contiguous markets and seamlessly throughout the Sprint PCS network. We support and market the Sprint Wireless Web throughout our territory. The Sprint Wireless Web allows subscribers with data-capable handsets to connect their portable computers or personal digital assistants to the internet. We offer Code Division Multiple Access (CDMA) handsets weighing approximately five to seven ounces and offering up to three to five days of standby time and approximately two to four hours of talk time. We also offer 5 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. All handsets are equipped with preprogrammed features, and are sold under the Sprint and Sprint PCS brand names. We provide roaming services to Sprint PCS subscribers that use a portion of our Sprint PCS network, and to non-Sprint subscribers when they use a portion of our Sprint PCS network pursuant to roaming agreements between Sprint PCS and other wireless service providers. Sprint PCS and other wireless service providers supply similar services to our subscribers when our subscribers use a portion of their networks. Marketing Strategy Our marketing and sales strategy uses the advertising and marketing programs that have been developed by Sprint PCS. We enhance Sprint PCS' marketing with strategies we have tailored to our specific markets. 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 that provide customers with benefits such as additional features at the same rate. We are able to purchase promotional materials related to these programs from Sprint PCS at their cost. We supplement Sprint PCS' marketing strategies with local radio, television, outdoors and newspaper advertising that promote the use of our products and services in each of our markets. We have established a large local sales force to execute our marketing strategy through 20 company-owned Sprint PCS stores, and we employ a direct sales force targeted to business sales. We feature the nationally recognized Sprint and Sprint PCS brand names in our marketing efforts. In addition, Sprint PCS' existing agreements with national retailers provide us with access to over 300 retail locations in our territory. Finally, we offer Sprint PCS' pricing strategies to our customers. 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. Sales and Distribution Sprint has an arrangement with RadioShack under which Sprint PCS installs a "store within a store." Under the arrangement, Sprint PCS is the only brand of PCS that is sold through RadioShack stores. RadioShack has approximately 113 stores in our Sprint PCS territory. In addition to RadioShack, Sprint PCS has agreements with other national retailers, which provide an additional 125 retail stores in our Sprint PCS territory and local independent agents, which provide an additional 62 retail stores in our Sprint PCS territory. We also own and operate 19 Sprint PCS stores, which are located in major metropolitan markets within our Sprint PCS territory. Our stores provide us with a strong local presence and a high degree of visibility. Following the Sprint PCS model, these stores are designed to facilitate retail sales, bill collection and customer service. Seasonality Our business is subject to seasonality because the wireless industry is heavily dependent on fourth calendar quarter results. Among other things, the industry relies on significantly higher customer additions and handset sales in the fourth calendar quarter as compared to the other three calendar quarters. A number of factors contribute to this trend, including: the increasing use of retail distribution, which is heavily dependent upon the year-end holiday shopping season; the timing of new product and service announcements and introductions; competitive pricing pressures; and aggressive marketing and promotions. The increased level of activity requires a greater use of our available financial resources during this period. 6 Suppliers and Equipment Vendors We do not manufacture any of the handsets or network equipment we use in our operations. We purchase our network equipment, handsets and accessories pursuant to various Sprint PCS' vendor arrangements that provide us with volume discounts. These discounts significantly reduce the overall capital required to build our network and the costs of handsets and accessories to us. Under such arrangements, we currently purchase our network equipment from Lucent Technologies, our handsets directly from Sprint PCS and our accessories from certain other third party vendors. OUR NETWORK OPERATIONS General The effective operation of our portion of the Sprint PCS network requires: . public switched and long distance interconnection; . the implementation of roaming arrangements; and . the development of network monitoring systems. We monitor our portion of the Sprint PCS network during normal business hours. We currently use Sprint PCS's Network Operations Control Center for continuous network monitoring. Sprint PCS developed the initial plan for the build out of our Sprint PCS network. We have further enhanced this plan to provide better coverage for our Sprint PCS territory. Pursuant to our network operations strategy, we have provided PCS to the largest communities in our markets and have covered interstates and primary roads connecting these communities to each other and to the adjacent major markets owned and operated by Sprint PCS. Our network currently consists of three switches at two switch centers and approximately 585 operating cell sites. A switching center serves several purposes, including routing calls, managing call handoff, managing access to the public telephone network and providing access to voice mail. We are currently installing a fourth switch in anticipation of growth in call volume in our Sprint PCS territory. Ninety-nine percent of our operating cell sites are co- located. Co-location describes the strategy of leasing available space on a tower or cell site owned by another company rather than building and owning the tower or cell site directly. Our network connects to the public telephone network through local exchange carriers, which facilitate the origination and termination of traffic between our network and both local exchange and long distance carriers. Through our Sprint PCS agreements, we have the benefit of Sprint PCS-negotiated interconnection agreements with local exchange carriers. We use Sprint and other third party providers for long distance services and for back haul services. Sprint provides us with preferred rates for long distance services. Back haul services are the telecommunications services which other carriers provide to carry our voice traffic from our cell sites to our switching facilities. When we use Sprint, we receive the same preferred rates made available to Sprint PCS. TECHNOLOGY General 7 In 1993, the Federal Communications Commission (FCC) allocated the 1900 MHz frequency block of the radio spectrum for wireless personal communications services, (PCS). Wireless PCS operates at a higher frequency and employs more advanced digital technology than traditional analog cellular telephone service. The enhanced capacity of digital systems, along with enhancements in digital protocols, allows digital-based wireless technologies, whether using wireless PCS or cellular frequencies, to offer new and enhanced services, including greater call privacy and more robust data transmission, such as facsimile, electronic mail and connecting notebook computers with computer/data networks. Presently, wireless PCS systems operate under one of three principal air interface protocols, code division multiple access (CDMA), time division multiple access (TDMA) or global system for mobile communications (GSM). Wireless PCS operators in the United States now have dual-mode or tri-mode handsets available so that their customers can operate on different networks that employ different protocols. 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. 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. CDMA technology allows a greater number of calls within one allocated frequency and reuses the entire frequency spectrum in each cell. CDMA technology also 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. 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. As a subscriber travels from one cell site to another cell site, the call must be "handed off" to the second cell site. 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. Research and Development We currently do not carry on our own research and development. Instead we benefit from Sprint PCS' extensive research and development effort, which provides us with access to new technological products and enhanced service features without significant research and development expenditures of our own. We have been provided prompt access to any developments produced by Sprint PCS for use in our network. Intellectual Property Other than our corporate name, we do not own any intellectual property that is material to our business. "Sprint," the Sprint diamond design logo, "Sprint PCS," "Sprint Personal Communication Services," "The Clear Alternative to Cellular" and "Experience the Clear Alternative to Cellular Today" are service marks registered with the United States Patent and Trademark Office and owned by Sprint. Pursuant to our Sprint PCS agreements, we have the right 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 Sprint PCS 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 licensed marks in our Sprint PCS territory except as to Sprint PCS' marketing to national accounts and the limited right of resellers of Sprint PCS to inform their customers of handset operation on the Sprint PCS network. In all other instances, Sprint PCS has reserved 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 Sprint PCS territory. 8 Our Sprint PCS agreements contain numerous restrictions with respect to the use and modification of any of the licensed marks. Competition Competition in the wireless communications services industry is intense. We operate in highly competitive markets. In our Sprint PCS territory, we compete with both cellular and PCS providers. The cellular providers include Alltel and Verizon. The PCS providers include Cingular Wireless and Triton PCS. These wireless service providers offer services that are generally comparable to our PCS service. Our ability to compete effectively with these other providers depends 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 cellular providers and joint ventures of wireless communications service providers, many of which have financial resources and customer bases greater than ours. Many of our competitors have access to more licensed spectrum than the 10 MHz licensed to Sprint PCS in our Sprint PCS territory. Cellular service providers have licenses covering 25 MHz of spectrum, and two competing PCS providers have licenses to use 30 MHz in our territory. Some of our competitors also have established infrastructures, marketing programs, and brand names. In addition, certain of our competitors may be able to offer coverage in areas not served by our Sprint 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 providers 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. 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 Sprint PCS service. Based upon increased competition, we anticipate that market prices for two-way wireless services generally will decline in the future. Our ability to attract and retain customers will depend principally on the strength of the Sprint and Sprint PCS brand name, services and features; pricing; the location of our Sprint PCS markets; the size of our Sprint PCS territory; national network coverage and reliability; and our customer care. Employees and Labor Relations As of September 30, 2000, we employed 341 full-time employees. None of our employees are represented by a labor union. We believe that we have good relations with our employees. REGULATION OF THE WIRELESS TELECOMMUNICATIONS INDUSTRY Federal Regulation The FCC closely regulates the licensing, construction, operation, acquisition and interconnection arrangements of wireless telecommunications systems, including PCS, in the United States. Although we do not currently hold FCC licenses, we are obligated under the Sprint PCS agreements to conduct our management and 9 resale of Sprint PCS' licensed spectrum in compliance with the FCC's rules. Consequently, we have summarized some of the major FCC regulations that govern the operation of PCS systems. 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. However, under our Sprint PCS agreements, we have exceeded all build out requirements associated with the Sprint PCS licenses in our Sprint PCS territory. Rule violations could result in license revocations. Because Sprint PCS is the licensee of the frequencies on which our network operates, the revocation or non-renewal of Sprint PCS' licenses could adversely affect our business. 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 Sprint PCS agreements 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. The FCC currently prohibits a single entity from having a combined attributable interest of 20% or greater in any license in broadband PCS, cellular and SMR licenses totaling more than 45 MHz in most geographic areas; within Rural Service Areas a single entity may hold up to 55 MHz. Communications Assistance for Law Enforcement Act The Communications Assistance for Law Enforcement Act was enacted in 1994 to preserve electronic surveillance capabilities by law enforcement officials in the face of rapidly changing telecommunications technology. This act requires telecommunications carriers, including us, to modify their equipment, facilities and services to allow for authorized electronic surveillance based on either industry or FCC standards. In 1997, industry-setting organizations developed interim standard for wireline, cellular and broadband PCS carriers to comply with the Communications Assistance for Law Enforcement Act. In August 1999, the FCC supplemented the interim industry standards with additional standards. For interim industry standards, the deadline for compliance was June 30, 2000, and for the additional standards established by the FCC, the deadline is September 30, 2001. We are or will be able to offer traditional electronic surveillance capabilities to law enforcement agencies on the date of these deadlines. Like many other wireless telecommunications providers, due to difficulty in obtaining compliant switching equipment, we have not met the compliance deadline of June 30, 2000, and Sprint PCS, on behalf of AirGate PCS and others, has filed a petition for an extension of that deadline. That petition was granted by the FCC and our compliance deadline was extended to March 31, 2001. Like many other wireless telecommunications providers, we also may not meet the compliance deadline for September 30, 2001. Our failure to meet these deadlines is due to required hardware changes that have not yet been developed and implemented by switch manufacturers. We may be granted extensions for compliance or we may be subject to penalties if we fail to comply, including being assessed fines or having conditions put on our licenses. Other Federal Regulations Wireless system licensees, such as Sprint PCS, 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 antenna site locations to become subject to regulation under the National Environmental Policy Act. The FCC is required to implement the National Environmental Policy Act by requiring licensees to meet certain land use and radio frequency standards. Review of Universal Service Requirements The FCC and each of 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 Sprint 10 PCS' "contribution" to the federal universal service program is a variable percentage of "end-user telecommunications revenues." Although many states have adopted similar assessment methodologies, 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. To the extent that we resell Sprint PCS' services directly to end-users, we may be responsible for contributing to the universal service fund; however, we may also pass these costs through to our end-users. 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 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. State Regulation Section 332 of the Communications Act of 1934, as amended preempts states from regulating the rates and entry of commercial mobile radio service providers, such as PCS licensees. However, states may petition the FCC, and be granted authority to regulate the rates of such providers 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. The forgoing summary is not a comprehensive description of every federal, state and local regulation or law that could apply to PCS licensees or our company. INVESTMENT CONSIDERATIONS Risks Particular to AirGate PCS The termination of our affiliation with Sprint PCS or Sprint PCS' failure to perform its obligations under our agreements 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 Sprint PCS agreements being renewed and not terminated. Each of these agreements can be terminated for breach of any material terms. We are dependent on Sprint PCS' ability to perform its obligations under the Sprint PCS agreements. The non-renewal or termination of any of the Sprint PCS agreements or the failure of Sprint PCS to perform its obligations under the Sprint PCS agreements would severely restrict our ability to conduct our business. We may not receive as much Sprint PCS roaming revenue in the future because Sprint PCS can change the rate we receive or fewer people may travel in our network area We are paid a fee from Sprint PCS for every minute that a Sprint PCS subscriber based outside of our territory uses our network; we refer to such fees as roaming revenue. Similarly, we pay a fee to Sprint PCS for every minute that our customers use the Sprint PCS network outside of our markets; we refer to such fees as roaming fees. Roaming revenue will continue to represent a substantial portion of our revenue in the near future. Under our agreements with Sprint PCS, Sprint PCS can change the fee we receive for each Sprint PCS roaming minute or pay for each roaming minute. The change by Sprint PCS in the roaming revenue we are paid could substantially decrease our revenues and net income. In addition, our customers may spend more time in other Sprint PCS coverage areas than Sprint PCS customers from outside our Sprint PCS territory spend in our Sprint PCS territory or may not use our services, which will reduce our roaming revenue. As a result, we may not receive a 11 substantial amount of Sprint PCS roaming revenue or we may have to pay more Sprint PCS roaming fees than the roaming revenue we collect. 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 is still constructing its nationwide network and does not offer PCS services, either on its own network or through its roaming agreements, in every city in the United States. Sprint PCS has entered 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 other risk factors contained below. Sprint PCS' and its other affiliates' PCS operations may not be successful. We have a limited operating history and if we do not successfully manage our anticipated rapid growth, our operating performance may be adversely impacted We launched commercial operations in January 2000 and have grown our employee base to 341 employees as of September 30, 2000. Our performance as a PCS provider depends on our ability to implement operational and administrative systems, including the training and management of our engineering, marketing and sales personnel. These activities are expected to place 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, 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 Sprint PCS agreements provide 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 operating costs may increase and may restrict our ability to operate successfully. We have substantial debt that we may not be able to service and a failure to service our debt may result in our lenders controlling our assets. Our substantial debt will have a number of important consequences for our operations and our investors, including the following: . 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 have a fully-financed business plan, but we may not be able to obtain additional financing for currently unanticipated capital requirements, capital expenditures, working capital requirements and other corporate purposes; . some of our debt, including our financing from Lucent, will be at variable rates of interest, which could result in higher interest expense in the event of increases in market interest rates; and 12 . due to the liens on substantially all of our assets and the pledges of stock of our existing and future subsidiaries that secure our senior debt and our senior subordinated discount notes, lenders or holders of our senior subordinated discount notes may control our assets or our subsidiaries' assets in the event of a default. As of September 30, 2000, our outstanding long-term debt totaled $180.7 million. Under our current business plan, we expect to incur substantial additional debt before achieving break-even operating cash flow. Accordingly, we will utilize some portion, if not all, of the $98.0 million of additional available borrowings under our financing from Lucent. If we do not meet all of the conditions required under our Lucent financing documents, we may not be able to draw down all of the funds we anticipate receiving from Lucent and may not be able to fund operating losses and working capital needs As of September 30, 2000, we had borrowed $13.5 million from Lucent. On October 2, 2000, we borrowed an additional $42.0 million from Lucent. The remaining $98.0 million, which we expect to borrow in the future, is subject to our meeting all of the conditions specified in the financing documents and, in addition, is subject at each funding date to the following conditions: . that the representations and warranties in the loan documents are true and correct; and . the absence of a default under our loan documents. If we do not meet these conditions at each funding date, Lucent 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 meet the operating cash needs of our business. We may have difficulty in obtaining subscriber equipment required in order to attract customers We depend on equipment vendors for an adequate supply of subscriber equipment, including handsets. If the supply of subscriber equipment is inadequate or delayed, we may have difficulty in attracting customers. Conflicts with Sprint PCS may not be resolved in our favor which could restrict our ability to manage our business and provide Sprint PCS products and services Conflicts between us and Sprint PCS may arise and 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, upon expiration, Sprint PCS could decide to not renew the Sprint PCS agreements which would not be in our best interest or the interest of our stockholders. 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. If we fail to pay our debt, our lenders have the option of may selling our loans to Sprint PCS, giving Sprint PCS certain rights of a creditor to foreclose on our assets Sprint PCS has contractual rights, triggered by an acceleration of the maturity of our financing from Lucent, pursuant to which Sprint PCS may purchase our obligations to Lucent under the 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 Sprint PCS agreements. 13 Certain provisions of our agreements with Sprint PCS may diminish the valuation of our company Provisions of our Sprint PCS agreements could affect the valuation of our company, thereby, among other things, reducing the market prices of our securities and decreasing 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% of the "entire business value" of our company, as defined in our management agreement with Sprint PCS. In addition, Sprint PCS must approve any change of control of our ownership and consent to any assignment of our agreements with Sprint PCS. Sprint PCS also has been granted a right of first refusal if we decide to sell our operating assets. 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 of Sprint PCS or Sprint. These and other restrictions in our Sprint PCS agreements 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 depends, 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 compete in our territory with at least four other wireless service providers, each 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 also compete with several PCS providers and other existing communications companies in our Sprint PCS territory. A number of our cellular and PCS competitors have access to more licensed spectrum than the 10 MHz licensed to Sprint PCS in our Sprint PCS territory. In addition, any competitive difficulties that Sprint PCS may experience could also harm our competitive position and success. The technology we use has limitations and could become obsolete We employ digital wireless communications technology selected by Sprint PCS for its network. Code division multiple access, 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 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 outside of the Sprint PCS network, 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 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. 14 Our territory has limited licensed spectrum, and this may affect the quality of our service, which could impair our ability to attract or retain customers Sprint PCS has licenses covering only 10 MHz in our territory. In the future, as our customers in those areas increase in number, this limited licensed spectrum may not be able to accommodate increases in call volume and may lead to increased dropped calls and may limit our ability to offer enhanced services. Non-renewal or revocation by the FCC of the Sprint PCS licenses would significantly harm our business PCS licenses 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. 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 More than 99% of our cell sites are co-located on facilities shared with one or more wireless providers. We co-locate a large portion of our sites on facilities that are owned by only a few tower companies. If our master collocation agreements with one of those tower companies were to terminate, or if one of those tower companies were otherwise not able to support our use of its tower sites, 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. The loss of our officers and skilled employees that we depend upon to operate our business could reduce our ability to offer Sprint PCS products and services The loss of one or more key officers could impair our ability to offer Sprint PCS products and services. 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 currently have "key man" life insurance for our chief executive officer. 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 the third quarter of fiscal year 2002 while we develop and construct our PCS network and build our customer base. 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. Unauthorized use of our Sprint 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. 15 Our agreements with Sprint PCS, our certificate of incorporation and our bylaws include provisions that may discourage, delay and/or restrict any sale of our operating assets or common stock to the possible detriment of our stockholders Our agreements with Sprint PCS restrict our ability to sell our operating assets and common 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 common stock. This could have a material adverse effect on the value of 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. Our certificate of incorporation, which contains a provision acknowledging the terms under the management agreement and a consent and agreement pursuant to which Sprint PCS may buy our operating assets, has been duly authorized and approved by our board of directors and our stockholders. This provision is intended to permit the sale of our operating assets pursuant to the terms of the management agreement or a consent and agreement with our lenders without further stockholder approval. Industry Risks Wireless service providers generally experience a high rate of customer turnover which would increase our costs of operations and reduce our revenue Our strategy to reduce customer turnover, commonly known as churn, may not be successful. Our average monthly churn (net of 14 day returns) for the three months ended September 30, 2000 was 2.9%. As a result of customer turnover, we lose the revenue attributable to these customers and increase the costs of establishing and growing our customer base. 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; customer care concerns; non-use of phones; non-use of customer contracts, pricing; and other competitive factors. Wireless providers offering services based on lower cost structures may reduce demand for PCS Other wireless providers enjoy economies of scale that can result in a lower cost structure for providing wireless services. Rapid technological changes and improvements in the telecommunications market could lower other wireless providers' cost structures in the future. These factors could reduce demand for PCS because of competitors' ability to provide other wireless services at a lower price. 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, those of our industry, and the success of PCS and other competitive services, remain uncertain. Alternative technologies and current uncertainties in the wireless market may reduce demand for PCS Technological advances and industry changes could cause the technology used on our network to become obsolete. We may not be able to respond to such changes and implement new technology on a timely basis, or at an acceptable cost. 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. If we were unable to keep pace with these technological changes or changes in the telecommunications market based on the effects of consolidation from the Telecommunications Act of 1996 or from the uncertainty of future government regulation, the technology used on our network or our current business strategy may become obsolete. In addition, wireless carriers are seeking to implement a new "third generation," or "3G," technology 16 throughout the industry. There can be no assurance that we can implement the new 3G technology successfully on a cost-effective basis. Regulation by government agencies may increase our costs of providing service or require us to change our services, either of which could impair our financial performance The licensing, construction, use, operation, sale and interconnection arrangements of wireless telecommunications systems are regulated to varying degrees by the FCC, the Federal Aviation Administration and, depending on the jurisdiction, state and local regulatory agencies and legislative bodies. Adverse decisions regarding these regulatory requirements could negatively impact our operations and our cost of doing business. Our 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 Sprint PCS agreements 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 Sprint PCS agreements. If the Sprint PCS agreements cannot be modified, the Sprint PCS agreements may be terminated pursuant to their terms. Use of hand-held phones may pose health risks, which could result in the reduced use of our services or liability for personal injury claims 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. Any resulting decrease in demand for our services, or costs of litigation and damage awards, could impair our ability to profitably operate our business. OUR EXECUTIVE OFFICERS The following table presents information with respect to our executive officers.
Name Age Position - ---- --- -------- Thomas M. Dougherty........................... 56 President and Chief Executive Officer J. Mark Allen................................. 41 Vice President of Marketing Barbara L. Blackford.......................... 43 Vice President, General Counsel and Secretary W. Chris Blane................................ 47 Vice President of New Business Development Thomas D. Body III............................ 62 Vice President of Strategic Planning Alan B. Catherall............................. 47 Chief Financial Officer Charles S. Goldfarb........................... 36 Vice President of Sales, Coastal Region Robert E. Gourlay............................. 46 Vice President of Sprint PCS Relationship Dennis K. Rabon............................... 31 Vice President of Sales, Interior Region David C. Roberts.............................. 38 Vice President of Engineering and Network Operations
Thomas M. Dougherty has been our president and chief executive officer since April 1999. From March 1997 to April 1999, Mr. Dougherty was a senior executive of Sprint PCS. From June 1996 to March 1997, Mr. Dougherty served as executive vice president and chief operating officer of Chase Telecommunications, a personal communications services company. Mr. Dougherty served as president and chief operating officer of Cook Inlet BellSouth PCS, L.P., a start-up wireless communications company, from November 1995 to June 1996. Prior to October 1995, Mr. Dougherty was vice president and chief operating officer of BellSouth Mobility DCS Corporation, a PCS company. J. Mark Allen has been our vice president of marketing since June 2000. From January 2000 to June 2000, Mr. Allen served as vice president of marketing with RetailExchange.com in Boston. From July 1999 to January 2000, Mr. Allen served as a management consultant to several internet start-up companies. During the previous five years, Mr. 17 Allen was vice president of marketing for Conxus Communications a wireless email and voice mail start-up supported by Motorola and was responsible for a number of marketing leadership roles in the launch of the first PCS service in the nation under the Sprint Spectrum brand with Sprint PCS (American Personal Communications). Prior to that, Mr. Allen held several management positions at SkyTel in marketing, international operations and customer management. Mr. Allen has over 15 years of marketing and operations management experience. Barbara L. Blackford has been our vice president, general counsel and secretary since September 2000. From October 1997 to September 2000, Ms. Blackford was with Monsanto Company where she served as associate general counsel and assistant secretary responsible for the office of the corporate secretary and co-head of mergers and acquisitions from September 1997 to September 1999 and chief counsel for mergers and acquisitions and general counsel of Cereon Genomics from September 1999 until she left the company. Prior to joining Monsanto Company, Ms. Blackford was a partner with the private law firm Long, Aldridge & Norman in Atlanta, Georgia. W. Chris Blane has been our vice president of new business development since August 1998. In June 1995, Mr. Blane joined AirLink II LLC, an affiliate of our predecessor company, as a vice president for business development as it prepared for the C block PCS auction. Prior to 1995, Mr. Blane was the president of Metrex Corporation, which constructed the first fiber optic competitive access network in Atlanta, Georgia and which ultimately merged with MFS of Atlanta, now MCI WorldCom, Inc. Thomas D. Body III has been our vice president of strategic planning since November 1998. From January 1998 to October 1998, Mr. Body served as our chief executive officer. In 1994, Mr. Body joined AirLink II LLC, an affiliate of our predecessor company, as a vice president for business development as it prepared for the C block PCS auction. From March 1988 to March 1992, Mr. Body was the chairman and chief executive officer of Metrex Corporation, which constructed the first fiber optic competitive access network in Atlanta, Georgia. In 1992, Metrex merged with MFS of Atlanta, now WorldCom, Inc. Mr. Body served as chairman and chief executive officer of MFS of Atlanta until September of 1993. From September 1993 to March 1995, Mr. Body served as a consultant to MFS of Atlanta and as president of Metrex of Alabama, which was involved in constructing a fiber-optic access network in Birmingham, Alabama. Alan B. Catherall has been our chief financial officer since March 1998. From April 1996 to present, Mr. Catherall has served as a partner in Tatum CFO Partners, a financial consulting firm. From August 1994 to April 1996, Mr. Catherall was chief financial officer of Syncordia Services, a joint venture of MCI and British Telecom that provides telecom outsourcing services. Charles S. Goldfarb has been our vice president of sales, coastal region, since January 2000. From September 1991 to January 2000, Mr. Goldfarb worked at Paging Network Inc., most recently as its area vice president and general manager for the Virginia, North Carolina and South Carolina region. Mr. Goldfarb has over 10 years of wireless experience and has been successful in numerous start-up markets. Prior to his wireless experience, Mr. Goldfarb worked at ITT Financial Services as its assistant vice president of operations in the Washington DC area. Robert E. Gourlay has been our vice president of Sprint PCS relationship since February 2000. Prior to his current position, he was vice president of marketing and a founder of AirLink II, LLC, an affiliate of our predecessor company. Mr. Gourlay was one of the founders of Encompass, Inc., a company formed in 1993 to focus on the acquisition of licenses in the C and F block spectrum auctions. At Encompass Mr. Gourlay served as vice president of sales and marketing. Dennis K. Rabon has been our vice president of sales, interior region, since September 2000. Mr. Rabon joined AirGate PCS in October 1999 as market manager for the Columbia, South Carolina market. From July 1999 to September 1999, Mr. Rabon was a general sales manager for PageNet in Atlanta, Georgia. From December 1996 to July1999, Mr. Rabon worked for Bandag Inc. initially as a sales development manager and most recently as a fleet sales manager . From August 1995 to December 1996 Mr. Rabon was a territory manager at Michelin Tire Corporation in Greenville South, Carolina. Mr. Rabon has ten years of management experience. David C. Roberts has been our vice president of engineering and network operations since July 1998. From July 1995 to July 1998, Mr. Roberts served as director of engineering for AirLink II LLC, an affiliate of our predecessor company. 18 ITEM 2. Properties As of September 30, 2000, our properties were as follows: Corporate offices. Our principal executive offices consist of a 14,000 ----------------- square foot leased office space located at Harris Tower, 233 Peachtree Street, N.E., Suite 1700, Atlanta, Georgia 30303. We also lease a 40,000 square foot office space located at Pelham 85 Business Center in Greenville, South Carolina and a 24,000 square foot office space located at 411 Huger Street in Columbia, South Carolina. Sprint PCS stores. We currently lease space for 19 Sprint PCS retail stores ----------------- in our territory. Switching Centers. We lease two switching centers: a switching center ----------------- located at Pelham 85 Business Center in Greenville, South Carolina, and a switching center located at 411 Huger Street in Columbia, South Carolina. Cell Sites. We lease space on 610 cell site towers, and we own one tower ---------- site. We co-locate on approximately 99% of our cell sites. We believe our facilities are in good operating condition and are currently suitable and adequate for our business operations. ITEM 3. 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. ITEM 4. Submission of Matters to a Vote of Security Holders None. PART II ITEM 5. Market For Registrant's Common Equity And Related Stockholder Matters Our common stock has been traded on the Nasdaq National Market under the symbol "PCSA" since September 28, 1999. Prior to that date, there was no public market for our common stock. The following table sets forth, for the periods indicated, the range of high and low sales prices for our common stock as reported on the Nasdaq National Market. Price Range of Common Stock High Low ------------------------- Fiscal Year Ended September 30, 2000: Fourth Quarter $ 80.56 $31.00 Third Quarter $114.50 $29.00 Second Quarter $108.50 $50.13 First Quarter $ 54.75 $23.00 Fiscal Year Ended September 30, 1999: Third Quarter (From September 28, 1999) $ 28.00 $23.00 19 On December 11, 2000, the last reported sales price of our common stock as reported on the Nasdaq National Market was $34.50 per share. On December 11, 2000, there were 119 holders of record of our common stock. We have never declared or paid any cash dividends on our common stock or any other of our securities. We do not expect to pay cash dividends on our capital stock in the foreseeable future. We currently intend to retain our future earnings, if any, to fund the development and growth of our business. Our future decisions concerning the payment of dividends on our 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. Use of Proceeds from Sales of Registered Securities On September 30, 1999, we completed the concurrent offerings of our equity and debt with total net proceeds to us of approximately $269.7 million. In the year ended September 30, 2000, we spent $152.4 million of those proceeds to fund capital expenditures relating to the build-out of our PCS network and $7.7 million of those proceeds to repay our indebtedness. On July 11, 2000, Weiss, Peck and Greer Venture Partners Affiliated Funds exercised their warrants to acquire 214,413 shares of our common stock, at a price of $12.75 per share. The exercise was a cashless exercise, with 40,956 of the 214,413 shares being surrendered to us as payment of the exercise price. Net of shares surrendered in payment of the exercise price, we issued 173,457 shares of common stock to the warrant holder. The exemption claimed for this issuance is Section 4(2) of the Securities Act of 1933. On September 14, 2000, Lucent Technologies exercised its warrants to acquire 128,860 shares of our common stock at a price of $20.40 per share. The exercise was a cashless exercise, with 48,457 of the 128,860 shares being surrendered to us as payment of the exercise price. Net of shares surrendered in payment of the exercise price, we issued 80,403 shares of common stock to the warrant holder. The exemption claimed for this issuance is Section 4(2) of the Securities Act of 1933. ITEM 6. Selected Financial Data The selected financial data presented below under the captions "Statement of Operations Data," "Other Data," and "Balance Sheet Data" for, and as of the end of, the year ended September 30, 2000, the nine months ended September 30, 1999 and 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, 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 included herein.
For the Nine Months For the Year Ended Ended September For the Year Ended September 30, 30, December 31, ------------- ------------ ------------------------------------------ 2000 1999 1998 1997 1996 ------------- ------------ --------- --------- -------- (In thousands except per share and subscriber data) Statement of Operations Data: Revenues: Service revenue..................... $ 9,183 $ -- $ -- $ -- $ -- Roaming revenue..................... 12,338 -- -- -- -- Equipment revenue................... 2,981 -- -- -- -- -------- --------- --------- -------- --------- Total revenues................. 24,502 -- -- -- --
20 Operating expenses: Cost of service and roaming......... (27,207) -- -- -- -- Cost of equipment................... (5,685) -- -- -- -- Selling and marketing............... (28,357) -- -- -- -- General and administrative.......... (14,078) (5,294) (2,597) (1,101) (1,252) Noncash stock option compensation....................... (1,665) (325) -- -- -- Depreciation and amortization....... (12,034) (622) (1,204) (998) (19) -------- -------- ------- ------- ------- Operating loss...................... (64,524) (6,241) (3,801) (2,099) (1,271) Interest expense, net............... (16,799) (9,358) (1,392) (817) (582) -------- -------- ------- ------- ------- Net loss............................ $(81,323) $(15,599) $(5,193) $(2,916) $(1,853) ======== ======== ======= ======= ======= Other Data: Basic and diluted net loss per $ (6.60) $ (4.57) $ (1.54) $ (0.86) $ (0.55) share of common stock (1)..... ======== ======== ======= ======= ======= Number of subscribers at end of period........................ 56,689 -- -- -- --
___________________________
As of September 30, As of December 31, ------------------------ --------------------------------- 2000 1999 1998 1997 1996 ----------- ----------- ---------- ---------- --------- (In thousands) Balance Sheet Data: Cash and cash equivalents........... $ 58,384 $258,900 $ 2,296 $ 147 $ 6 Property and equipment, net......... 183,581 44,206 12,545 17 11 Total assets........................ 268,948 317,320 15,450 13,871 2,196 Long-term debt(2)................... 180,727 165,667 7,700 11,745 -- Stockholders' equity (deficit)...... 49,873 127,846 (5,350) (1,750) (3,025)
___________________________ (1) Basic and diluted net loss per share of common stock is computed by dividing net loss by the weighted average number of common shares outstanding. (2) Includes current maturities. 21 ITEM 7. 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 Report. The discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from the results contemplated in these forward-looking statements as a result of factors including, but not limited to, those under "Item 1. Business Investment Considerations." 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 PCS services under the Sprint and Sprint PCS brand names in our Sprint PCS territory in the southeastern United States. We completed our radio frequency design, network design and substantial site acquisition and cell site engineering, and commenced construction of our PCS network in November 1998. In January 2000 we began commercial operations with the launch of four markets covering 2.2 million residents in our Sprint PCS territory. By September 30, 2000, we had launched commercial PCS service in all of the 21 markets that comprise our Sprint PCS territory. At September 30, 2000, we provided Sprint PCS services to 56,689 subscribers. Sprint PCS has invested $44.6 million to purchase the PCS licenses in our territory and incurred additional expenses for microwave clearing. Under our long-term agreements with Sprint PCS, we manage the network on Sprint PCS' licensed spectrum as well as use the Sprint and Sprint PCS brand names royalty- free during our affiliation with Sprint PCS. We also have 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. In exchange for these and other benefits, we are entitled to receive 92%, and Sprint PCS is entitled to retain 8%, of collected service revenues from customers in our Sprint PCS territory. We are entitled to 100% of revenues collected from the sale of handsets and accessories and on roaming revenues received when Sprint PCS customers from a different territory make a wireless call on our PCS network. Through September 30, 2000, we have incurred $186.7 million of capital expenditures related to the build-out of our PCS network. We were able to open the network for a portion of our territory for roaming coverage along Interstate 85 between Atlanta, Georgia and Charlotte, North Carolina in November 1999. In the three months ended March 31, 2000, we launched commercial PCS operations in the Greenville-Spartanburg, Anderson and Myrtle Beach, South Carolina markets and the Hickory, Asheville, Wilmington and Rocky Mount, North Carolina markets. In the three months ended June 30, 2000, we launched commercial PCS operations in the Charleston, Columbia and Florence, South Carolina markets, the Augusta and Savannah, Georgia markets and the Goldsboro, Jacksonville, New Bern, Orangeburg, Roanoke Rapids and Greenville-Washington, North Carolina markets. In the three months ended September 30, 2000, we launched commercial PCS operations in the Greenwood and Sumter, South Carolina markets and the Outer Banks, North Carolina market. At September 30, 2000, our Sprint PCS network covered 5.4 million of the 7.1 million residents in our Sprint PCS territory based on 2000 U.S. Census Department data. Results of Operations For the year ended September 30, 2000: We did not launch commercial operations until January 2000. For the nine months ended September 30, 1999, we had no customers and thus no service, roaming and equipment revenues or the related costs of revenues and sales and marketing costs. Customer Additions For the year ended September 30, 2000, we added a net 56,689 customers since the launch of our commercial operations in January 2000. We launched all 21 of the markets that comprise our Sprint PCS territory during 2000. 22 Average Revenue Per User (ARPU) Average Revenue Per User (ARPU), which summarizes the average monthly service revenue per customer net of an allowance for doubtful accounts, was $56 since commercial operations were launched in January 2000. Revenues Service revenue and equipment revenue were $9.2 million and $3.0 million, respectively, for the year ended September 30, 2000. These revenues were the result of launching commercial operations in 21 markets during the year. Service revenue consists of monthly recurring access and feature charges and monthly non-recurring charges for local, long distance and roaming airtime usage in excess of the pre-subscribed usage plan. Equipment revenue is derived from the sale of handsets and accessories, net of an allowance for returns. Our handset return policy allows customers to return their handsets for a full refund within 14 days of purchase. When handsets are returned to us, we may be able to reissue the handsets to customers at little additional cost to us. However, when handsets are returned to Sprint PCS for refurbishing, we receive a credit from Sprint PCS, which is less than the amount we originally paid for the handset. Roaming revenue of $12.3 million was recorded during the year ended September 30, 2000. We receive Sprint PCS roaming revenue at a per-minute rate from Sprint PCS or another Sprint PCS affiliate when Sprint PCS subscribers or other Sprint PCS affiliate subscribers from outside of our Sprint PCS territory use our network. We also receive non-Sprint PCS roaming revenue when subscribers of other wireless service providers roam on our network. Cost of Service and Roaming and Cost of Equipment The cost of service and roaming and the cost of equipment was $27.2 million and $5.7 million, respectively, for the twelve months ended September 30, 2000. Cost of service represents network operating costs (including cell site lease payments, salaries, fees related to data transfer via T-1 and other transport lines, inter-connect fees and other expenses related to network operations), roaming expense when AirGate PCS customers place calls on Sprint PCS's network or other third party networks, back-office services provided by Sprint PCS such as customer care and billing, long distance expense relating to inbound roaming revenue and the 8% of collected service revenue representing the Sprint PCS affiliation fee. The Sprint PCS affiliation fee totaled $0.8 million in the year ended September 30, 2000. There were approximately 59 employees performing network operations functions at September 30, 2000. Cost of equipment includes the cost of handsets and accessories sold to customers during the year ended September 30, 2000. The cost of handsets exceeds the retail price because we subsidize the price of handsets to remain competitive in the marketplace. Selling and Marketing We incurred expenses of $28.4 million during the year ended September 30, 2000 for selling and marketing costs associated with launch of our 21 markets in 2000. These amounts include retail store costs such as salaries and rent, in addition to promotion, advertising, commission costs, and handset subsidies on units sold by third parties for which we do not record revenue. These handset subsidies totaled $3.7 million for the year ended September 30, 2000. At September 30, 2000, there were approximately 246 employees performing sales and marketing functions compared to four employees performing those functions at September 30, 1999. General and Administrative For the year ended September 30, 2000, we incurred expenses of $14.1 million compared to $5.3 million for the nine months ended September 30, 1999, an increase of $8.8 million. The increase is primarily comprised of additional rent, professional fees, consulting fees for outsourced labor and salaries and compensation, recruiting and relocation costs relating to growth in the number of employees. Of the total 341 employees at September 30, 2000, approximately 36 employees were performing corporate support functions compared to 15 employees performing 23 those functions at September 30, 1999. We incurred $2.1 million of legal and professional fees related to business development activities in 2000. On May 4, 2000, we entered into a retention bonus agreement with our chief executive officer that provides for the payment of periodic retention bonuses. Included in compensation expense in the year ended September 30, 2000 was $1.2 million related to the retention bonus agreement with our chief executive officer. Noncash Stock Option Compensation Noncash stock option compensation expense was $1.7 million for the year ended September 30, 2000 compared to $0.3 million in the nine months ended September 30, 1999. The increase in noncash stock option compensation resulted from a full twelve months expense in 2000 compared to only two months of expense in 1999 related to the July 1999 stock option grants. We apply the provisions of APB Opinion No. 25 and related interpretations in accounting for our stock option plan. Unearned stock option compensation is recorded for the difference between the exercise price and the fair market value of our common stock at the date of grant and is recognized as noncash stock option compensation expense in the period in which the related services are rendered. Depreciation and Amortization For the year ended September 30, 2000, depreciation and amortization expense increased $11.4 million to $12.0 million compared to $0.6 million for the nine months ended September 30, 1999. The increase in depreciation and amortization expense relates primarily to network assets placed in service to support our commercial launch. Depreciation and amortization will continue to increase as additional portions of our network are placed into service. We incurred capital expenditures of $151.4 million in the year ended September 30, 2000 related to the continued build-out of our PCS network which included approximately $5.9 million of capitalized interest. Interest Income For the year ended September 30, 2000, interest income was $9.3 million. Interest income is generated from cash proceeds originating from our initial public equity and units offering completed on September 30, 1999. Decreasing cash balances as a result of capital expenditures to complete the build-out of our PCS network and the funding of operating losses will result in lower interest income for fiscal 2001. No significant interest income was recorded in the nine months ended September 30, 1999. Interest Expense For the year ended September 30, 2000, interest expense was $26.1 million, an increase of $16.8 million compared to the nine months ended September 30, 1999. The increase is primarily attributable to the $23.0 million associated with the senior subordinated discount notes and $7.3 million associated with our financing from Lucent partially offset by $5.9 million of capitalized interest. We had borrowings of $180.7 million at September 30, 2000 compared to $165.7 million at September 30, 1999. Net Loss For the year ended September 30, 2000, the net loss was $81.3 million, an increase of $65.7 million over a net loss of $15.6 million for the nine months ended September 30, 1999. For the nine months ended September 30, 1999: On October 21, 1999, we changed our fiscal year from a calendar year ending on December 31 to a fiscal year ending on September 30, effective September 30, 1999. From January 1, 1999 through September 30, 1999, we were focused on raising capital to continue our PCS network build-out. Revenues We had no commercial operations in the nine months ended September 30, 1999, resulting in no revenues or costs of service being recorded. 24 General and Administrative Expenses From January 1, 1999 through September 30, 1999, we were focused on raising capital to continue our PCS network build-out. We incurred general and administrative expenses of $5.3 million during the nine months ended September 30, 1999, compared to $2.6 million for the year ended December 31, 1998, an increase of $2.7 million. The increase was primarily comprised of cell site lease payments related to our PCS network build-out, additional salaries, employee bonus accruals and relocation liabilities. Noncash Stock Option Compensation Noncash stock option compensation expense was $0.3 million for the nine months ended September 30, 1999 related to the granting of options in July 1999. Depreciation and Amortization For the nine months ended September 30, 1999, depreciation and amortization expense was $0.6 million, compared to $1.2 million for the year ended December 31, 1998. Through August 1998, we were amortizing the purchase price of FCC licenses held by our predecessor. We made capital expenditures of $32.8 million in the nine months ended September 30, 1999 related to the continued build-out of our PCS network, which included approximately $1.1 million of capitalized interest. Interest Expense For the nine months ended September 30, 1999, interest expense was $9.4 million, net of capitalized interest of $1.1 million, an increase of $8.0 million over the $1.4 million in interest expense for the year ended December 31, 1998. Interest expense for the 1999 period included an $8.7 million charge to record the fair value of warrants and the beneficial conversion feature related to the convertible promissory notes issued to the affiliates of Weiss, Peck & Greer Venture Partners and the affiliates of JAFCO America Ventures Inc. Capitalized interest of $1.1 million for the nine months ended September 30, 1999 was higher due to increased capital expenditures, compared to no capitalized interest for the year ended December 31, 1998. Net Loss For the nine months ended September 30, 1999, our net loss was $15.6 million, compared to $5.2 million for the year ended December 31, 1998. The net loss increased $10.4 million, resulting primarily from the items discussed above. 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. 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 would not be used in our continuing operations as a Sprint PCS affiliate and, therefore, were excluded from the consolidated financial statements of AirGate PCS, Inc. and its subsidiaries and predecessors. During 1998, we focused on consummating our affiliation with Sprint PCS. Expenses incurred for these purposes totaled $5.2 million for salaries and benefits, professional fees, interest expense and depreciation and amortization. Capital outlays in 1998 amounted to $12.9 million. Included in this amount were $7.7 million of network assets which we purchased from Sprint PCS, which include radio frequency and engineering design data, site acquisition materials and construction equipment. We also made $5.2 million of capital expenditures related to the build-out of our PCS network. 25 Liquidity and Capital Resources As of September 30, 2000, we had $58.4 million in cash and cash equivalents, compared to $258.9 million in cash and cash equivalents at September 30, 1999. Our net working capital was $36.6 million at September 30, 2000, compared to $231.0 million at September 30, 1999. Net Cash Used in Operating Activities The $41.6 million of cash used in operating activities in the year ended September 30, 2000 was the result of the company's $81.3 million net loss being partially offset by a net $1.8 million in cash provided by changes in working capital and $37.9 million of depreciation, amortization of note discounts, amortization of financing costs and noncash stock option compensation. Net Cash Used in Investing Activities The $152.4 million of cash used in investing activities represents cash outlays for capital expenditures during the year ended September 30, 2000. We incurred a total of $151.4 million of capital expenditures in the year ended September 30, 2000. Further, cash payments of $16.2 million were made for equipment purchases made through accrued expenses at September 30, 1999 partially offset by equipment purchases of $15.2 million made through accounts payable and accrued expenses at September 30, 2000. Net Cash Provided by Financing Activities The $6.5 million of cash used in financing activities in the year ended September 30, 2000 consisted of the repayment of the $7.7 million unsecured promissory note partially offset by $1.2 million received from the exercise of common stock options by employees during 2000. Liquidity We closed our offerings of equity and debt funding on September 30, 1999. The total equity amount raised was $131.0 million, or $120.5 million in net proceeds. Concurrently, we closed our units offering consisting of $300 million principal amount at maturity 13.5% senior subordinated discount notes due 2009 and warrants to purchase 644,400 shares of our common stock at $0.01 per share. The gross proceeds from the units offering were $156.1 million, or $149.4 million in net proceeds. The senior subordinated discount notes will require cash payments of interest beginning on April 1, 2005. Our $153.5 million credit agreement with Lucent provides for a $13.5 million senior secured term loan which matures on June 6, 2007, which is the first installment of the loan, or tranche I. The second installment, or tranche II, under the credit agreement with Lucent is for a $140.0 million senior secured term loan which becomes available for borrowing on October 1, 2000 and which matures on September 30, 2008. The credit agreement requires us to make quarterly payments of principal beginning December 31, 2002 for tranche I and March 31, 2004 for tranche II initially in the amount of 3.75% of the loan balance then outstanding and increasing thereafter. For the year ended September 30, 2000, commitment fees totaled $6.0 million. After October 1, 2000, if we borrow at least 30% of the tranche II term loan, or $42 million, the commitment fee on unused borrowings decreases to 1.50%, payable quarterly. As of September 30, 2000, $140 million remained undrawn on our financing from Lucent. On October 2, 2000, we borrowed $42 million, resulting in $98 million being available to us under the Lucent financing. Our obligations under the credit agreement are secured by all of our assets. We expect that cash and cash equivalents together with future advances under the financing from Lucent will fund our capital expenditures and our working capital requirements through 2002 at which time we anticipate we will be operational cash flow positive. If any corporate development event such as an acquisition is effected, additional debt and/or equity capital may be needed. The financing with Lucent is subject to certain restrictive covenants including maintaining certain financial ratios, reaching defined subscriber growth and network covered population goals, and limiting annual capital expenditures. Further, the credit facility restricts the payment of dividends on the our common stock. As of September 30, 2000, management believes that we are in compliance with all covenants governing our financing from Lucent. 26 Inflation Management believes that inflation has not had, and does not expect inflation to have, a material adverse effect on our results of operations. ITEM 7A. Quantitative And Qualitative Disclosure About Market Risk In the normal course of business, our operations are exposed to interest rate risk on our financing from Lucent and any future financing requirements. Our fixed rate debt consists primarily of the accreted carrying value of the senior subordinated discount notes ($177.9 million at September 30, 2000). Our variable rate debt consists of borrowings made under our financing from Lucent ($13.5 million at September 30, 2000). Our primary interest rate risk exposures relate to (i) the interest rate on our Lucent financing; (ii) our ability to refinance our senior subordinated discount notes at maturity at market rates; and (iii) the impact of interest rate movements on our ability to meet our interest expense requirements and financial covenants under our debt instruments. We manage the interest rate risk on our outstanding long-term debt through the use of fixed and variable rate debt and expect in the future to use 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 interest rate risk on an ongoing basis. The following table presents the estimated future balances of outstanding long-term debt at the end of each period and future required annual principal payments for each period then ended associated with the senior subordinated discount notes and our financing from Lucent based on our projected level of long-term indebtedness:
Years Ending September 30, --------------------------------------------------------------------- 2001 2002 2003 2004 2005 Thereafter --------------------------------------------------------------------- (Dollars in thousands) Senior subordinated discount notes.... $202,689 $230,993 $263,246 $300,000 $300,000 -- Fixed interest rate................... 13.5% 13.5% 13.5% 13.5% 13.5% 13.5% Principal payments.................... -- -- -- -- -- $300,000 Lucent financing...................... $ 55,500 $ 63,500 $100,475 $ 98,450 $ 96,425 -- Variable interest rate (1)............ 10.44% 10.44% 10.44% 10.44% 10.44% 10.44% Principal payments.................... -- -- $ 2,025 $ 2,025 $ 2,025 $ 96,425
___________________ (1) The interests rate on the Lucent financing equals the London Interbank Offered Rate ("LIBOR") +3.75%. LIBOR is assumed to equal 6.69% for all periods presented. ITEM 8. Financial Statements Our financial statements are listed under Item 14(a) of this annual report and are filed as part of this report on the pages indicated. ITEM 9. Changes In And Disagreements With Accountants On Accounting And Financial Disclosure None. 27 PART III Item 10. Directors And Executive Officers Of The Registrant The sections under the headings "Proposal 1: Election of Directors - Nominees for Director" and "-Directors Continuing in Office" of the proxy statement for the annual meeting of stockholders to be held January 30, 2001 are incorporated herein by reference. See "Item 1. Business - Our Executive Officers" for information regarding our executive officers. The section under the heading "Compliance With Section 16(a) Beneficial Ownership Reporting Requirements" of the proxy statement is also incorporated herein by reference. Item 11. Executive Compensation The sections "Executive Compensation-Summary Compensation Table" "-Employment Agreements," "-Option/SAR Grants During the Last Fiscal Year" and "-Aggregated Option Exercises and Year End Option Value Table"; "Meetings and Committees of the Board-Directors' Compensation"; and "Other Information- Compensation Committee Interlocks and Insider Participation" of the proxy statement are incorporated herein by reference. Item 12. Security Ownership Of Certain Beneficial Owners And Management The section "Security Ownership of Certain Beneficial Owners, Directors and Officers" of the proxy statement is incorporated herein by reference. Item 13. Certain Relationships And Related Transactions The section "Certain Related Transactions" of the proxy statement is incorporated herein by reference. PART IV Item 14. Exhibits, Financial Statements, Schedules, And Reports On Form 8-K (a) Financial Statements 1. The following financial statements are filed with this report on the pages indicated:
Page ---- Independent Auditors' Report........................................................... F-1 Consolidated Balance Sheets as of September 30, 2000 and September 30, 1999............ F-2 Consolidated Statements of Operations for the year ended September 30, 2000, the nine months ended September 30, 1999, and the year ended December 31, 1998 ............................................................ F-3 Consolidated Statements of Stockholders' Equity (Deficit) for the year ended September 30, 2000, the nine months ended September 30, 1999, and the year ended December 31, 1998.............................................. F-4 Consolidated Statements of Cash Flows for the year ended September 30, 2000, the nine months ended September 30, 1999, and the year ended December 31, 1998............................................................. F-5 Notes to the Consolidated Financial Statements......................................... F-7 (b) Financial Statement Schedule Financial Statement Schedule Report of Independent Auditors' on Financial Statement Schedule............... F-24 Schedule II - Valuation and Qualifying Accounts............................... F-25
28 2. Exhibits See Item 14(c) below (c) Reports on Form 8-K None. (d) Exhibits Exhibit Number Number description - ------ ------------------ 3.1 Amended and Restated Certificate of Incorporation of AirGate PCS, Inc. (Incorporated by reference to Exhibit 3.1 to the quarterly report on Form 10-Q filed by the company with the Commission on August 14, 2000 for the quarter ended June 30, 2000 (SEC File No.000-27455)) 3.2 Amended and Restated Bylaws of AirGate PCS, Inc. (Incorporated by reference to Exhibit 3.2 to the Registration Statement on Form S-1/A filed by the company with the Commission on June 15, 1999 (SEC File Nos. 333-79189-02 and 333-79189-01)) 4.1 Specimen of common stock certificate of AirGate PCS, Inc. (Incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-1/A filed by the company with the Commission on June 15, 1999 (SEC File Nos. 333-79189-02 and 333-79189-01)) 4.2 Form of warrant issued in units offering (included in Exhibit 10.15) 4.3.1 Form of Weiss, Peck and Greer warrants (Incorporated by reference to Exhibit 4.3 to the Registration Statement on Form S-1/A filed by the company with the Commission on August 9, 1999 (SEC File Nos. 333-79189- 02 and 333-79189-01)) 4.3.2 Form of Lucent Warrants (Incorporated by reference to Exhibit 4.4 to the Registration Statement on Form S-1/A filed by the company with the Commission on September 17, 1999 (SEC File Nos. 333-79189-02 and 333-79189-01)) 4.3.3 Form of Indenture for senior subordinated discount notes (including form of pledge agreement) (Incorporated by reference to Exhibit 4.5 to the Registration Statement on Form S-1/A filed by the company with the Commission on September 23, 1999 (SEC File Nos. 333-79189-02 and 333-79189-01)) 4.4 Form of unit (included in Exhibit 10.15) 10.1.1 Sprint PCS Management Agreement and Addenda I-III thereto between SprintCom, Inc. and AirGate Wireless, L.L.C. (Incorporated by reference to Exhibit 10.1 to the Registration Statement on Form S-1/A filed by the company with the Commission on June 15, 1999 (SEC File Nos. 333- 79189-02 and 333-79189-01)) 10.1.2 Addendum IV to Sprint PCS Management Agreement dated August 26, 1999 by and among SprintCom, Inc., Sprint Communications Company, L.P., Sprint Spectrum L.P. and AirGate PCS, Inc. 10.1.3 Addendum V to Sprint PCS Management Agreement dated May 12, 2000 by and among SprintCom, Inc., Sprint Communications Company, L.P. and AirGate PCS, Inc. 29 10.2 Sprint PCS Services Agreement between Sprint Spectrum L.P. and AirGate Wireless, L.L.C. (Incorporated by reference to Exhibit 10.2 to the Registration Statement on Form S-1/A filed by the company with the Commission on June 15, 1999 (SEC File Nos. 333-79189-02 and 333-79189- 01)) 10.3 Sprint Spectrum Trademark and Service Mark License Agreement (Incorporated by reference to Exhibit 10.3 to the Registration Statement on Form S-1/A filed by the company with the Commission on June 15, 1999 (SEC File Nos. 333-79189-02 and 333-79189-01)) 10.4 Sprint Trademark and Service Mark License Agreement (Incorporated by reference to Exhibit 10.4 to the Registration Statement on Form S-1/A filed by the company with the Commission on June 15, 1999 (SEC File Nos. 333-79189-02 and 333-79189-01)) 10.5 Master Site Agreement dated August 6, 1998 between AirGate and BellSouth Carolinas PCS, L.P., BellSouth Personal Communications, Inc. and BellSouth Mobility DCS (Incorporated by reference to Exhibit 10.5 to the Registration Statement on Form S-1/A filed by the company with the Commission on June 15, 1999 (SEC File Nos. 333-79189-02 and 333- 79189-01)) 10.5.1 Notice to AirGate of an assignment of sublease, dated September 20, 1999 between BellSouth Cellular Corp. and Crown Castle South, Inc., given pursuant to Section 16(b) of the Master Site Agreement. 10.5.2 Master Tower Space Reservation and License Agreement dated February 19, 1999 between AGW Leasing Company, Inc. and American Tower, L.P. 10.5.3 Master Antenna Site Lease No. J50 dated July 20, 1999 between Pinnacle Towers Inc. and AGW Leasing Company, Inc. 10.6.1 Compass Telecom, L.L.C. Construction Management Agreement (Incorporated by reference to Exhibit 10.6 to the Registration Statement on Form S- 1/A filed by the company with the Commission on June 15, 1999 (SEC File Nos. 333-79189-02 and 333-79189-01)) 10.6.2 First Amendment to Services Agreement between AirGate PCS, Inc. and COMPASS Telecom Services, L.L.C. dated May 30, 2000 (Incorporated by reference to Exhibit 6.2 to the quarterly report on Form 10-Q filed by the company with the Commission on August 14, 2000 for the quarter ended June 30, 2000 (SEC File No.000-27455)) 10.7 Commercial Real Estate Lease dated August 7, 1998 between AirGate and Perry Company of Columbia, Inc. to lease a warehouse facility (Incorporated by reference to Exhibit 10.7 to the Registration Statement on Form S-1/A filed by the company with the Commission on July 12, 1999 (SEC File Nos. 333-79189-02 and 333-79189-01)) 10.7.1 Lease Agreement dated August 25, 1999 between Robert W. Bruce, Camperdown Company, Inc. and AGW Leasing Company, Inc. to lease office/warehouse space in Greenville, South Carolina. 10.8.1 Form of Indemnification Agreement (Incorporated by reference to Exhibit 10.8 to the Registration Statement on Form S-1/A filed by the company with the Commission on June 15, 1999 (SEC File Nos. 333-79189-02 and 333-79189-01)) 10.9 Employment Agreement dated April 9, 1999 by and between AirGate PCS, Inc. and Thomas M. Dougherty (Incorporated by reference to Exhibit 10.9 to the Registration Statement on Form S-1/A filed by the company with the Commission on June 15, 1999 (SEC File Nos. 333-79189-02 and 333- 79189-01)) 10.10.1 Form of Executive Employment Agreement (Incorporated by reference to Exhibit 10.10 to the Registration Statement on Form S-1/A filed by the company with the Commission on July 12, 1999 (SEC File Nos. 333-79189- 02 and 333-79189-01)) 10.11 AirGate PCS, Inc. 1999 Stock Option Plan (Incorporated by reference to Exhibit 99.1 to the Registration Statement on Form S-8 filed by the company with the Commission on April 10, 2000 (SEC File No. 333-34416)) 30 10.11.1 Form of AirGate PCS, Inc. Option Agreement (Incorporated by reference to Exhibit 10.11.1 to the quarterly report on Form 10-Q filed by the company with the Commission on August 14 15, 2000 for the quarter ended June 30, 2000 (SEC File No. 000-27455)) 10.12 Credit Agreement with Lucent (including form of pledge agreement and form of intercreditor agreement) (Incorporated by reference to Exhibit 10.12 to the Registration Statement on Form S-1/A filed by the company with the Commission on September 17, 1999 (SEC File Nos. 333-79189-02 and 333-79189-01)) 10.13 Consent and Agreement (Incorporated by reference to Exhibit 10.13 to the Registration Statement on Form S-1/A filed by the company with the Commission on September 17, 1999 (SEC File Nos. 333-79189-02 and 333- 79189-01)) 10.14 Assignment of Sprint PCS Management Agreement, Sprint Spectrum Services Agreement and Trademark and Service Mark Agreement from AirGate Wireless, L.L.C. to AirGate Wireless, Inc. dated November 20, 1998 (Incorporated by reference to Exhibit 10.14 to the Registration Statement on Form S-1/A filed by the company with the Commission on August 9, 1999 (SEC File Nos. 333-79189-02 and 333-79189-01)) 10.15 Form of Warrant for units offering (including from of warrant in units offering and form of unit) (Incorporated by reference to Exhibit 10.15 to the Registration Statement on Form S-1/A filed by the company with the Commission on September 23, 1999 (SEC File Nos. 333-79189-02 and 333-79189-01)) 10.16 First Amendment to Employment Agreement dated December 20, 1999 between AirGate PCS, Inc. and Thomas M. Dougherty (Incorporated by reference to Exhibit 10.16 to the quarterly report on Form 10-Q filed by the company with the Commission on May 15, 2000 for the quarter ended March 31, 2000 (SEC File No.000-27455)) 10.17 Retention Bonus Agreement dated May 4, 2000 between AirGate PCS, Inc. and Thomas M. Dougherty (Incorporated by reference to Exhibit 10.17 to the quarterly report on Form 10-Q filed by the company with the Commission on May 15, 2000 for the quarter ended March 31, 2000 (SEC File No.000-27455)) 21 Subsidiaries of AirGate PCS, Inc. 23 Consent of KPMG 24 Power of Attorney 27 Financial Data Schedule 31 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on December 18, 2000. AirGate PCS, Inc. By: /s/ Alan B. Catherall ------------------------ Name: Alan B. Catherall Title: Chief Financial Officer (Principal Financial and Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated.
Name Title Date ---- ----- ---- /s/ * Chief Executive Officer and December 14, 2000 - ----------------------------------- Director (Principal Executive Thomas M. Dougherty Officer) /s/ * Chief Financial Officer December 14, 2000 - ----------------------------------- (Principal Financial and Alan B. Catherall Accounting Officer) /s/ * Vice President and Director December 14, 2000 - ----------------------------------- W. Chris Blane /s/ * Vice President and Director December 14, 2000 - ----------------------------------- Thomas D. Body III /s/ * Chairman of the Board of December 15, 2000 - ----------------------------------- Directors Barry Schiffman /s/ * Director December 14, 2000 - ----------------------------------- Gill Cogan /s/ * Director December 12, 2000 - ----------------------------------- Robert Ferchat /s/ * Director December 14, 2000 - ----------------------------------- John R. Dillon By: /s/ BARBARA L. BLACKFORD ------------------------------- Barbara L. Blackford Attorney-in-fact
* Barbara Blackford, by signing her name hereto, does sign this document on behalf of the above noted individuals pursuant to powers of attorney duly executed by such individuals which have been filed as an exhibit to this Report. 32 INDEPENDENT AUDITORS' REPORT The Board of Directors AirGate PCS, Inc.: We have audited the accompanying consolidated balance sheets of AirGate PCS, Inc. and subsidiaries as of September 30, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for the year ended September 30, 2000, the nine months ended September 30, 1999, and the year 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 auditing standards generally accepted in the United States of America. 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 as of September 30, 2000 and 1999 and the results of their operations and their cash flows for the year ended September 30, 2000, the nine months ended September 30, 1999, and the year ended December 31, 1998, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Atlanta, Georgia November 10, 2000 F-1 AIRGATE PCS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollars in thousands, except share and per share amounts)
September 30, September 30, 2000 1999 ----------------- ----------------- Assets Current assets: Cash and cash equivalents $ 58,384 $ 258,900 Accounts receivable, net (note 3) 8,696 -- Inventories 2,902 -- Prepaid expenses 2,106 1,596 Other current assets (note 4) 2,227 1,974 ----------------- ----------------- Total current assets 74,315 262,470 Property and equipment, net (note 5) 183,581 44,206 Financing costs 9,098 10,399 Other assets 1,954 245 ----------------- ----------------- $ 268,948 $ 317,320 ================= ================= Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 21,009 $ 2,216 Accrued expenses 9,320 20,178 Payable to Sprint PCS 5,292 -- Deferred revenue 1,828 -- Accrued interest 228 1,413 Current maturities of long-term debt (note 6) -- 7,700 ----------------- ----------------- Total current liabilities 37,677 31,507 Deferred revenue 671 -- Long-term debt, excluding current maturities (note 6) 180,727 157,967 ----------------- ----------------- Total liabilities 219,075 189,474 ----------------- ----------------- Stockholders' equity (note 8): Preferred stock, par value, $.01 per share; 5,000,000 shares authorized; no shares issued and outstanding -- -- Common stock, par value, $.01 per share; 150,000,000 shares authorized; 12,816,783 and 11,957,201 shares issued and outstanding at September 30, 2000 and September 30, 1999, respectively 128 120 Additional paid-in-capital 161,575 157,880 Accumulated deficit (108,577) (27,254) Unearned stock option compensation (3,253) (2,900) ----------------- ----------------- Total stockholders' equity 49,873 127,846 Commitments and contingencies (notes 2, 6, 10 and 11) ----------------- ----------------- $ 268,948 $ 317,320 ================= =================
See accompanying notes to consolidated financial statements. F-2 AIRGATE PCS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (dollars in thousands, except share and per share amounts)
Year Nine Months Year Ended Ended Ended September 30, September 30, December 31, 2000 1999 1998 ---------------- -------------- ---------------- Revenues: Service revenue $ 9,183 $ -- $ -- Roaming revenue 12,338 -- -- Equipment revenue 2,981 -- -- ---------------- ------------ -------------- Total revenues $ 24,502 $ -- $ -- Operating expenses: Cost of service and roaming (27,207) -- -- Cost of equipment (5,685) -- -- Selling and marketing (28,357) -- -- General and administrative (14,078) (5,294) (2,597) Noncash stock option compensation (In 2000, $1,260 related to general and administrative, $210 related to cost of service and roaming, and $195 related to selling and marketing. In 1999, $325 related to general and administrative) (1,665) (325) -- Depreciation and amortization (12,034) (622) (1,204) ---------- ------------ -------------- Operating loss (64,524) (6,241) (3,801) Interest income 9,321 -- -- Interest expense (26,120) (9,358) (1,392) ----------- ------------ -------------- Net loss $ (81,323) $ (15,599) $ (5,193) =========== ============ ============== Basic and diluted net loss per share of common stock $ (6.60) $ (4.57) $ (1.54) =========== ============ ============== Weighted-average outstanding common shares 12,329,149 3,414,276 3,382,518 =========== ============ ============== Weighted-average potentially dilutive common stock equivalents: Common stock options 777,758 42,157 -- Stock purchase warrants 142,492 29,187 -- Convertible promissory notes -- 433,249 -- ----------- ------------ ------------- Weighted-average outstanding common shares including potentially dilutive common stock equivalents 13,249,399 3,918,869 3,382,518 =========== ============ =============
See accompanying notes to consolidated financial statements. F-3 DRAFT OF 12/13/00 AIRGATE PCS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (dollars in thousands, except share amounts) Year ended September 30, 2000, nine months ended September 30, 1999, and the year ended December 31, 1998
Common Stock ------------------------ Additional Unearned stock Total paid-in Accumulated option stockholders' Shares Amount capital deficit compensation equity (deficit) --------- ---------- --------- ------------ ------------- ---------------- Balance at December 31, 1997 -- $ -- $ 4,712 $ (6,462) $ -- $ (1,750) Formation of AirGate PCS, Inc. (note 1(a)) 3,382,518 34 (34) -- -- -- Distribution of AirGate Wireless, LLC -- -- 1,593 -- -- 1,593 Net loss -- -- -- (5,193) -- (5,193) --------- ---------- --------- --------- ----------- ----------- Balance at December 31, 1998 3,382,518 34 6,271 (11,655) -- (5,350) Issuance of stock purchase warrants in connection with issuance of convertible notes payable to stockholders and Lucent Financing (notes 8(b)(i) and 8(b)(ii)) -- -- 2,369 -- -- 2,369 Beneficial conversion feature of convertible notes payable to stockholders (note 8(a)(iii)) -- -- 6,979 -- -- 6,979 Unearned compensation related to grant of compensatory stock options (note 8(c)) -- -- 3,225 -- (3,225) -- Stock option compensation (note 8(c)) -- -- -- 325 325 Issuance of common stock, net of offering costs (note 8(a)(ii)) 7,705,000 77 120,391 -- -- 120,468 Issuance of warrants in connection with units offering (note 8(b)(iii)) -- -- 10,948 -- -- 10,948 Conversion of notes payable to stockholders to common stock (note 8(a)(iii)) 869,683 9 7,697 -- -- 7,706 Net loss -- -- -- (15,599) -- (15,599) ---------- ---------- --------- --------- ----------- ----------- Balance at September 30, 1999 11,957,201 120 157,880 (27,254) (2,900) 127,846 Conversion of notes payable to stockholders to common stock (note 8(a)(iii)) 12,533 -- 213 -- -- 213 Exercise of common stock purchase warrants in connection with issuance of convertible notes payable to stockholders, the Lucent Financing and the units offering (notes 8(b)(i), 8(b)(ii) and 8(b)(iii)) 762,444 8 (3) -- -- 5 Unearned compensation related to grant of compensatory stock options (note 8(c)) -- -- 2,231 -- (2,231) -- Issuance of stock purchase warrants in connection with Lucent Financing (note 8(b)(ii)) -- -- 282 -- -- 282 Exercise of stock options (note 8(c)) 84,605 -- 1,185 -- -- 1,185 Forfeiture of compensatory stock options (note 8(c)) -- -- (213) -- 213 -- Stock option compensation (note 8(c)) -- -- -- 1,665 1,665 Net loss -- -- -- (81,323) -- (81,323) ---------- ---------- --------- --------- ----------- ----------- Balance at September 30, 2000 12,816,783 $ 128 $ 161,575 $ (108,577) $ (3,253) $ 49,873 ========== ========== ========= ========= =========== ===========
See accompanying notes to consolidated financial statements. F-4 AIRGATE PCS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands)
Year Nine Months Year Ended Ended Ended September 30, September 30, December 31, 2000 1999 1998 ------------ ------------- --------------- Cash flows from operating activities: Net loss $ (81,323) $ (15,599) $ (5,193) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 12,034 622 1,204 Amortization of financing costs 1,192 -- -- Provision for doubtful accounts 563 -- -- Loss on sale of fixed assets -- 19 -- Interest expense associated with accretion of discount and beneficial conversion feature 23,043 8,707 -- Stock option compensation 1,665 325 -- (Increase) decrease in: Trade receivables (9,259) -- -- Inventories (2,902) -- -- Prepaid expenses (511) (1,496) (95) Other current assets (253) (373) (378) Other assets (1,709) (114) (131) Increase (decrease) in: Accounts payable 5,016 767 1,411 Accrued expenses 4,126 3,942 -- Sprint payable 5,292 -- -- Deferred revenue 2,499 -- -- Accrued interest (1,082) 727 1,007 ---------- ---------- -------------- Net cash used in operating activities (41,609) (2,473) (2,175) ---------- ---------- -------------- Cash flows from investing activities: Capital expenditures (152,397) (15,706) (5,176) ---------- ---------- -------------- Net cash used in investing activities (152,397) (15,706) (5,176) ---------- ---------- -------------- Cash flows from financing activities: Proceeds from issuance of notes payable and related warrants to Lucent -- 18,500 5,000 Payment on notes payable to Lucent -- (10,000) -- Proceeds from issuance of warrants and senior subordinated discount notes in units offering -- 156,057 -- Financing cost on Lucent Financing and units offering -- (11,622) -- Proceeds from issuance of common stock -- 130,985 -- Offering costs -- (10,517) -- Payment of note payable -- (1,000) -- Payment of note payable to Sprint PCS (7,700) -- -- Proceeds from issuance of convertible notes payable to stockholders and related warrants -- 2,530 5,200 Payments on notes payable to stockholders -- (150) (700) Proceeds from exercise of stock purchase warrants 5 -- -- Proceeds from exercise of employee stock options 1,185 -- -- ---------- ---------- -------------- Net cash (used in) provided by financing activities (6,510) 274,783 9,500 ---------- ---------- -------------- Net (decrease) increase in cash and cash equivalents (200,516) 256,604 2,149 Cash and cash equivalents at beginning of period 258,900 2,296 147 ---------- ---------- -------------- Cash and cash equivalents at end of period $ 58,384 $ 258,900 $ 2,296 ========== ========== ============== Supplemental disclosure of cash flow information - cash paid for interest $ 2,609 $ 503 $ 1,279 ========== ========== ==============
(continued) F-5 AIRGATE PCS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands)
Year Nine Months Year Ended Ended Ended September 30, September 30, December 31, 2000 1999 1998 -------------- -------------- -------------- Supplemental disclosure of non-cash investing and financing activities: Capitalized interest $ 5,938 $ 1,109 $ -- Grant of common stock purchase warrants related to Lucent Financing 282 658 -- Convertible notes payable to stockholders and accrued interest converted to equity 102 7,706 -- Beneficial conversion feature of convertible notes payable to stockholders 111 6,979 -- Grant of compensatory stock options 2,231 3,225 -- Forfeiture of compensatory stock options (213) -- -- Network assets acquired and not yet paid for 15,248 16,236 -- Assets acquired through debt financing -- -- 7,700 Distribution of FCC licenses: Accrued interest -- -- (894) Long-term debt -- -- (11,745) FCC licenses -- -- 12,846 Line of credit -- -- (1,800)
See accompanying notes to consolidated financial statements. F-6 AIRGATE PCS, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS September 30, 2000 and 1999 (1) Business, Basis of Presentation and Summary of Significant Accounting Policies (a) Business and Basis of Presentation AirGate PCS, Inc. and subsidiaries (collectively, the "Company") were created for the purpose of becoming a leading provider of wireless Personal Communication Services ("PCS"). AirGate PCS, Inc., formed in October 1998, is the exclusive affiliate of Sprint PCS in its territory and is licensed to use the Sprint PCS brand name in 21 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, AGW Leasing Company, Inc., and AirGate Network Services, LLC for all periods presented. All significant intercompany accounts and transactions have been eliminated in consolidation. Prior to October 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 Sprint and Sprint PCS (the "Sprint Agreements") to build, construct and manage a PCS network that will support the offering of Sprint PCS products and services in the Company's territory. As a result of this change in business strategy, AirGate Wireless, LLC, which consisted solely of the FCC licenses and related liabilities, was not transferred to its successor entity, AirGate PCS, Inc. because its assets and liabilities were not included in the continuing operations of AirGate PCS, Inc. 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 its obligations under the Sprint Agreements. 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, economic conditions or inability to achieve breakeven cash flow, among other factors, could have an adverse effect on the Company's financial position and results of operations. (b) Cash and Cash Equivalents Cash and cash equivalents include cash on hand, demand deposits, money market accounts, and investments in commercial paper rated A-1/P-1 or better with original maturities of three months or less. (c) Inventories Inventories consist of handsets and related accessories. Inventories are carried at the lower of cost (determined using the weighted average method) or market (replacement cost). (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. Asset lives used by the Company are as follows: USEFUL LIFE ----------- Network assets.................................... 7 years Computer equipment................................ 3 years Furniture, fixtures, and office equipment......... 5 years Construction in progress includes expenditures for the purchase of capital equipment, design services, construction services, and testing of the Company's network. The Company capitalizes interest on its construction in progress activities. Interest capitalized for the year ended September 30, 2000 totaled $5.9 million and $1.1 million for the F-7 AIRGATE PCS, INC. AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) September 30, 2000 and 1999 nine months ended September 30, 1999. Capitalized interest on construction activities in prior periods was not material. When the network assets are placed in service, the Company transfers the assets from construction in progress to network assets and depreciates those assets over their estimated useful life. (e) Financing Costs Costs incurred in connection with the Lucent Financing and the Company's issuance of senior subordinated discount notes were deferred and are amortized into interest expense over the term of the respective financing using the effective interest method. (f) Income Taxes Prior to the formation of AirGate PCS, Inc. in October 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 has not provided any pro forma income tax information for periods prior to October 1998 because such information would not be significant to the accompanying consolidated financial statements. 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 amount 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 rate 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. (g) Net Loss Per Share The Company computes net loss per common share in accordance with Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share" and SEC Staff Accounting Bulletin No. 98. Basic and diluted net loss per share of common stock is computed by dividing net loss for each period by the weighted-average outstanding common shares. No conversion of common stock equivalents has been assumed in the calculations since the effect would be antidilutive. As a result, the number of weighted-average outstanding common shares as well as the amount of net loss per share are the same for basic and diluted net loss per share calculations for all periods presented. (h) Revenue Recognition The Company sells handsets and accessories which are recorded at the time of the sale as equipment revenue. After the handset has been purchased, the subscriber purchases a service package which is recognized monthly as service is provided and is included as service revenue. Roaming revenue is recorded when Sprint PCS subscribers, other Sprint PCS affiliate subscribers and non-Sprint PCS subscribers roam onto the Company's network. The accounting policy for the recognition of activation fee revenue is to record the revenue over the periods such revenue is earned in accordance with the current interpretations of SEC Staff Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial Statements." Accordingly, activation fee revenue and direct customer activation expense has been deferred and will be recorded over the average life for those customers (30 months) that are assessed an activation fee. Those customers for which the Company waives the activation fee must enter into an Advantage Agreement and the direct customer activation expense is deferred and recorded over the contractual term of the Advantage Agreement period (12 months). As of September 30, 2000, the Company has recognized approximately $0.1 million of activation fee revenue and direct customer activation expense and has deferred $1.2 million of activation fee revenue and $1.0 million of direct customer activation expense to future periods. F-8 AIRGATE PCS, INC. AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) September 30, 2000 and 1999 (i) 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 Long-Lived Assets to be Disposed Of." SFAS No. 121 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. At September 30, 2000 and 1999, the Company had no impaired assets. (j) Advertising Costs The company expenses advertising costs when the advertisement occurs. Total advertising expense was approximately $7.5 million and $0.1 million for the year ended September 30, 2000 and the nine months ended September 30, 1999, respectively. No advertising expense was recorded in 1998. (k) New Accounting Pronouncements On July 8, 1999, the Financial Accounting Standards Board ("FASB") issued SFAS No. 137, "Deferral of the Effective Date of SFAS 133." SFAS No. 137 defers the effective date of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," to all fiscal quarters of all fiscal years beginning after June 15, 2000. The adoption is not expected to have a material effect on the Company's consolidated results of operations, financial position, or cash flows. In March 2000, the FASB issued FASB Interpretation No. 44, Accounting for Certain Transactions involving Stock Compensation ("FIN No. 44"). FIN No. 44 clarifies the application of APB No. 25, Accounting for Stock Issued to Employees, to certain areas of stock based compensation. Among other issues, FIN No. 44 clarifies the accounting consequences of a modification to the terms of a fixed stock option award. FIN No. 44 is effective July 1, 2000 but covers specific events, such as option repricing, which occurred after either December 15, 1998 or January 12, 2000. (l) Development Stage Enterprise AirGate LLC, the first predecessor of the Company, was established on June 15, 1995 (inception). The Company and its predecessor devoted most of their efforts through December 31, 1999, to activities such as preparing business plans, raising capital and planning and executing the build-out of its PCS network. With the launch of commercial service in several markets during the second fiscal quarter of 2000, the Company has completed its development stage activities. (m) 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 revenues 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. (n) Change of Fiscal Year On October 21, 1999, the Company changed its fiscal year from a calendar year ending on December 31 to a fiscal year ending on September 30 effective September 30, 1999. (o) Concentration of risk The Company maintains cash and cash equivalents in an account with a financial institution in excess of the amount insured by the Federal Deposit Insurance Corporation. The financial institution is one of the five largest banks in the United States and management does not believe there is significant credit risk associated with deposits in excess of federally insured amounts. F-9 AIRGATE PCS, INC. AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) September 30, 2000 and 1999 Further, the Company maintains accounts with nationally recognized investment managers. Such deposits are not insured by the Federal Deposit Insurance Corporation. Management does not believe there is significant credit risk associated with these uninsured deposits. (p) Comprehensive Income No statements of comprehensive income have been included in the accompanying consolidated financial statements since the Company does not have any "Other Comprehensive Income" to report. (q) Reclassification Certain reclassifications have been made to prior year balances to conform to the current year presentation. (2) Sprint Agreements In July 1998, the Company signed four major agreements with Sprint and Sprint PCS. They are the management agreement, the services agreement, the trademark and service license agreement with Sprint and the trademark and service license agreement with Sprint PCS. These agreements allow the Company to exclusively offer Sprint PCS services in the Company's territory. The management agreement has an initial term of 20 years with three 10-year renewals, the first renewal being automatic. The key clauses within the management agreement refer to exclusivity, network build-out, products and services offered for sale, service pricing, roaming, advertising and promotion, program requirements including technical and customer care standards, non-competition, inability to use non-Sprint PCS brands and rights of first refusal and are summarized as follows: (a) Exclusivity. The Company is designated as the only person or entity that can manage or operate a PCS network for Sprint PCS in the Company's territory. Sprint PCS is prohibited from owning, operating, building or managing another wireless mobility communications network in the Company's territory while the management agreement is in place. (b) Network build-out. In the management agreement, the Company has agreed to cover a specified percentage of the population at coverage levels ranging from 39% to 86% within each of the 21 markets that comprise the Company's territory by specified dates beginning on March 31, 2000 and ending on December 31, 2000. The required aggregate coverage of all markets is approximately 65% of the 7.1 million in population within the Company's territory by December 31, 2000. As of October 16, 2000, the Company had exceeded its build-out requirements in all 21 of its markets. (c) Products and services offered for sale. The management agreement identifies the products and services that can be offered for sale in the Company's territory. The Company cannot offer wireless local loop services specifically designed for the competitive local market in areas where Sprint owns the local exchange carrier unless the Sprint owned local exchange carrier is named as the exclusive distributor or Sprint PCS approves the terms and conditions. (d) Service pricing. The Company must offer Sprint PCS subscriber pricing plans designated for national offerings. The Company is permitted to establish local price plans for Sprint PCS products and services only offered in the Company's market. Sprint PCS will retain 8% of the Company's collected service revenues but will remit 100% of revenues derived from roaming by Sprint PCS and Sprint PCS affiliate subscribers and sales of handsets and accessories and proceeds from sales not in the ordinary course of business. F-10 AIRGATE PCS, INC. AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) September 30, 2000 and 1999 (e) Roaming. The Company will earn roaming revenues when a Sprint PCS customer from outside of the Company's territory roams onto the Company's network. There are established rates for Sprint PCS' or affiliates' subscribers roaming and similarly, the Company will pay Sprint PCS when the Company's own subscribers use the Sprint PCS nationwide network outside the Company's territory. Sprint PCS reserves the right to change the established per minute rate for roaming. (f) Advertising and Promotion. Sprint PCS is responsible for all national advertising and promotion of Sprint PCS products and services. The Company is responsible for local advertising and promotion in the Company's territory. (g) Program requirements including technical and customer care standards. The Company will comply with Sprint PCS' program requirements for technical standards, customer service standards, national and regional distribution and national accounts programs. (h) Non-competition. The Company may not offer Sprint PCS products and services outside the Company's territory. (i) Inability to use non-Sprint PCS brands. Without Sprint PCS' consent, the Company may not market, promote, advertise, distribute, lease or sell any of the Sprint PCS products 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. (j) Rights of first refusal. Sprint PCS has certain rights of first refusal to buy the Company's assets upon a proposed sale. The management agreement can be terminated as a result of a number of events including an uncured breach of the management agreement or bankruptcy of either party to the agreement. In the event that the management agreement is not renewed or terminated, certain formulas apply to the valuation and disposition of the Company's assets. The services agreement outlines various support services such as activation, billing and customer care that are provided to the Company by Sprint PCS. These services are available to the Company at established rates. Sprint PCS can change any or all of the service rates one time in each twelve month period. The Company may discontinue the use of any service upon three months written notice. Sprint PCS has agreed that the services presently offered will be available until at least December 31, 2001. After that date, Sprint PCS may discontinue a service provided that it gives nine months written notice. The services agreement automatically terminates upon termination of the management agreement. The trademark and service mark license agreements with Sprint and Sprint PCS provide the Company with non-transferable, royalty free licenses to use the Sprint and Sprint PCS brand names, the "diamond" symbol and several other trademarks and service marks. The Company's use of the licensed marks is subject to adherence to quality standards determined by Sprint and Sprint PCS. Sprint and Sprint PCS can terminate the trademark and service mark license agreements if the Company files for bankruptcy, materially breaches the agreement or if the management agreement is terminated. (3) Accounts receivable, net Accounts receivable, net includes amounts due from Sprint PCS relating to roaming revenues, amounts from customers with respect to airtime service charges and amounts from local third party vendors relating to the sale of handsets and accessories. For the year ended September 30, 2000, roaming revenues from Sprint PCS totaled $12.3 million, or 50% of total revenues. Of this amount, $5.3 million was recorded as accounts receivable at September 30, 2000. There were no revenues for the nine months ended September 30, 1999 or the year ended December 31, 1998. F-11 AIRGATE PCS, INC. AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) September 30, 2000 and 1999 The Company records an allowance for doubtful accounts to reflect the expected loss on the collection of receivables. Such allowance is recorded for accounts receivables from customers and third party vendors and totaled $0.6 million at September 30, 2000. There were no accounts receivable outstanding at September 30, 1999. (4) Other Current Assets Other current assets consists of the following at September 30 (dollars in thousands): 2000 1999 ---- ---- Current portion of financing costs.............. $1,215 $1,223 Prepaid activation expenses..................... 627 -- Due from AirGate Wireless, LLC.................. -- 751 Interest receivable and other................... 385 -- ------ ------ Other current assets..................... $2,227 $1,974 ====== ====== The assets and liabilities of AirGate Wireless, LLC, a predecessor entity, which consisted solely of the FCC licenses and related liabilities, were not transferred to AirGate PCS, Inc., because its assets and liabilities would not be used in the continuing operations of the Company. The Company made interest payments totaling $0.4 million during the nine month period ended September 30, 1999 and $0.4 million during the year ended December 31, 1998 related to these liabilities on behalf of AirGate Wireless, LLC. On January 28, 2000, AirGate Wireless LLC repaid the Company $0.8 million representing amounts previously paid by AirGate PCS plus accrued interest. (5) Property and Equipment Property and equipment consists of the following at September 30 (dollars in thousands): 2000 1999 ---- ---- Network assets....................................... $158,720 $ 7,700 Computer equipment................................... 3,081 89 Furniture, fixtures, and office equipment............ 6,800 87 -------- ------- Total network assets and equipment............ 168,601 7,876 Less accumulated depreciation and amortization....... (13,005) (971) -------- ------- Total network assets and equipment, net....... 155,596 6,905 Construction in progress............................. 27,985 37,301 -------- ------- Property and equipment, net................... $183,581 44,206 ======== ======= (6) Long-Term Debt Long-term debt consists of the following at September 30 (dollars in thousands):
2000 1999 ---- ---- Unsecured promissory note dated July 22, 1998; interest at 14%; due November 15, 1999;.......................... $ -- $ 7,700 Lucent Financing dated August 16, 1999; variable interest of LIBOR + 3.75% (10.44% and 9.25% at September 30,
F-12 AIR PCS, INC. AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) September 30, 2000 and 1999 2000 and 1999,respectively); interest due quarterly; (net of unaccreted original issue discount of $772 and $642 at September 30, 2000 and 1999, respectively, see note 8(b)(ii))........................ 12,728 12,858 Senior Subordinated Discount Notes due 2009; interest at 13.5%; interest accretes until October 1, 2004 after which semi-annual interest payments are required beginning April 1, 2005 (net of unaccreted original issue discount of $9,853 and $10,948 at September 30, 2000 and 1999, respectively, see note 8(b)(iii))........................... 167,999 145,109 ---------- ---------- Total long-term debt...................................................... 180,727 165,667 Less current maturities of long-term debt....................................... -- (7,700) ---------- ---------- Long-term debt, excluding current maturities.............................. $ 180,727 $ 157,967 ========== ==========
Unsecured Promissory Note On August 31, 1999, the Company entered into a loan modification agreement with the holder to defer the initial principal and interest payments due on the Company's $7.7 million unsecured promissory note from March 1, 1999 to October 15, 1999. On November 15, 1999, the Company entered into an additional loan modification to defer the maturity date to November 15, 1999. On November 15, 1999, the Company paid all outstanding principal and interest due under the unsecured promissory note. Lucent Financing On August 16, 1999, the Company entered into a $153.5 million Credit Agreement with Lucent (the "Lucent Financing" or "Credit Agreement"). The Credit Facility provides for (i) a $13.5 million senior secured term loan (the "Tranche I Term Loan") which matures on June 6, 2007, and (ii) a $140.0 million senior secured term loan (the "Tranche II Term Loan") which matures on September 30, 2008. Mandatory quarterly payments of principal are required beginning December 31, 2002 for the Tranche I Term Loan and March 31, 2004 for the Tranche II Term Loan initially in the amount of 3.75% of the loan balance then outstanding and increasing thereafter. A commitment fee of 3.75% on unused borrowings under the Credit Facility is payable quarterly. For the year ended September 30, 2000, commitment fees totaled $6.0 million. After October 1, 2000, if the Company borrows at least 30% of the Tranche II Term Loan, or $42 million, the commitment fee on unused borrowings decreases to 1.50%, payable quarterly. The Lucent Facility is secured by all the assets of the Company. In connection with this financing, the Company issued to Lucent warrants to purchase 139,035 shares of common stock that were exercisable upon issuance (see note 8(b)(ii)). Additionally, the Company incurred origination fees and expenses of $5.0 million which have been recorded as financing cost and are amortized as interest expense using the effective interest method. The Lucent Financing is subject to certain restrictive covenants including maintaining certain financial ratios, reaching defined subscriber growth and network covered population goals, and limiting annual capital expenditures. Further, the Credit Facility restricts the payment of dividends on the Company's common stock. As of September 30, 2000, management believes that the Company is in compliance with all covenants governing the Lucent Financing. Senior Subordinated Discount Notes On September 30, 1999, the Company received proceeds of $156.1 million from the issuance of 300,000 units, each unit consisting of $1,000 principal amount at maturity of 13.5% senior subordinated discount notes due 2009 and one warrant to purchase 2.148 shares of common stock at a price of $0.01 per share (see note 8(b)(iii)) pursuant to a registration statement filed on Form S-1 declared effective by the Securities and Exchange Commission on September 27, 1999. The aggregate principal amount outstanding as of September 30, 2000 of the senior subordinated discount notes was $168.0 million (net of original issue discount of $9.9 million) which will accrete to the full aggregate principal amount F-13 AIRGATE PCS, INC. AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) September 30, 2000 and 1999 of $300.0 million by October 1, 2004. The Company incurred expenses, underwriting discounts and commissions of $6.6 million related to the units offering which have been recorded as financing costs and are amortized as interest expense using the effective interest method. The senior subordinated discount notes contain certain covenants relating to limitations on the Company's ability to, among other acts, sell assets, incur additional indebtedness, and make certain payments. As of September 30, 2000, management believes that the Company is in compliance with all covenants governing the senior subordinated discount notes. Aggregate minimum annual principal payments due on all issues of long-term debt for the next five years at September 30, 2000 and thereafter are as follows (dollars in thousands):
Years ending September 30, -------------------------- 2001...................................................... $ -- 2002...................................................... -- 2003...................................................... 2,025 2004...................................................... 2,025 2005...................................................... 2,700 Thereafter................................................ 306,750 ---------- Total.................................................. 313,500 Less: Unaccreted interest portion of long-term debt ...... (122,148) Unaccreted original issue discounts................. (10,625) ---------- Total long-term debt............................ $ 180,727 ==========
(7) Fair Value of Financial Instruments Fair value estimates, assumptions, and methods used to estimate the fair value of the Company's financial instruments are made in accordance with the requirements of SFAS No. 107, "Disclosure about Fair Value of Financial Instruments." The Company has used available information to derive its estimates. However, because these estimates are made as of a specific point in time, they are not necessarily indicative of amounts the Company could realize currently. The use of different assumptions or estimating methods may have a material effect on the estimated fair value amounts (dollars in thousands).
September 30, September 30, 2000 1999 -------------------------- -------------------------- Carrying Estimated Carrying Estimated amount fair value amount fair value ------ ---------- ------ ---------- Cash and cash equivalents......................... $ 58,384 $ 58,384 $258,900 $258,900 Accounts receivable, net.......................... 8,696 8,696 -- -- Accounts payable.................................. 21,009 21,009 2,216 2,216 Accrued expenses.................................. 9,320 9,320 20,178 20,178 Long-term debt.................................... 180,727 181,500 165,667 165,667
(a) Cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses The carrying amounts of these items are a reasonable estimate of their fair value due to the short-term nature of the instruments. (b) Long-term debt F-14 AIRGATE PCS, INC. AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) September 30, 2000 and 1999 Long-term debt is comprised of the senior subordinated discount notes and the Lucent Financing. The fair value of the senior subordinated discount notes is stated at quoted market value as of September 30, 2000 and September 30, 1999. As there is no active market for the remaining items of long-term debt, management believes that the carrying amount of the Lucent Financing is a reasonable estimate of its fair value. (8) Stockholders' Equity (a) Common stock (i) Increase in authorized common shares On May 26, 2000, at a Special Meeting of the stockholders of AirGate PCS, Inc., the stockholders voted to amend our Amended and Restated Certificate of Incorporation to increase the number of authorized shares of our common stock, par value $0.01 per share, from 25,000,000 to 150,000,000 shares. (ii) Initial Public Offering On September 30, 1999, the Company sold 7,705,000 shares of its common stock at a price of $17.00 per share in its initial public offering pursuant to a registration statement filed on Form S-1 declared effective by the Securities and Exchange Commission on September 27, 1999. Proceeds from the initial public offering were $131.0 million. The Company incurred expenses, underwriting discounts and commissions related to the initial public offering of $10.5 million, which have been reflected as a reduction of the offering proceeds. (iii) Conversion of Notes Payable to Stockholders to Common Stock On September 30, 1999, $4.8 million plus an additional $2.5 million of convertible notes payable to stockholders and accrued interest were converted into 869,683 shares of common stock at the applicable conversion price of $8.84 per share, a 48% discount from the initial public offering price. The amount related to the fair value of the beneficial conversion feature of $7.0 million as of the date of issuance (May 1999) has been recorded as additional paid-in-capital and recognized as interest expense from the date of issuance to the expected date of conversion (August 1999). On October 21, 1999, the Company's Board of Directors authorized the issuance of 12,533 additional shares of common stock to the affiliates of Weiss, Peck & Greer Venture Partners and the affiliates of JAFCO American Ventures, Inc. pursuant to a previously authorized promissory note issued by the Company. The shares were authorized for issuance in consideration of $0.1 million of interest that accrued from the period June 30, 1999 to September 28, 1999 on promissory notes issued to the affiliates of Weiss, Peck & Greer Venture Partners and the affiliates of JAFCO American Ventures, Inc. The promissory notes and related accrued interest were converted into shares of common stock at a price 48% less than the price of a share of common stock sold in the Company's initial public offering of common stock. The amount related to the fair value of the beneficial conversion feature of $0.1 million has been recorded as additional paid-in-capital and recognized as interest expense in the year ended September 30, 2000. (iv) Stock splits Shares of common stock outstanding reflect a 39,134-for-one stock split effective July 9, 1999 and subsequent reverse stock splits of 0.996-for-one, which was effective July 28, 1999, 0.900-for-one which was effective September 15, 1999, and 0.965-for-one which was effective September 27, 1999. All share and stockholders' equity amounts have been restated for all periods presented for these stock splits. F-15 AIRGATE PCS, INC. AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) September 30, 2000 and 1999 (b) Common Stock Purchase Warrants (i) Warrants Issued to Stockholders In August 1998, the Company issued stock purchase warrants to stockholders in consideration for: (1) loans made by the stockholders to the Company which have been converted to additional paid-in capital, (2) guarantees of certain bank loans provided by the stockholders, and (3) in connection with $4.8 million in financing provided by the stockholders. In connection with a refinancing of the convertible notes payable to stockholders in May 1999, the Company cancelled the August 1998 warrants and issued new warrants to Weiss, Peck & Greer Venture Partners Affiliated Funds to purchase shares of common stock for an aggregate amount up to $2.7 million at an exercise price 25% less than the price of a share of common stock sold in the initial public offering, or $12.75 per share. The warrants for 214,413 shares were exercisable upon issuance and may be exercised for two years from the date of issuance. The Company allocated $1.7 million of the proceeds from this refinancing to the fair value of the warrants and recorded a discount on the related debt, which was recognized as interest expense from the date of issuance (May 1999) to the expected date of conversion (August 1999). On July 11, 2000, all of such warrants were exercised. Net of 40,956 shares surrendered in payment of the exercise price, 173,457 shares of common stock were issued. (ii) Lucent Financing On August 16, 1999, the Company issued stock purchase warrants to Lucent in consideration of the Lucent Financing. The base price of the warrants equals 120% of the price of one share of common stock at the closing of the initial public offering, or $20.40 per share, and the warrants are exercisable for an aggregate of 128,860 shares of the Company's common stock. The warrants expire on the earlier of August 15, 2004 or August 15, 2001, if, as of such date, the Company has paid in full all outstanding amounts under the Lucent Financing and has terminated the remaining unused portion of the commitments under the Lucent Financing. The Company allocated $0.7 million of the proceeds from the Lucent Financing to the fair value of the warrants and recorded a discount on the associated credit facility, which is recognized as interest expense over the period from the date of issuance to the maturity date using the effective interest method. On June 1, 2000, AirGate PCS issued stock purchase warrants for Lucent Technologies to acquire 10,175 shares of common stock on terms identical to those identified above. The Company recorded a discount on the associated credit facility of $0.3 million, which represents the fair value of the warrants on the date of grant using a Black-Scholes valuation. The discount is recognized as interest expense over the period from the date of issuance to maturity using the effective interest method. Interest expense relating to both grants of Lucent Technologies warrants for the year ended September 30, 2000 and the nine months ended September 30, 1999, was $0.2 million and $0.1 million, respectively. On September 14, 2000, warrants to acquire 128,860 shares of common stock at a price of $20.40 per share were exercised. Net of 48,457 shares surrendered in payment of the exercise price, 80,403 shares of common stock were issued. As of September 30, 2000, warrants to acquire 10,175 shares of common stock remain outstanding. (iii) Senior Subordinated Discount Notes On September 30, 1999, as part of the Company's senior subordinated discount note offering, the Company issued warrants to purchase 2.148 shares of common stock for each unit at a price of $0.01 per share. On January 3, 2000, the Company's registration statement on Form S-1, relating to warrants to purchase 644,400 shares of common stock, was declared effective by the Securities and Exchange Commission. The warrants expire October 1, 2009. F-16 AIRGATE PCS, INC. AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) September 30, 2000 and 1999 The Company allocated $10.9 million of the proceeds from the units offering to the fair value of the warrants and recorded a discount on the notes, which is recognized as interest expense over the period from issuance to the maturity date using the effective interest method. For the year ended September 30, 2000, amortization of the fair value of the warrants totaling $1.1 million was recorded as interest expense. As of September 30, 2000, warrants representing 508,584 shares of common stock had been exercised and warrants representing 135,816 shares of common stock remain outstanding. (c) Stock Option Plan On July 28,1999, the Board of Directors approved an incentive stock option plan, whereby 2.0 million shares of common stock were reserved for issuance to current and future employees. Options under the plan vest at various terms up to a 5 year period beginning at the grant date and expire ten years from the date of grant. In the nine months ended September 30, 1999, unearned noncash stock option compensation of $3.2 million was recorded, for the difference between the initial public offering price of $17.00 per share and the exercise price at the date of grant of $14.00 per share. During the year ended September 30, 2000, unearned noncash stock option compensation for compensatory stock options representing $2.2 million was recorded for the difference between the exercise price at the date of grant and the fair value at the date of grant. Noncash stock option compensation is recognized over the period in which the related employee services are rendered and totaled $1.7 million and $0.3 million for the year ended September 30, 2000 and nine months ended September 30, 1999, respectively. The Company applies the provisions of APB Opinion No. 25 and related interpretations in accounting for its stock option plan. Had compensation costs for the Company's stock option plan been determined in accordance with SFAS No. 123, the Company's net loss and basic and diluted net loss per share of common stock for the year ended September 30, 2000 and the nine months ended September 30, 1999 would have increased to the pro forma amounts indicated below (dollars in thousands, except for per share amounts):
Year Nine Months Year Ended Ended Ended September 30, September 30, December 31, 2000 1999 1998 ---- ---- ---- Net loss: As reported..................... $(81,323) $(15,599) $(5,193) Pro forma....................... (84,521) (16,274) (5,193) Basic and diluted net loss per share of common stock: As reported..................... $(6.60) $(4.57) $(1.54) Pro forma....................... $(6.86) $(4.77) $(1.54)
The fair value for stock options granted was estimated at the date of grant using the Black-Scholes option pricing model with the following assumptions:
Year Nine Months Year Ended Ended Ended September 30, September 30, December 31, 2000 1999 1998 ---- ---- ---- Risk from interest return 6.5% 6.0% -- Volatility 120.0% 60.0% -- Dividend yield 0 0 -- Expected life in years 5 5 --
The following table summarizes activity under the 1999 stock option plan:
Weighted-average Number of exercise price options per share ------- --------- Options outstanding as of December 31, 1998 -- -- Granted 1,075,000 $14.00 --------- ------ Options outstanding as of September 30, 1999 1,075,000 $14.00 Granted 600,500 $51.63 Exercised (84,605) $14.00 Forfeited (86,250) $19.15 -------- ------
F-17 AIRGATE PCS, INC. AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) September 30, 2000 and 1999 Options outstanding as of September 30, 2000 1,504,645 $28.72 Options exercisable as of September 30, 2000 285,395 $14.00 ======= ====== The following table summarizes information for stock options outstanding at September 30, 2000:
Weighted- average Options Number of Weighted-average remaining Exercisable Exercise prices options exercise price contractual life at September 30, (in years) 2000 $ 2.00 20,000 $ 2.00 9.18 ---- 14.00 959,145 14.00 8.83 285,395 35.875 - 47.50 270,500 44.50 9.45 ---- 65.125 - 66.94 230,000 66.31 9.71 ---- 98.50 25,000 98.50 9.44 ---- --------- ------ ----- ------- 1,504,645 $28.72 9.09 285,395 ========= ====== ===== =======
(d) 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 stockholder approval. The Company has not issued any preferred stock as of September 30, 2000. (9) Income Taxes Prior to the formation of AirGate PCS, Inc. in October 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 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. F-18 AIRGATE PCS, INC. AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) September 30, 2000 and 1999 Income tax expense (benefit) for the year ended September 30, 2000, the nine months ended September 30, 1999 and the year ended December 31, 1998 differed from the amounts computed by applying the statutory U.S. Federal income tax rate of 34% to loss before income taxes as a result of the following (dollars in thousands):
Year Nine Months Year Ended Ended Ended September 30, September 30, December 31, 2000 1999 1998 ---- ---- ---- Computed "expected" tax benefit............................ $ (27,650) $ (5,304) $ (1,765) (Increase) decrease in income tax benefit resulting from: Expenses related to LLC predecessors....................... -- 7 569 State income tax benefit, net of Federal effect............ (5,116) (325) (187) Increase in valuation allowance............................ 31,000 3,869 1,893 Benefit derived from contribution of tax assets............ -- -- (415) Nondeductible interest expense............................. 1,224 1,916 -- Other, net................................................. 542 (163) (95) --------- -------- -------- Total income tax expense (benefit).................. $ -- $ -- $ -- ========= ======== ========
The income tax effect of temporary differences that give rise to significant portions of the Company's deferred income tax assets and liabilities as of September 30, 2000 and 1999 are presented below (dollars in thousands):
2000 1999 ---- ---- Deferred income tax assets: Net operating loss carryforwards.............................. $ 24,549 $ 1,784 Capitalized start-up costs.................................... 7,259 3,669 Accrued expenses.............................................. 295 10 Deferred interest expense..................................... 7,321 -- Property and equipment, principally due to differences in depreciation and amortization................................ -- 299 -------- ----------- Gross deferred income tax assets.............................. 39,424 5,762 Less valuation allowance...................................... (36,762) (5,762) -------- ----------- Net deferred income tax assets................................ 2,662 -- Deferred income tax liabilities, principally due to differences in depreciation and amortization.................. (2,662) -- -------- ----------- Net deferred income tax assets................................ $ -- $ -- ======== ===========
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. In assessing the realizability of deferred income tax assets, management considers whether it is more likely than not that some portion of the deferred income tax assets will 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 has provided a valuation allowance against all of its deferred income tax assets because the realization of those deferred tax assets is uncertain. F-19 AIRGATE PCS, INC. AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) September 30, 2000 and 1999 The valuation allowance for deferred income tax assets as of September 30, 2000 and 1999 was $36.8 million and $5.8 million, respectively. The net change in the total valuation allowance for the year ended September 30, 2000 and the nine months ended September 30, 1999 was an increase of $31.0 million and $3.9 million, respectively. At September 30, 2000, the Company has net operating loss carryforwards for Federal income tax purposes of approximately $60.0 million, which will expire in various amounts beginning in the year 2019. Approximately $1.4 million of the net operating loss carryforwards that the Company may use to offset taxable income in future years is limited as a result of an ownership change, as defined under Internal Revenue Code Section 382, which occurred effective with the Company's initial public offering of stock on September 30, 1999. The amount of this annual limitation is approximately $2.8 million per year. As a result, it is anticipated that the net operating losses of the Company will be free of any limitation, as a result of the September 30, 1999 change of ownership, in the year ended September 30, 2001. At September 30, 2000, the Company also has a South Carolina general business credit carryforward of approximately $0.5 million available to offset income tax expense from this state that will expire in the year 2009. (10) Condensed Consolidating Financial Information AGW Leasing Company, Inc. ("AGW") is a wholly-owned subsidiary of AirGate PCS, Inc. AGW has fully and unconditionally guaranteed the Company's senior subordinated discount notes and Lucent Financing. AGW was formed to hold the real estate interests for the Company's PCS network. AGW also was a registrant under the Company's registration statement declared effective by the Securities and Exchange Commission on September 27, 1999. AGW jointly and severably guarantees the Company's long-term debt. During fiscal 2000, AirGate Network Services LLC ("ANS") was created as a wholly-owned subsidiary of AirGate PCS, Inc. ANS has fully and unconditionally guaranteed the Company's senior subordinated discount notes and Lucent Financing. ANS was formed to provide construction management services for the Company's PCS network. ANS jointly and severably guarantees the Company's long- term debt. The unaudited condensed consolidating financial information for AGW and ANS as of September 30, 2000 and for the year then ended is as follows (dollars in thousands):
AirGate AGW Leasing Network AirGate PCS, Inc. Company, Inc. Services LLC Eliminations Consolidation ----------------- ------------- ------------ ------------ ------------- Cash and cash equivalents ....................... $ 58,636 $ -- $ (252) $ -- $ 58,384 Property and equipment, net ..................... 138,924 -- 44,657 -- 183,581 Other assets .................................... 85,055 -- 500 (58,572) 26,983 --------- --------- --------- --------- --------- Total assets ............................... $ 282,615 $ -- $ 44,905 $ (58,572) $ 268,948 ========= ========= ========= ========= ========= Current liabilities ............................. $ 36,760 $ 11,133 $ 48,356 $ (58,572) $ 37,677 Long-term deferred revenue ...................... 671 -- -- -- 671 Long-term debt .................................. 180,727 -- -- -- 180,727 --------- --------- --------- --------- --------- Total liabilities .......................... 218,158 11,133 48,356 (58,572) 219,075 --------- --------- --------- --------- --------- Common stock .................................... 128 -- -- -- 128 Additional paid-in-capital ...................... 161,575 -- -- -- 161,575 Accumulated deficit ............................. (93,993) (11,133) (3,451) -- (108,577) Unearned stock option compensation .............. (3,253) -- -- -- (3,253) -------- -------- --------- --------- --------- Total liabilities and stockholders' equity . $282,615 $ -- $ 44,905 $ (58,572) $ 268,948 ======== ======== ========= ========= ========= Total revenues .................................. 24,502 -- -- -- 24,502
F-20 Cost of service and roaming ...................................... (18,350) (8,857) -- -- (27,207) Selling and marketing ............................................ (27,832) (525) -- -- (28,357) General and administrative ....................................... (13,706) (372) -- -- (14,078) Other ............................................................ (24,149) -- -- -- (24,149) Depreciation and amortization .................................... (8,583) -- (3,451) -- (12,034) --------- --------- --------- --------- --------- Total expenses ................................................... (92,620) (9,754) (3,451) -- (105,825) --------- --------- --------- --------- --------- Net loss ......................................................... $ (68,118) $ (9,754) $ (3,451) -- $ (81,323) ========= ========= ========= ========= ========= Operating activities, net ........................................ (89,165) -- $ 47,556 -- $ (41,609) Investing activities - capital expenditures ...................... (104,589) -- (47,808) -- (152,397) Financing activities ............................................. (6,510) -- -- -- (6,510) --------- --------- --------- --------- --------- Decrease in cash and cash equivalents ............................ (200,264) -- (252) -- (200,516) Cash and cash equivalents at end of period ....................... $ 58,636 $ -- $ (252) $ -- $ 58,384 ========= ========= ========= ========= =========
The unaudited condensed consolidating financial information for AGW and ANS as of September 30, 1999 and for the nine months then ended is as follows (dollars in thousands):
AirGate AGW Leasing Network AirGate PCS, Inc. Company, Inc. Services LLC Eliminations Consolidation ----------------- ------------- ------------ ------------ ------------- Cash and cash equivalents ........................ $ 258,900 $ -- $ -- $ -- $ 258,900 Property and equipment, net ...................... 44,206 -- -- -- 44,206 Other assets ..................................... 15,593 -- -- (1,379) 14,214 ------------ ---------- ---------- ---------- ------------ Total assets ................................ $ 318,699 $ -- $ -- $ (1,379) $ 317,320 ============ ========== ========== ========== ============ Current liabilities .............................. $ 31,507 $ 1,379 $ -- $ (1,379) $ 31,507 Long-term debt ................................... 157,967 -- -- -- 157,967 ------------ ---------- ---------- ---------- ------------ Total liabilities ........................... 189,474 1,379 -- (1,379) 189,474 ------------ ---------- ---------- ---------- ------------ Common stock ..................................... 120 -- -- -- 120 Additional paid-in-capital ....................... 157,880 -- -- -- 157,880 Accumulated deficit............................... (25,875) (1,379) -- -- (27,254) Unearned stock option compensation ............... (2,900) -- -- -- (2,900) ------------ ---------- ---------- ---------- ------------ Total liabilities and stockholders' equity... $ 318,699 $ -- $ -- $ (1,379) $ 317,320 ============ ========== ========== ========== ============ Total expenses ................................... (14,220) (1,379) -- -- (15,599) ------------ ---------- ---------- ---------- ------------ Net loss ......................................... $ (14,220) $ (1,379) $ -- $ -- $ (15,599) ============ ========== ========== ========== ============
(11) Commitments (a) Leases The Company is obligated under noncancelable operating lease agreements for office space, cell sites, vehicles and office equipment. Future minimum annual lease payments under these noncancelable operating lease agreements for the next five years and in the aggregate at September 30, 2000, are as follows (dollars in thousands): Years ending September 30, -------------------------- 2001........................................ $ 14,022 2002........................................ 14,149 2003........................................ 13,585 F-21 AIRGATE PCS, INC. AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) September 20, 2000 and 1999 2004.................................................... 12,787 2005.................................................... 7,303 Thereafter.............................................. 18,463 ----------- Total future minimum annual lease payments....... $ 80,309 ===========
Rental expense for all operating leases was $9.8 million, $1.4 million and $0.3 million for the year ended September 30, 2000, the nine months ended September 30, 1999, and the year ended December 31, 1998, respectively. (b) Employment Agreements The Company has entered into employment agreements with certain employees which provide that the employee will not compete in the business of wireless telecommunications in the Company's territory for a specified period after their respective termination dates. The employment agreements also define employment terms including salary, bonus and benefits to be provided to the respective employees. On May 4, 2000, the Company entered into a retention bonus agreement with Thomas M. Dougherty, its Chief Executive Officer. So long as Mr. Dougherty is not terminated for cause or does not voluntarily terminate employment, the Company on specified payment dates, generally quarterly, extending to January 15, 2004, periodic retention bonuses totaling $3.6 million will be earned and paid to Mr. Dougherty by the Company. Compensation expense of $1.2 million was recorded in the year ended September 30, 2000 related to amounts earned under the retention bonus agreement. Under the terms of the agreement, partial acceleration of the future payments would occur upon a change in control of the Company. (c) Employee Benefit Plans In February 2000, the Company established the AirGate PCS 401(k) Retirement Plan, a defined contribution employee savings plan under Section 401(k) of the Internal Revenue Code. For the year ended September 30, 2000, employer contributions of $0.2 million were made to the plan. (12) Related Party For the year ended September 30, 2000, an affiliated company provided the Company investment management services with fees totaling $44,000. (13) Selected Quarterly Financial Data (Unaudited):
First Second Third Fourth Quarter Quarter Quarter Quarter Total ------- ------- ------- ------- ----- Year Ended September 30, 2000: Total revenue........................... $ 130 $ 1,580 $ 6,542 $ 16,250 $ 24,502 Operating loss.......................... (6,331) (13,987) (20,300) (23,906) (64,524) Net loss................................ (9,828) (17,104) (25,196) (29,195) (81,323) Net loss per share: Basic and diluted (1)............... (0.82) (1.40) (2.03) (2.30) (6.60) Nine Months Ended September 30, 1999: Total revenue........................... $ - $ - $ - $ -- - Operating loss.......................... (836) (1,372) (4,033) -- (6,241) Net loss................................ (1,580) (6,185) (7,834) -- (15,599) Net loss per share:
F-22 AIRGATE PCS, INC. AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) September 20, 2000 and 1999 Basic and diluted (1) ............... (0.47) (1.83) (2.25) -- (4.57)
(1) The total net loss per share does not equal the sum of the quarterly net losses per share due to the change in fully diluted shares outstanding during the year and nine month period. (14) Subsequent Events (a) On October 2, 2000, the Company borrowed an additional $42.0 million under the Lucent Financing. As a result, the commitment fee for undrawn commitments under the facility decreased to 1.50% per annum, payable quarterly. F-23 Independent Auditors' Report ---------------------------- The Board of Directors AirGate PCS, Inc.: Under date of November 10, 2000, we reported on the consolidated balance sheets of AirGate PCS, Inc. and subsidiaries as of September 30, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for the year ended September 30, 2000, the nine months ended September 30, 1999, and the year ended December 31, 1998. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related financial statement schedule in the annual report on Form 10-K, as listed in the index under Item 14. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. /s/ KPMG LLP Atlanta, Georgia November 10, 2000 F-24 AIRGATE PCS, INC. AND SUBSIDIARIES CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS FOR THE YEAR ENDED SEPTEMBER 30, 2000, THE NINE MONTHS ENDED SEPTEMBER 30, 1999, AND THE YEAR ENDED DECEMBER 31, 1998 (IN THOUSANDS)
ADDITIONS BALANCE AT CHARGED TO BALANCE AT BEGINNING OF COSTS AND END OF PERIOD EXPENSES DEDUCTIONS PERIOD ------------ ---------- ---------- ---------- CLASSIFICATION September 30, 2000 Allowance for Doubtful Accounts $ - $ 563 $ - $ 563 Income Tax Valuation Allowance $5,762 $31,000 $ - $36,762 September 30, 1999 Allowance for Doubtful Accounts $ - $ - $ - $ - Income Tax Valuation Allowance $1,893 $ 3,869 $ - $ 5,762 December 31, 1998 Allowance for Doubtful Accounts $ - $ - $ - $ - Income Tax Valuation Allowance $ $ 1,893 $ - $ 1,893
F-25 EX-10.1.2 2 0002.txt ADDENDUM IV TO SPRINT PCS MANAGEMENT EXHIBIT 10.1.2 ADDENDUM IV TO SPRINT PCS MANAGEMENT AGREEMENT Manager: AirGate PCS, Inc. (formerly AirGate Wireless, Inc.) Service Area: Anderson, SC BTA Asheville-Henderson, NC BTA Augusta, GA BTA Charleston, SC BTA Columbia, SC BTA Florence, SC BTA Goldsboro-Kinston, NC BTA Greenville-Washington, NC BTA Greenville-Spartanburg, SC BTA Greenwood, SC BTA Hickory-Lenoir-Morgantown, NC BTA Jacksonville, NC BTA Myrtle Beach, SC BTA New Bern, NC Orangeburg, SC BTA Roanoke Rapids, NC BTA Rocky Mount-Wilson, NC BTA Savannah, GA BTA Sumter, SC BTA Wilmington, NC BTA Camden County, NC Currituck County, NC Dare County, NC Pasquotank County, NC This Addendum IV (this "Addendum") dated as of August 26, 1999, contains certain additional and supplemental terms and provisions to that certain Sprint PCS Management Agreement entered into as of July 22, 1998 by the same parties as this Addendum, which Management Agreement was further amended by Addendum I entered into as of July 22, 1998, and further amended by Addendum II entered into as of May 24, 1999, and Addendum III entered into as of August 2, 1999 (the Management Agreement as amended by Addenda I, II, and III being the "Management Agreement"). The terms and provisions of this Addendum control, supersede and amend any conflicting terms and provisions contained in the Management Agreement. Except for express modification made by this Addendum the Management Agreement continues in full force and effect. Capitalized terms used and not otherwise defined in this Addendum have the meanings ascribed to them in the Management Agreement. Section and Exhibit references are to Sections of, and Exhibits to, the Management Agreement, unless otherwise noted. 1. Revised Financing Plan. Exhibit 1.7 to this Addendum supersedes and replaces in its entirety Exhibit 1.7 attached to the Management Agreement and Addenda II and III. 2. Sale of Operating Assets or Licenses. Section 5 of Addendum III is deleted in its entirety and replaced with the following language: "Manager agrees that in the event any Related Party of Manager obtains any Operating Assets or any FCC license that allows Manager to provide personal communication services utilizing the Service Area Network, Manager will execute an agreement with such Related Party that provides that such Related Party will sell such Operating Assets and such licenses as required under the Management Agreement, the Lucent Consent and Agreement, a foreclosure sale or a bankruptcy proceeding as if such Related Party were the Manager." (The remainder of this page was intentionally left blank.] EXHIBIT 1.7 (Amended) Amended Financing Plan Manager intends to finance the build out of the Service Area Network and to provide the necessary working capital to operate the business through a combination of equity, high-yield debt and bank debt. Manager estimates that it will raise in the range of $300 Million to $400 Million to fund its ten year business operations in the Service Area. Manager currently is funded through equity contributions and commitments from Weiss Peck & Greer PCS Partners, Inc. and JAFCO America Ventures. Inc, and Maxicom PCS. L.L.C., bank loans from Silicon Valley Bank and NationsBank and vendor financing from Lucent Technologies Inc. Manager has filed a registration statement with the Securities and Exchange Commission to complete the equity and high yield debt placements and has obtained a credit facility from Lucent Technologies Inc. Manager anticipates financing its operations in the Service Area through the following sources and in the following net proceeds: Equity Approximately $80-100 Million High Yield Debt Approximately $100- 150 Million Committed Vendor Facility Approximately $130-150 Million These projected funding amounts and the sources are subject to change due to the financial needs of the Manager and based on conditions in the financial markets. Manager agrees to have financing in a sufficient amount to complete each phase of the Build Out Plan and to provide the necessary working capital to operate the business by the following time frames. Such financing is currently estimated to be committed in the following amounts: Time Frame Financing Amount ---------- ---------------- 12/31/1998 $ 19.8 Million 10/15/1999 $ 180 Million 4/l/2000 $ 150 Million In addition, these amounts are subject to change based on actual network and operational costs associated with each phase of the Build Out Plan. IN WITNESS WHEREOF, the parties hereto have caused this Addendum IV to be executed by their respective authorized officers as of the date and year first above written. SPRINT SPECTRUM L.P. By:_________________________________________________ Bernard A. Bianchino, Senior Vice President and Chief-Business Development Officer - Sprint PCS SPRINTCOM, INC. By:_________________________________________________ Bernard A. Bianchino, Senior Vice President and Chief-Business Development Officer - Sprint PCS SPRINT COMMUNICATIONS COMPANY, L.P. By:_________________________________________________ Thomas E. Wieigman, Senior Vice President, Consumer Market Strategy and Communications AIRGATE PCS, INC. By:_________________________________________________ Shelley L. Spencer Vice President of Law EX-10.1.3 3 0003.txt ADDENDUM V TO SPRINT PCS MANAGEMENT Exhibit 10.1.3 ADDENDUM V TO SPRINT PCS MANAGEMENT AGREEMENT Manager: AirGate PCS, Inc. (formerly AirGate Wireless, Inc.) Service Area: Anderson, SC BTA Asheville-Henderson, NC BTA Augusta, GA BTA Charleston, SC BTA Columbia, SC BTA Florence, SC BTA Goldsboro-Kinston, NC BTA Greenville-Washington, NC BTA Greenville-Spartanburg, SC BTA Greenwood, SC BTA Hickory-Lenoir-Morgantown, NC BTA Jacksonville, NC BTA Myrtle Beach, SC BTA New Bern, NC Orangeburg, SC BTA Roanoke Rapids, NC BTA Rocky Mount-Wilson, NC BTA Savannah, GA BTA Sumter, SC BTA Wilmington, NC BTA Camden County, NC Currituck County, NC Dare County, NC Pasquotank County, NC This Addendum V (this "Addendum") dated as of May ____, 2000, contains certain additional and supplemental terms and provisions to that certain Sprint PCS Management Agreement entered into as of July 22, 1998 by the same parties as this Addendum, which Management Agreement was further amended by Addendum I entered into as of July 22, 1998, and further amended by Addendum I entered into as of May 24, 1999, Addendum III entered into as of August 2, 1999 and Addendum IV entered into as of August 26, 1999 (the Management Agreement as amended by Addenda I, II, III and IV being the "Management Agreement"). The terms and provisions of this Addendum control, supersede and amend any conflicting terms and provisions contained in the Management Agreement. Except for express modification made by this Addendum the Management Agreement continues in full force and effect. Capitalized terms used and not otherwise defined in this Addendum have the meanings ascribed to them in the Management Agreement. Section and Exhibit references are to Sections of, and Exhibits to, the Management Agreement, unless otherwise noted. 1. Expedite Fees. If Sprint PCS and Manager agree to pay additional fees to a third part), for any efforts associated with expediting completion of any portion of Manager's Build Out Plan or Switch Integration to meet a Network Ready Date (the "NRD") including, but not limited to, payment of expedited fees for microwave relocation; and the NRD is later extended due to Manager action or lack of action, then Manager will have full responsibility for the payment of such fees. 2. Long-Distance Pricing. (a) The first sentence of Section 3.4 is deleted in its entirety and replaced by the following language: Manager must purchase long-distance telephony services from Sprint through Sprint PCS both (i) to provide long-distance telephony service to users of the Sprint PCS Network and (ii) to connect the Service Area. Network with the national platforms used by Sprint PCS to provide services to Manager under the agreement and/or the Services Agreement. Sprint will bill Sprint PCS for such services rendered to Sprint PCS. Manager and all Other Managers, and in turn, Sprint PCS will bill Manager for the services used by Manager, Manager will be charged the same price for such long-distance service as Sprint PCS is charged by Sprint (excluding interservice area long-distance travel rates) plus an additional administrative fee to cover Sprint PCS processing costs. (b) The following sentence is added as a second paragraph in Section 3.4: "Manager may not resell the long-distance telephony services acquired from Sprint under this Section 3.4." 3. Right of Last Offer. Section 3.7 is modified by adding the following language: "(other than backhaul services relating to national platform and IT application connections which Manager must purchase from Sprint)" both between (i) "Service Area Network" and "if Manager decides to use' in the first sentence of the first paragraph and (ii) "for these services" and "and the agreement was not made" in the first sentence of the second paragraph. 4. Non-termination of Agreement. The following language is added at the end of Section 11.5.3 and Section 11.6.4: "but such action does not terminate this agreement." 5. Amendments to Sections 13 through 16 of Management Agreement. If, on or before June 30, 2000, Manager achieves network ready status of the Service Area Network and meets the covered pops requirement, as stated in Exhibit 2.1 to ----------- the Management Agreement, in all of the markets in the Service Area other than the markets listed below and the New Service Area (such markets targeted for June 30, 2000 network 2 ready status being referred to as the "June 30 Markets"), then Sections 13, 14, 15 and 16 of Addendum I to the Management Agreement and any references thereto in subsequent Addenda shall be deemed terminated and deleted from all Addenda to the Management Agreement and of no further force or effect. For purposes of this section, the Service Area Network shall be as set forth in the original Management Agreement and tile covered pops requirements shall be as set forth in Exhibit 2.1 to Addendum II. - ----------- Greenwood, SC BTA New Bern, SC BTA Camden County, NC Currituck County, NC Dare County, NC Pasquotank County, NC If Manager does not achieve network ready status and meet covered pops requirements in all of tile June 30 Markets by June 30, 2000, then Sections 13, 14, 15 and 16 of Addenda I to the Management Agreement and any references thereto in subsequent Addenda will remain in full force and effect until the date on which all of the June 30 Markets have achieved network ready status and met the covered pops requirements, at which time each of such sections shall be deemed terminated and deleted from all Addenda to tile Management Agreement and of no further force or effect. 6. Stock as Collateral. The restrictions in the Management Agreement against the Principals pledging their shares of AirGate PCS, Inc. common stock as collateral terminate on the date of this Addendum. 7. Announced Transactions. Section 17.23 of the Management Agreement is deleted in its entirely, 8. Additional Terms and Provisions. The phrase "the Addendum also describes" is deleted from the second sentence of Section 17.24 of the Management Agreement, and the following language is inserted at the end of that second sentence "have been disclosed verbally or in writing to Sprint PCS, and photocopies of any such written agreements will be delivered to Sprint PCS upon its request". 9. Payment of Fees Under Services Agreement. The second sentence of Section 3.1 of the Services Agreement is deleted in its entirely and replaced by the following two sentences: Except with respect to fees paid for billing-related services, the monthly charge for any fees based on the number of subscribers of the Service Area Network will be determined based on the number of subscribers as of the 15th day of thc month for which the charge is being calculated. With respect to fees paid for billing-related services, the monthly charge for any fees based on the number of subscribers will be based on the number of 3 gross activations in the month for which the charge is being calculated plus the number of subscribers of the Service Area Network on the last day of the prior calendar month, IN WITNESS WHEREOF, the parties hereto have caused this Addendum V to be executed by their respective authorized officers as of the date and year first above written. SPRINT SPECTRUM L.P. By: /s/ ------------------------------------------------ Bernard A. Bianchino, Senior Vice President and Chief-Business Development Officer - Sprint PCS SPRINT COMMUNICATIONS COMPANY, L.P. By: /s/ ------------------------------------------------ Don A. Jensen, Vice President - Law AIRGATE PCS, INC. By: /s/ ----------------------------------------------- Thomas M. Dougherty, President and CEO 4 EX-10.5.1 4 0004.txt NOTICE TO AIRGATE OF AN ASSIGNMENT SUBLEASE EXHIBIT 10.5.1 BELLSOUTH BellSouth Cellular Corp. 1100 Peachtree Street, N.E. September 20, 1999 Atlanta, Georgia 30309-4599 Airgate Wireless, LLC SprintCom, Inc. 4201 Congress Street, Suite 400 2330 Shawnee Mission Parkway Charlotte, North Carolina 28209 Westwood, Kansas 66205 Attn: Chief Operating Officer Attn: Corporate Secretary Re: Master Site Agreement dated August 6, 1998, between BellSouth Personal Communications, Inc. and BellSouth Carolinas PCS, L.P. (collectively, "BellSouth"), and Airgate Wireless, L.L.C. ("Airgate") (as amended, the "Master Site Agreement"), and the Site Sublease Agreements between BellSouth, as "lessor" or "sublessor", and Airgate, as "lessee" or "sublessee", identified on Exhibit "A" attached hereto (collectively, the "Site Agreements") Dear Sir or Madam: Pursuant to Section 16(b) of the Master Site Agreement, notice is hereby given to Airgate and to SprintCom, Inc. of BellSouth's assignment of its interest in the Site Agreements, and related rights and obligations under the Master Site Agreement, to Crown Castle South Inc. ("Crown Castle"). For your information, the name, address and telephone number of the assignee are as follows: Crown Castle South Inc. 376 Southpointe Boulevard Canonsburg, Pennsylvania 15317 Attention: Kevin Conroy Telephone No.: (724) 416-2345 Effective immediately, all payments under the Site Agreements (other than amounts currently past due) should be made to Crown Communications Inc., and addressed to Crown Communications Inc., 375 Southpointe Boulevard, Canonsburg, PA 15317. Any past due amount should be remitted to BellSouth. Crown Castle may be contacting you directly with further instructions regarding the payment of rents or fees due under the Site Agreements and to provide you additional information regarding Crown Castle. Please note that this notice applies only to the Site Agreements identified on Exhibit "A" attached hereto. You may have other site agreements with BellSouth which have not been assigned to Crown Castle. Please contact Angie Pye at (404) 249-3405 should you have any questions. Very truly yours, Stephen A. Brake Assistant Vice President BellSouth Cellular Corp. cc: Airgate Wireless, LLC 230 Peachtree Street, Suite 1700 Atlanta, Georgia 30303 Attn: Legal Department SprintCom, Inc. 8140 Ward Parkway Kansas City, Missouri 64114 Attn: Vice President - Law, General Business and Technology Exhibit "A" Assigned Site Agreements
- ------------------------------------------------------------------------------------------------------------ BellSouth Site # Carrier Carrier Site # Site Location - ------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------ 016-009 AirGate AW016527A Oconee Co., SC - ------------------------------------------------------------------------------------------------------------ 016-103 AirGate AW016448A Anderson Co., SC GR03XC448A - ------------------------------------------------------------------------------------------------------------ 016-107 AirGate AW016450B Anderson Co., SC - ------------------------------------------------------------------------------------------------------------ 020-003 AirGate AW020902A Buncombe Co., NC - ------------------------------------------------------------------------------------------------------------ 020-008 AirGate AW020907A Buncombe Co., NC - ------------------------------------------------------------------------------------------------------------ 020-010 AirGate AW020909A Buncombe Co., NC - ------------------------------------------------------------------------------------------------------------ 020-012 AirGate GRO3XC911A Buncombe Co., NC - ------------------------------------------------------------------------------------------------------------ 020-013 AirGate AW020912A Henderson Co., SC - ------------------------------------------------------------------------------------------------------------ 020-020 AirGate AW020915A Henderson Co., SC - ------------------------------------------------------------------------------------------------------------ 020-033 AirGate AW020922A Buncombe Co., NC - ------------------------------------------------------------------------------------------------------------ 072-017 AirGate CSO3XC012A Charleston Co., SC - ------------------------------------------------------------------------------------------------------------ 072-020 AirGate CSO3XC018A Charleston Co., SC - ------------------------------------------------------------------------------------------------------------ 072-028 AirGate CS03XC006A Charleston Co., SC - ------------------------------------------------------------------------------------------------------------ 072-033 AirGate CS03XC008A Charleston Co., SC - ------------------------------------------------------------------------------------------------------------ 072-039 AirGate MY04XC542A1 Georgetown Co., SC - ------------------------------------------------------------------------------------------------------------ 072-044 AirGate AW072053A Dorchester Co., SC - ------------------------------------------------------------------------------------------------------------ 073-052 AirGate AW072500A1 Georgetown Co., SC - ------------------------------------------------------------------------------------------------------------ 072-154 AirGate MY04XC543A1 Georgetown Co., SC - ------------------------------------------------------------------------------------------------------------ 091-002 AirGate AW091600A Lexington Co., SC - ------------------------------------------------------------------------------------------------------------ 091-011 AirGate CO3XCO14A Lexington Co., SC - ------------------------------------------------------------------------------------------------------------ 091-018 AirGate AW091037B Richland Co., SC - ------------------------------------------------------------------------------------------------------------ 091-019 AirGate AW091011A Lexington Co., SC - ------------------------------------------------------------------------------------------------------------ 091-025 AirGate AW091027A Newberry Co., SC - ------------------------------------------------------------------------------------------------------------ 091-026 AirGate CO03XC028B Newberry Co., SC - ------------------------------------------------------------------------------------------------------------ 091-032 AirGate AW091016A Lexington Co., SC - ------------------------------------------------------------------------------------------------------------ 091-146 AirGate AW091013B Lexington Co., SC - ------------------------------------------------------------------------------------------------------------ 091-148 AirGate AW091036A Richland Co., SC - ------------------------------------------------------------------------------------------------------------ 091-167 AirGate AW091022A Richland Co., SC - ------------------------------------------------------------------------------------------------------------ 091-177 AirGate CO03XC041B Kershaw Co., SC - ------------------------------------------------------------------------------------------------------------ 165-001 AirGate AW165802A4 Wayne Co., NC - ------------------------------------------------------------------------------------------------------------ 165-003 AirGate AW165808A1 Duplin Co., NC - ------------------------------------------------------------------------------------------------------------ 165-009 AirGate AW165805A1 Duplin Co., NC - ------------------------------------------------------------------------------------------------------------ 165-010 AirGate AW165806A1 Duplin Co., NC - ------------------------------------------------------------------------------------------------------------ 165-011 AirGate AW165807A1 Duplin Co., NC - ------------------------------------------------------------------------------------------------------------ 165-012 AirGate AW165801A4 Wayne Co., NC - ------------------------------------------------------------------------------------------------------------ 177-006 AirGate AW177408B Greenville Co., SC - ------------------------------------------------------------------------------------------------------------ 117-008 AirGate GR0eXC498A Greenville Co., SC - ------------------------------------------------------------------------------------------------------------ 177-015 AirGate AW177419A Greenville Co., SC - ------------------------------------------------------------------------------------------------------------ 177-023 AirGate AW177465C Spartanburg Co., SC - ------------------------------------------------------------------------------------------------------------ 177-025 AirGate GRO3XC409A Greenville Co., SC - 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- ------------------------------------------------------------------------------------------------------------ 177-026 AirGate AW177427A Cherokee Co., SC - ------------------------------------------------------------------------------------------------------------ 177-027 AirGate AW177423A Spartanburg Co., SC - ------------------------------------------------------------------------------------------------------------ 177-041 AirGate AW177520A Pickens Co., SC - ------------------------------------------------------------------------------------------------------------ 177-044 AirGate AW177418A Greenville Co., SC - ------------------------------------------------------------------------------------------------------------ 177-048 AirGate AW177425A Spartanburg Co., SC - ------------------------------------------------------------------------------------------------------------ 177-156 AirGate AW177544A Greenville Co., SC - ------------------------------------------------------------------------------------------------------------ 177-159 AirGate AW177523A Pickens Co., SC - ------------------------------------------------------------------------------------------------------------ 177-260 AirGate AW177524A Pickens Co., SC - ------------------------------------------------------------------------------------------------------------ 177-161 AirGate AW177426B Cherokee Co., SC - ------------------------------------------------------------------------------------------------------------ 177-164 AirGate AW177522A Pickens Co., SC - ------------------------------------------------------------------------------------------------------------ 177-178 AirGate AW177545 Pickens Co., SC - ------------------------------------------------------------------------------------------------------------ 177-186 AirGate AW177483A Spartanburg, SC - ------------------------------------------------------------------------------------------------------------ 177-197 AirGate AW177461C Greenville Co., SC - ------------------------------------------------------------------------------------------------------------ 189-001 AirGate AW189701A Catawba Co., NC - ------------------------------------------------------------------------------------------------------------ 189-002 AirGate AW189723A Catawba Co., NC - ------------------------------------------------------------------------------------------------------------ 189-004 AirGate AW189707A Catawba Co., NC - ------------------------------------------------------------------------------------------------------------ 189-008 AirGate AW189716A Caldwell Co., NC - ------------------------------------------------------------------------------------------------------------ 189-011 AirGate AW189715A Caldwell Co., NC - ------------------------------------------------------------------------------------------------------------ 189-012 AirGate AW189712A Burke Co., NC - ------------------------------------------------------------------------------------------------------------ 189-913 AirGate AW189713A Buncombe Co., NC - ------------------------------------------------------------------------------------------------------------ 189-015 AirGate AW189710A Burke Co., NC - ------------------------------------------------------------------------------------------------------------ 189-016 AirGate AW189724A Burke Co., NC - ------------------------------------------------------------------------------------------------------------ 189-018 AirGate AW189706A Catawba Co., NC - ------------------------------------------------------------------------------------------------------------ 335-001 AirGate AW335058A Orangeburg Co., SC - ------------------------------------------------------------------------------------------------------------ 335-003 AirGate AW335056A Orangeburg Co., SC - ------------------------------------------------------------------------------------------------------------ 335-005 AirGate AW335055A Orangeburg Co., SC - ------------------------------------------------------------------------------------------------------------ 335-107 AirGate OR03XC057A Orangeburg Co., SC - ------------------------------------------------------------------------------------------------------------ 335-108 AirGate OR03XC059A Calhoun Co., SC - ------------------------------------------------------------------------------------------------------------ 382-007 AirGate AW382407A1 Wilson Co., NC - ------------------------------------------------------------------------------------------------------------ 382-008 AirGate AW382450A1 Wilson Co., NC - ------------------------------------------------------------------------------------------------------------ 382-019 AirGate AW382451A1 Wilson Co., NC - ------------------------------------------------------------------------------------------------------------ 478-002 AirGate AW478309A1 New Hanover Co., NC - ------------------------------------------------------------------------------------------------------------ 478-006 AirGate AW478306B1 New Hanover Co., NC - ------------------------------------------------------------------------------------------------------------ 478-007 AirGate AW478304A1 New Hanover Co., NC - ------------------------------------------------------------------------------------------------------------ 478-026 AirGate AW478300A1 Pender Co., NC - ------------------------------------------------------------------------------------------------------------ 478-027 AirGate AW478301A1 Pender Co., NC - ------------------------------------------------------------------------------------------------------------ 478-028 AirGate AW478302A1 Pender Co., NC - ------------------------------------------------------------------------------------------------------------ 478-036 AirGate AW478305A1 New Hanover Co., NC - ------------------------------------------------------------------------------------------------------------ 478-037 AirGate AW478352A1 New Hanover Co., NC - ------------------------------------------------------------------------------------------------------------ 478-038 AirGate AW478303A1 Pender Co., NC - ------------------------------------------------------------------------------------------------------------
EX-10.5.2 5 0005.txt MASTER TOWER SPACE RESERVATION EXHIBIT 10.52 MASTER TOWER SPACE RESERVATION AND LICENSE AGREEMENT ---------------------------------------------------- This Master Tower Space Reservation and License Agreement (this "Agreement') is entered into as of the 19th day February, 1999 by and between AMERICAN TOWER, L.P., a Delaware limited partnership, whose business address is 116 Huntington Avenue, Boston, MA 02116 (hereinafter referred to as the "Licensor"), and AGW LEASING COMPANY, INC., a Delaware corporation, whose business address is 230 Peachtree Street, N.W., Suite 1700, Atlanta, Georgia 30303 (hereinafter referred to as the "Licensee"). BACKGROUND ---------- From time to time Licensee and/or its Affiliates may have the need to reserve or license space on communication towers then-owned or operated by Licensor and/or its Affiliates. This Agreement sets forth the terms and conditions by which Licensee may request to reserve or license space on a communication tower and the terms and conditions by which Licensor shall reserve or license such tower space to Licensee. AGREEMENTS ---------- In consideration of the mutual covenants benefiting the parties hereto, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and confessed, the parties hereto agree as follows: 1. Definitions. Capitalized terms defined in the body of this Agreement or in ----------- the Schedules hereto are indexed by location on Appendix 1 hereto, Capitalized terms used in this Agreement but not defined herein are defined in Appendix 1. 2. Parties. Unless otherwise mutually agreed, the parties hereto agree that ------- the terms and conditions herein shall be binding upon and exclusive to each party hereto and their respective Affiliates with respect to any license or lease of space by Licensee or any of its Affiliates on any communications tower and/or communications building or shelter then-owned or operated by Licensor or any of its Affiliates ("Communication Tower(s)") entered into during the Term of this Agreement. This Agreement shall not, unless Licensor specifically agrees otherwise, be applicable to any communication tower, building or shelter which is managed or marketed by Licensor, as agent or representative, on behalf of a third party. 3. Reservation and License of Tower Space. -------------------------------------- 3.1 Application for Co-location/Requests to Reserve or License Space. From ---------------------------------------------------------------- time to time during the Term, Licensee may submit applications to Licensor to request the reservation or licensing of tower space on any one or more of Licensor's Communication Towers. An application to reserve or license any particular Communication Tower shall be made by Licensee submitting two duly completed counterparts of Schedule 1 (to apply to reserve co-location space) or Schedule 2 (if the request is to license space), in each case, identifying the tower space that Licensee desires to reserve or license. Licensee may submit requests for multiple spaces at one time, and shall complete for each space two original counterparts of Schedule 1 (to apply to reserve Co-location space) or Schedule 2 (if the request is to license space). (a) Reserved Space. Within ten (10) Business Days after receiving a completed -------------- reservation request in the form of Schedule 1 from Licensee, Licensor will notify Licensee if the requested space is available and the terms under which Licensor shall make such Communication Tower available to Licensee by completing, executing and returning an original counterpart of the Schedule 1 submitted by Licensee. The reservation of space requested by Licensee on such Schedule 1 shall be deemed reserved exclusively for Licensee, in accordance with the reservation terms detailed in such Schedule 1 as executed by both parties, upon the complete execution of such Schedule 1 by both parties. The Reservation Fee for such Reserved Space shall be payable to Licensor by Licensee on or before the tenth (10th) Business Day following Licensee's receipt of the Schedule 1 executed by Licensor. Tower space reserved in accordance with the foregoing procedures is referred to herein as Reserved Space. Licensee may not install any equipment on any Reserved Space unless and until it has been converted to Licensed Space in accordance with Section 3.1(b). Licensee shall have access to the relevant Communication Tower during the Reservation Period 1 in accordance with Section 8 herein to the extent reasonably necessary to facilitate any reasonable due diligence that Licensee desires to perform. In the event that Licensee elects to commission a Phase I environmental assessment during the Reservation Period or Term, Licensee shall promptly provide a photocopy of any such assessment to Licensor. It is expressly agreed that under no circumstances shall Licensor be obligated to perform any remediation of environmental concerns at any of the Communication Towers, subject to the obligations of both parties hereto pursuant to Section 8.3. (b) Conversion and Expiration of Reserved Space. Licensee may elect ------------------------------------------- to convert Reserved Space into Licensed Space (as hereinafter defined) by delivering to Licensor (a) within the Reservation Period for such Reserved Space a signed and completed Schedule 2 indicating, among other things, a License Commencement Date not later than the last day of the Reservation Period and (b) together with such Schedule 2, the Initial License Fee for such space. Any Schedule 2 conversion notice that is submitted without the required payment shall be of no force or effect. Licensee acknowledges that it shall not be entitled to any refund of any portion of any Reservation Fee if Licensee elects to convert Reserved Space to Licensed Space prior to the expiration of the Reservation Period. Any Reserved Space that has not been converted to Licensed Space during the Reservation Period and otherwise in accordance with this Section 3.1 (b) shall, upon expiration of the Reservation Period, expire and thereafter Licensor shall be free to reserve or license such space to any other Person. Tower space licensed in accordance with the foregoing procedures and Section 3,11(c) is referred to herein as Licensed Space. (c) Licensed Space. In the event that Licensee desires to license -------------- space on a Communication Tower which is riot then Reserved Space, Licensee may submit a completed Schedule 2 to Licensor to request the licensing of such space. Within ten (10) Business Days after receiving a completed Schedule 2 from Licensee, Licensor will notify Licensee if the requested site is available and the terms under which Licensor is willing to license such Communication Tower to Licensee by completing and returning an original counterpart of the Schedule 2 submitted by Licensee. The licensing of space requested by Licensee on such Schedule 2 shall be deemed licensed by Licensee in accordance with the license terms of such Schedule 2 upon execution by both parties and the receipt by Licensor of the Initial License Pee for such Licensed Space on or before the fifth (5th) business day following Licensee's receipt of Licensor's executed Schedule 2. Tower space licensed in accordance with the foregoing procedures and Section 3.1(b) is referred to herein as Licensed Space. (d) Remaining Terms. The remaining terms and conditions of this --------------- Agreement shall apply to all Reserved Space and Licensed Space. Additional terms which only apply to a particular reservation or license of space at a Communication Tower shall be set forth on the executed Schedule 1 or Schedule 2, as applicable. In the event of a conflict between the terms of this Agreement and the terms of an individual Schedule, the terms of the Schedule shall govern. (e) Payment. Any payment due to Licensor by Licensee under this ------- Agreement shall be payable to Licensor in the form of a company check (that can be immediately deposited by Licensor) or by wire transfer. 3.2 Changes to Schedules. The Licensor anticipates needing, and hereby -------------------- reserves the right, to revise the (unexecuted) forms of Schedules 1 and 2 from time to time. The Licensor will furnish Licensee with such Schedules if and when the same are revised, and upon receipt from Licensor, such revised Schedules shall replace the blank form of Schedules attached hereto with respect to Space subsequently reserved or licensed. 4. Term, Extension Periods. ----------------------- 4.1 Term of this Agreement. The term of this Agreement (the "Term") shall ---------------------- commence on the date first written above (the "Effective Date") and, unless earlier terminated in accordance with Section 5, shall continue for the three- year period following the Effective Date and shall remain in effect, with respect to each individual fully executed Schedule attached hereto from time to time, for so long thereafter as any License remains in effect in accordance with the remaining provisions of this Section 4 and for as long as any Reservation period remains unexpired. Notwithstanding the foregoing, the Term of this Agreement shall automatically renew in accordance with the terms and conditions herein for successive periods of three (3) years each as of the end of each then-current 2 three-year period unless either party has given the other no less than 90 days prior written notice of its intention to terminate this Agreement effective as of the end of the then-current three-year period. 4.2 Term of Each License. The primary term of each License shall commence -------------------- on the License Commencement Date for such License and shall continue for the number of years specified as the Primary Term in Schedule 2 (the "Primary Term"). The term of each License may be extended as follows: (a) the term shall be extended automatically beyond its Primary Term for the number of years specified on Schedule 2 as the First Extension Period (the "First Extension Period") unless Licensee notifies Licensor that it does not wish to extend the term and such notice is given at least ninety (90) days before the First Extension Period is scheduled to begin, (b) the term shall be further extended beyond the First Extension Period for the number of years specified on Schedule 2 as the Second Extension Period (the "Second Extension Period") unless Licensee notifies Licensor that it does not wish to extend the term and such notice is given at least ninety (90) days before the Second Extension Period is scheduled to begin and (c) the term shall be further extended automatically beyond the Second Extension Period for the number of years specified on Schedule 2 as the Third Extension Period (the "Third Extension Period") unless Licensee notifies Licensor that it does not wish to extend the term and such notice is given at least ninety (90) days before the Third Extension Period is scheduled to begin. The License Term of any License shall be the period commencing on the first day of the Primary Term and ending on the last day of the last applicable extension period, if so renewed. 4.3 Exceptions to Extension Periods. Notwithstanding anything to the ------------------------------- contrary in this Agreement, in the event that any particular Communication Tower subject to a License hereunder is located on property or Licensor's use of such property, is subject to the terms and provisions of an easement, ground lease, license, or right of way (hereinafter collectively referred to as an "Underlying Document") that expires prior to the term of the relevant License then such affected License shall automatically terminate upon termination of Licensee's right to possession of the Communication Tower and/or property under said Underlying Document; provided that such Underlying Document has not been extended by Licensor, Licensor agrees that, it will not do anything concerning an Underlying Document to cause such affected License to be prematurely terminated. Further, Licensor agrees to use commercially reasonable efforts to negotiate an acceptable extension term of any such Underlying Document with a term at least as long as such next applicable extension period or the end of the initial term of the affected License, as applicable provided that in no event shall Licensor be required to commence negotiations more than six months in advance of the scheduled expiration date of the Underlying Document. Licensor hereby warrants and agrees that it shall exercise any renewal option available to it pursuant to the Underlying Document. If Licensor has not received Licensee's notice that it does not wish to extend the term of any License within any of the applicable 90-day notice provisions described in Section 4.2, Licensee will be deemed to have confirmed its intent to extend the License for the next applicable extension period, and Licensor will commence negotiations with the owner of the property in accordance with the terms herein. 5. Termination ----------- 5.1 By Licensor. Notwithstanding the provisions of Section 4, (a) ----------- Licensor may terminate this Agreement and each License upon the occurrence of a Licensee Default and/or (b) upon giving Licensee 12 months' advance notice, Licensor may terminate any particular License in the event Licensor determines in good faith that the Tower Facilities to which such License relates are no longer economically viable according to Licensor's financial return and other investment objectives. 5.2 By Licensee. Notwithstanding the provisions of Section 4, (a) ----------- Licensee may terminate this Agreement and any License, upon the occurrence of a Licensor Default, (b) Licensee may terminate this Agreement in accordance with Section 10, (c) Licensee may terminate this Agreement in accordance with Section 8.5, (d) Licensee may terminate this Agreement in accordance with Section 8.6, and (e) Licensee may terminate this Agreement, or any license if Licensee is no longer authorized as a manager for SprintCom, Inc., its affiliates, successors, or related parties. 5.3 Effectiveness; Effect of Termination. No termination under this ------------------------------------ Section 5 shall be effective until a termination notice is given by the terminating party to the other party and such notice is specifically identified as a termination notice under this; Section 5. The party exercising its termination rights in accordance with this Section 5 3 shall have such cumulative rights and remedies as may be available at law or in equity. Termination shall not affect any obligations or liabilities arising under this Agreement prior to the effective date of such termination or those obligations that expressly survive such termination. 6. Fees and other Remuneration --------------------------- 6.1 License Fee. With respect to each License, Licensee shall pay ----------- Licensor a license fee (the "License Fee") equal to the sum of (a) the License Fee as specified in Schedule 2 relating to such License (as such License Fee may escalate from time to time as provided in such Schedule) plus (b) the amount of utility charges directly attributable to Licensee's equipment. 6.2 Taxes and Other Fees. Licensee shall pay any and all taxes, fees, -------------------- assessments, and any other similar expense attributable to Licensee's equipment or Licensee's use of the Communication Tower (whether constituting a portion of real estate, sales, use, franchise fees or taxes or otherwise). 6.3 Payments. With respect to each License, Licensee shall pay to -------- Licensor the License Fee on or before the dates specified on Schedule 2, without setoff, deduction or demand. Payments shall be made to the Remittance Address specified on Schedule 2 or to such other address as Licensor may specify from time to time in writing to Licensee. Any payment not received by Licensor within ten (10) days after the due date shall bear interest from the due date until the date received by Licensor at a rate equal to the lesser of (a) the maximum nonusurious rate of interest permitted by applicable law or (b) Eighteen Percent (18%) per annum (the "Past Due Rate). In addition, with respect to any late payment, Licensee shall pay Licensor an Administrative Fee in the amount specified on Schedule 2 to compensate Licensor for the additional administrative costs incurred or anticipated to be incurred by reason of such late payment. 6.4 Reimbursement of Costs. Licensee shall provide copies of ---------------------- itermodulation studies and NEPA compliance studies performed an the site. 7. Access Rights. With respect to each License, Licensee's authorized ------------- technicians or other persons under Licensee's direct supervision ("Authorized Personnel" including SprintCom, Inc., its successors, affiliates and related parties) shall have rights of ingress and egress during the License Term in and over the Tower Facilities relating to such License for the purposes of installing, repairing, maintaining, operating, servicing or removing Licensee's equipment and antennae described in Schedule 1 or Schedule 2, as applicable. Licensee understands and agrees that other licensees and their authorized representatives shall have similar access, ingress and egress rights to such Tower Facilities associated therewith for similar purposes. In the event that Licensee requires Authorized Personnel to enter the Tower Facilities and such Authorized Personnel is not in possession of Licensee's lock codes or keys, Licensor shall provide access to the Authorized Personnel by prearrangement with Licensor and in accordance with the Administrative Fees outlined in Schedule 2. 8. Covenants. --------- 8.1 Equipment. Licensee agrees that all of the equipment to be installed --------- upon Licensor's tower and within equipment shelters (if applicable), and upon Licensor's ground space, will be in substantial compliance with that specified within Schedule 2. Licensee agrees to provide final configuration and equipment list to Licensor prior to executing specific site agreement or commencing construction. Licensee shall have the right to maintain and optimize site with respect to antenna type, configuration, downtilt and orientation. 8.2 Performance of Work. Prior to installing any equipment or making any ------------------- modifications, enhancements or changes thereto (other than replacements of identical items at the same location) (collectively, the "Work"), the following procedures shall be taken: (a) Licensee shall submit to Licensor detailed plans and specifications accurately describing all aspects of the proposed work to be performed including, without limitation, weight and wind load requirements and power supply requirements and evidence that Licensee has obtained all approvals, permits and consents required by, and has otherwise complied with, all Legal Requirements applicable to the performance of the Work. 4 (b) Licensee shall not commence any of the Work until Licensor notifies Licensee of its written approval thereof, which approval, with respect to Licensee's initial installation, will not be unreasonably withheld, conditioned or delayed. (c) Licensee shall perform, or cause to be performed, all of the Work in compliance with the plans and specifications approved by Licensor and with all applicable Legal Requirements, Licensee shall ensure that the Work does not interfere with communications systems and equipment of other pre-existing licensees or tower space users on the affected tower and tower facilities or, at any time, with any of Licensors video, data, audio or other transmission system (whether or not installed or modified before or after the License Commencement Date). (d) All Work shall be performed at Licensee's sole cost and expense (including but not limited to any structural analysis or structural modifications and the installation of any of Licensee's equipment), and Licensee shall pay all invoices of labor and materialmen in a timely manner to prevent the imposition of any liens on Licensor's property or Licensee's property located on Licensor's property. In engaging any Person to perform any portion of the Work, Licensee shall require a written waiver from any contractor, subcontractor, laborer or materialman of all rights under state material and mechanic lien laws or other laws to impose a lien on any of Licensor's property. (e) Licensor may elect to provide access to standard 110 volt circuitry for the operation of Licensee's equipment. Any other modifications, enhancements or requirements with respect to the electrical power supply will be at Licensee's expense; provided, all such modifications, enhancements and other requirements shall be identified in Licensee's plans and specifications submitted in accordance with Section 8.1(a) and approved of by Licensor. (f) All Work shall be performed by qualified contractors (including but not limited to steeplejacks or other tower climbers), subject to the approval of Licensor, with worker's compensation and general liability insurance certificates on file with Licensor naming Licensor as an additional insured and otherwise satisfying the coverage requirements described in Appendix II. Notwithstanding the foregoing, Licensor reserves the right, in its sole discretion, to refuse to permit any person or company to climb any tower structure owned or leased by the Licensor. Licensee shall be solely responsible and liable to Licensor for Licensee's failure to obtain or deliver to Licensor the required insurance certificates from Licensee's approved contractor. (g) Upon the completion of Licensee's installation of its equipment at any site, but in no event later than ten (10) Business Days following such completion, Licensee shall provide Licensor with as-built drawings of the equipment installed on the tower and on the premises. (h) In no event shall Licensee install or cause to be installed any additional utilities without the prior consent of Licensor, which consent shall not be unreasonably withheld, conditioned or delayed. Further, upon request by Licensor, Licensee shall (at Licensee's expense) secure, to Licensor's reasonable satisfaction, any propane tanks or generators owned by Licensee at any Communication Tower to prevent any damage which might otherwise occur during earthquakes. (i) Licensee agrees to comply with the reasonable directions and requirements which Licensor, in its discretion, may from time to time establish in connection with each of the Tower Facilities and the operations of Licensee thereunder, provided that such directions and requirements do not unreasonably interfere with Licensee's ordinary course of business or operations. (j) Licensee acknowledges and agrees that, upon reasonable prior notice (except for emergency situations), Licensee shall reduce operating power or cease operation of its equipment which it is necessary to prevent the overexposure of workers on any Communication Tower to RF radiation. (k) Licensor reserves the right to perform a pre-installation and/or post-installation audit and review with Licensee and Licensee shall fully cooperate with any such reasonable request by Licensor and shall respond to and address any reasonable concern of Licensor as a result of such audit. 5 8.3 Compliance with Laws. Licensee shall comply with all Legal -------------------- Requirements applicable to each License, Licensee's use of the Tower Facilities related to such License and the installation, ownership, maintenance and use of Licensee's antennae and other equipment contemplated t)y such License including, Without limitation, Legal Requirements governing the transmission or operation of radio communications systems and related equipment, environmental laws and regulations, OSHA, the Federal Aviation Administration (the "FAA"), and the Federal Communication Commission (the "FCC"). The Licensor shall cooperate with Licensee in Licensee's efforts to obtain any permits or other approvals that may be necessary to comply with the preceding sentence; provided, notwithstanding the foregoing, Licensor shall not be required to expend any funds or undertake any liability or obligation in connection with such cooperation. Licensor may, in its sole discretion and if available, make available to Licensee in exchange for an Administrative Fee information which it may periodically collect from all users of a particular Communication Tower which may be useful to Licensee in demonstrating RF compliance. 8.4 Licensee's Maintenance of Approved Equipment. Licensee shall maintain -------------------------------------------- its equipment in compliance with applicable Legal Requirements. Without limiting the foregoing, Licensee shall comply with all applicable requirements imposed by Part 17 of FCC rules and regulations and any other applicable Legal Requirement as soon as practicable after installation or approved modification of any equipment on any of the Tower Facilities. 8.5 Maintenance by Licensor. ----------------------- (a) During the Term, Licensor will maintain the applicable Tower Facilities marking and lighting in good order and repair and in material compliance with all applicable Legal Requirements including without limitation, Part 17 of the rules and regulations of the FCC. In the event Licensee receives notice or otherwise obtains knowledge that a tower is not in compliance with any Legal Requirement, Licensee will immediately so notify Licensor by telecopy and, to the extent necessary, will cooperate in all reasonable respects with Licensor in curing any such noncompliance. (b) If Licensor, in its reasonable opinion, determines that any structural modifications or repairs are needed to be made to its tower or surrounding premises due to the presence of Licensee's equipment or approved modifications or such modification which are required to comply with then- current laws or regulations, Licensor shall notify Licensee of such modifications or repairs and give Licensee an estimate of their costs. If such estimate exceeds the annual License Fee, Licensee may terminate the applicable License by notifying Licensor within ten (10) Business Days of receiving such estimate. If Licensee does not terminate the applicable License in accordance with this Section 8.5, Licensor shall proceed with such repairs and modifications and invoice Licensee for the costs and expenses arising from such work. Licensee shall pay Licensor all amounts so invoiced within ten (10) days after receipt of the invoice. Past due amounts will beer interest at the Past Due Rate from the due date until the date paid, In addition, with respect to any late payment, Licensee shall pay Licensor an Administrative Fee in the amount specified on Schedule 2 to compensate Licensor for the additional administrative costs incurred or anticipated to be incurred by reason of such late payment. 8.6 No Interference. --------------- (a) Notwithstanding anything to the contrary in this Agreement, Licensee shall ensure, and Licensee's use of any Tower Facilities shall be subject to its ability to ensure, that the operation of all of its equipment is conducted in a manner that does riot interfere electrically, or in any other manner whatsoever, with Licensor's use of the tower on which Licensee's equipment is installed for Licensor's transmission services, if any, with any of Licensor's or other licensee's building systems, or with any pre-existing licensee's or other tower space user's use of such tower. Licensee shall ensure, and Licensee's use of any Tower Facilities shall be subject to its ability to ensure, that operation of all of its equipment is conducted in a manner that does not interfere with Licensor's lighting system located on any of the Communication Towers or, in the event that Licensee's equipment is installed on the rooftop of a building, with equipment of any kind used by building tenants. Upon notice, Licensee shall at its expense take all actions necessary to eliminate such interference and shall immediately cease operations if requested by Licensor until the interference is eliminated, if Licensee does not immediately cease any interfering operation, Licensor shall have the right, in addition to any other rights that it may have, to enjoin such interference or 6 to terminate this Agreement. Subsequent to o written request by Licensor, in Licensors sole discretion, each Licensee transmitter shall have a circulator and harmonic filter installed between the transmitter output and antenna feedline. Also, Licensor may, at its option, require Licensee to supply additional radio frequency interference (RFI) limiting equipment for installation on the equipment of such person whose equipment is experiencing such interference. (b) Licensee acknowledges and agrees that Licensor will from time to time market and license to third parties space on the same tower and in the same tower facilities (including equipment structures) as are licensed to Licensee; provided that, Licensor agrees to cause any persons that are installed or modified subsequent to the Commencement Date of the relevant License, on any tower or other Tower Facilities after Licensor enters into a License with Licensee with respect to such same tower or Tower Facilities not to interfere with the operation of Licensee's equipment approved of by Licensor as it exists at: the time Licensor enters into a license agreement with such other person. In the event Licensee experiences interference caused by other licensees, Licensee shelf notify Licensor of such interference and if Licensor is unable to eliminate the interference, or reduce it to a level acceptable to Licensee, within a period of thirty (30) days, then Licensee may terminate that particular License with written notice to Licensor. 8.7 Labeling and Identification. Licensee shall identify its equipment --------------------------- and equipment cabinets (unless such cabinet is located in a building owned by Licensee) by labels provided by Licensor (or, if not provided by Licensor, labels provided by Licensee and designed for such purpose) and shall permanently identify its coaxial cable at the top and bottom. Failure by Licensee to so identify its equipment may cause an interruption in service of licensee's operation and shall constitute a default of this Agreement. 8.8 Insurance. Licensee and Licensor shall keep in full force and effect --------- during the term of this Agreement and the term of any License insurance coverage in accordance with Appendix II attached hereto. 9. Indemnification --------------- 9.1 By Licensee. Licensee shall indemnify, defend and hold harmless ----------- Licensor, its Affiliates and their respective directors, officers, shareholders, successors and assigns from all Damages arising from (a) any Claim to the extent such Claim is attributable to the joint, concurrent or sole negligence, gross negligence, or willful misconduct or strict liability of Licensee, or its agents, employees, representatives, contractors or other Persons acting or engaged by, through or under Licensee, and (b) any material breach by Licensee of any provision of this Agreement. 9.2 By Licensor. The Licensor shall indemnify, defend and hold harmless ----------- Licensee, its Affiliates and their respective directors, officers, shareholders, successors and assigns from all Damages arising from (a) any Claim to the extent such Claim is attributable to the joint, concurrent or sole negligence, gross negligence. or willful misconduct or strict liability of Licensor, or its agents, employees, representatives, contractors or other Persons acting or engaged by, through or under Licensor., (b) any material breach by Licensor of any provision of this Agreement. 9.3 Limitation Indemnification. Neither party shall be responsible or -------------------------- liable to any of the foregoing Indemnified Parties for any Damage arising from any Claim to the extent attributable to any acts or omissions of other licensees or tower users occupying any particular Tower Facilities or for any structural or power failures or destruction or damage to the Tower Facilities except to the extent mused by the joint, concurrent, sole or gross negligence, or willful misconduct of such party. 9.4 Waiver of Certain Damages. Notwithstanding the provisions of Sections ------------------------- 9.1 and 9.2, the Indemnified Parties hereby waive the right to recover consequential (including lost profits), punitive, exemplary and similar damages and the multiplied portion of damages except to the extent such damages are suffered by any of the Indemnified Parties in a third-party proceeding, 9.5 Express Negligence. THE FOREGOING INDEMNITIES SET FORTH IN THIS ------------------ SECTION 9 ARE INTENDED TO BE ENFORCEABLE AGAINST THE PARTIES IN ACCORDANCE WITH THE 7 EXPRESS TERMS AND SCOPE THEREOF NOTWITHSTANDING ANY STATE'S EXPRESS NEGLIGENCE RULE OR ANY SIMILAR DIRECTIVE THAT WOULD PROHIBIT OR OTHERWISE LIMIT INDEMNITIES BECAUSE OF THE SIMPLE OR GROSS NEGLIGENCE (WHETHER SOLE, CONCURRENT, ACTIVE OR PASSIVE) OR OTHER FAULT OR STRICT LIABILITY OF ANY OF THE INDEMNIFIED PARTIES. 9.6 Survival. The provisions of this Section 9 shall survive the -------- termination of this Agreement with respect to any events occurring on or before termination whether or not Claims relating thereto are asserted before or after termination. 10. Destruction or Condemnation. --------------------------- (a) In the event that an, Communication Tower is destroyed or damaged by fire, lightning, windstorm, flood, earthquake, explosion, collapse, aircraft or other vehicle damage or other casualty, Licensor shall, unless it shall elect to terminate the term of this Agreement and the related Schedule with respect to the affected Communication Tower as hereinafter provided, promptly reconstruct or repair the Communication Tower to substantially the same condition as existed before the destruction or damage and upon completion give possession to Licensee of substantially the same space licensed under the affected Schedule. If the Communication Tower is in need of such repair or is so damaged by fire, lightning, windstorm, flood, earthquake, explosion, aircraft or other vehicle damage, collapse or other casualty that reconstruction or repair cannot reasonably be undertaken without dismantling Licensee's Facilities, then Licensor may, upon giving written notice to Licensee, remove any Licensee's Facilities and interrupt the signal activity of Licensee but will use reasonable efforts to have Licensee's Facilities replaced as Soon as reasonably possible. Licensee will be afforded the right, at Licensee's sole cost and expense, to install temporary facilities pending repairs, provided such temporary facilities do not interfere in any way with the construction, rebuilding or operation of the Communication Tower. Licensor agrees to provide Licensee alternative space, if available, on the Communication Tower during such reconstruction/repair period. If Licensor elects not to restore the Communication Tower within six month's from the date of any casualty, Licensor may, by notice to Licensee, terminate the term of this Agreement and the relating Schedule only with respect to the affected Communication Tower on the date (not less than thirty day thereafter) set forth in such notice. Should Licensor not substantially restore or replace the Communication Tower in a fashion sufficient to allow Licensee to replace Licensee's Facilities thereon within six (6) months of the date of casualty provided that such 6 month period shall be automatically extended for so long as Licensor has commenced and diligently continues to restore or replace such Communication Tower, then Licensee, upon thirty (30) days' written notice to Licensor may, at its option, terminate the term of this Agreement and the related Schedule with respect to the affected Communication Tower. (b) Licensor shall be entitled to terminate the term of this Agreement and the related Schedule with respect to any particular Communication Tower if all or any part of such Communication Tower is acquired, transferred, condemned or taken pursuant to any eminent domain proceeding if as a result any of such event, Licensor has determined not to continue to operate the Communication Tower. Irrespective of the form in which recovery may be had by law, all rights to damages or compensation shall belong to Licensor in all cases. Licensee hereby grants to Licensor all of Licensee's rights to such damages and covenants to deliver such further assignments thereof as Licensor may from time to time request. Nothing contained herein shall be construed to prevent Licensee from prosecuting in any eminent domain proceedings a claim for relocation expenses, provided that such action shall not affect the amount of compensation otherwise recoverable by Licensor from the taking authority. (c) The License Fee with respect to the affected communication Tower shall be abated during any period that the Communication Tower has not been restored following an event described in clauses (a) or (b) above so as to permit Licensee's Facilities to be replaced on the Communication Tower. 11. Surrender. --------- 11.1 General. Upon the expiration or termination of any License, Licensee ------- shall peaceably deliver Lip and surrender the facilities on which Licensee's equipment was installed or located. 8 11.2 Alterations and Improvements. Upon the termination or expiration of ---------------------------- any License, all permanent alterations, installations, changes, replacements, additions or improvements that (a) have been made by Licensee to the related Tower Facilities and (b) cannot be removed without material damage to the remainder of such Tower Facilities, shall be deemed a part of such Tower Facilities and the same shall not be removed. 11.3 Licensee's Property. Upon the termination or expiration of any ------------------- License and so long as Licensee is not in Default hereunder, Licensee may remove all property owned by Licensee so long as the removal thereof would not cause material damages to property not owned by Licensee and shall repair any damage caused to the Tower Facilities due to the removal of such property at Licensee's expense. Licensee shall remove such property to one (1) foot below grade, and such removal shall be performed by a qualified steeplejack, tower climber or contractor in a workmanlike manner without any interference, damage or destruction to any other equipment, structures or operations of the tower, and without injury or damage to the tower, the surrounding real property or improvements located thereon, If Licensee fails to make such repairs within ten (10) days after occurrence of such damage, Licensor may perform the necessary repairs at Licensees expense. Licensee shall pay Licensor ell amounts so invoiced within ten (10) days after receipt of the invoice. Past due amounts will beer interest at the Past Due Rate from the due date until the date paid. In addition, with respect to any late payment, Licensee shall pay Licensor an Administrative Fee in the amount specified on Schedule 2 to compensate Licensor for the additional administrative costs incurred or anticipated to be incurred by reason of such late payment. If Licensee fails to remove such property within thirty (30) days after the termination or expiration any License, such property shall be deemed abandoned. The Licensor may, at its option, (a) cause any such abandoned property to be removed at the expense of Licensee which Must be paid prior to Licensee claiming equipment, b) sell all or any part of such property at public or private sale, without notice to Licensee, and retain the proceeds of such sale and/or (c) declare that title to such property shall be deemed to have passed to Licensor. 11.4 Related Documents. Upon the termination or expiration of any ----------------- License, Licensee shall immediately upon the request and at the expense of Licensor, deliver a release in recordable form of any instruments of record evidencing such License. 12. Miscellaneous. ------------- 12.1 Notices. All notices, consents, approvals, and other communications ------- given to either party under this Agreement shall be in writing to such party at the address set forth for such party as its Notice Address in the Schedules or at such other address as such party shall designate by notice to the other party hereto in accordance with this Section 12.1 and may be delivered personally (including delivery by private courier services, including overnight courier delivery) or by telecopy, or by first-class United States mail, postage prepaid, registered or certified mail with return receipt requested, to the party entitled thereto, and shall be deemed to be duty given or made when received. In the event that conflicting Notice Addresses appear in the Schedules, the most recent Schedule shall control. 12.2 Choice of Law. This Agreement shall be construed and interpreted and ------------- the rights of the parties determined in accordance with the internal laws of the Commonwealth of Massachusetts, Each individual License shall be construed and interpreted and the rights of the parties determined in accordance with the internal laws in the state in which the Communication Tower is located, provided that in the event that more than one License is involved in the dispute or controversy the laws of the Commonwealth of Massachusetts shall govern. 12.3 Entire Agreement Disclaimers, Amendments and Waivers. ---------------------------------------------------- (a) This Agreement, the Appendixes and the Schedules hereto and the additional Schedules that may be executed from time to time by the parties constitute the entire agreement between the parties pertaining to the subject matter hereof and supersede all prior agreements, understandings, negotiations and discussions, whether oral or written, of the parties. (b) No endorsement or statement on any check or letter accompanying a check for payment of fee or other amount shall be deemed an accord and satisfaction, and Licensor may accept such check or payment without prejudice to Licensor's right to recover the balance of such fee or other payment or to pursue any other 9 remedy provided in this Agreement. No payment by Licensee or receipt by Licensor of a lesser amount than the periodic installment(s) of the License Fee shall be deemed to apply to any amount other than the earliest then outstanding payment due hereunder. (c) LICENSEE ACKNOWLEDGES THAT THE LICENSOR HAS NOT MADE ANY REPRESENTATION OR WARRANTY, EXPRESS, IMPLIED OR AT COMMON LAW, BY STATUTE, OR OTHERWISE RELATING TO ANY TOWER FACILITIES INCLUDING, WITHOUT LIMITATION, THE CONDITION OF ANY TOWER FACILITIES (INCLUDING, WITHOUT LIMITATION, ANY IMPLIED OR EXPRESSED WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, CONFORMITY TO MODELS OR SAMPLES OF MATERIALS, ENVIRONMENTAL CONDITION, OR GEOLOGIC CONDITION). IN FURTHERANCE OF THE FOREGOING, THE LICENSOR EXPRESSLY DISCLAIMS AND NEGATES, AND LICENSEE HEREBY WAIVES (I) ANY IMPLIED OR EXPRESSED WARRANTY OF MERCHANTABILITY, (II) ANY IMPLIED OR EXPRESSED WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, (III) ANY IMPLIED OR EXPRESSED WARRANTY OF CONFORMITY TO MODELS OR SAMPLES OF MATERIALS, (IV) ANY CLAIM FOR DAMAGES BECAUSE OF ANY LATENT OR PATENT DEFECTS OR OTHER DEFECTS, WHETHER KNOWN OR UNKNOWN AND (V) ANY AND ALL IMPLIED WARRANTIES EXISTING UNDER APPLICABLE LAW. IT IS THE EXPRESS INTENTION OF THE PARTIES HERETO THAT ALL TOWER FACILITIES BE LICENSED ON AN AS IS, WHERE IS BASIS, THE PARTIES HERETO AGREE THAT, TO THE EXTENT REQUIRED BY APPLICABLE LAW TO BE EFFECTIVE, THE DISCLAIMERS OF CERTAIN WARRANTIES CONTAINED IN THIS SECTION ARE CONSPICUOUS DISCLAIMERS. (d) No amendment, supplement, modification or waiver of this Agreement shall be binding unless executed in writing by the party to be bound thereby. No waiver of any of the provisions of this Agreement shall constitute a waiver of any other provision hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless expressly agreed to in writing by the affected party. 12.4 Assignment. ---------- (a) In the event Licensor mortgages, grants a security interest in or otherwise collaterally assigns its interest in this Agreement or in any License, Licensee will execute and deliver to Licensor's tender or other party to whom such interest is granted (x) an Estoppel certificate certifying as to such reasonable matters as are customarily expressed to lenders and (y) a subordination, attornment and non-disturbance agreement pursuant to which any interest Licensee may have in any Tower Facilities by reason of this Agreement or any License is subordinated to a mortgage lien or other security interest granted in favor of Licensor's lenders; provided, Licensee shall only be obligated to enter into any such subordination, attornment and non-disturbance agreement if, pursuant to the terms thereof, the lender agrees not to disturb Licensees interest in any of the Tower Facilities arising from this Agreement or any License so long as Licensee continues to perform its obligations according to the terms hereof and thereof. (b) Licensee may not assign, sublease or sublicense or otherwise transfer all or any interest under this Agreement or any individual Schedule (including, without limitation, duplexing of signals, granting of shared use rights, or utilizing digital or analog interconnect facilities for itself or others) without the prior written consent of Licensor. Notwithstanding the foregoing and so long as Licensee is not then in Default, Licensee may assign this Agreement or any individual Schedule with Licensor's prior written consent which shall not be unreasonably withheld, conditioned or delayed to any of the following: (i) Any corporation, partnership or other entity which controls, is controlled by or under common control with Licensee, provided that Licensee shall continue to remain liable to Licensor hereunder: (ii) Any corporation or other entity resulting from the merger of consolidation of Licensee: (iii) Any corporation, partnership, or other entity, or person which acquires all or substantially all of the assets of Licensee, provided that such assignee assumes in full the obligations of Licensee under the Lease; or (iv) SprintCom, Inc., its successors, affiliates, or related parties. In the event that Licensee requests Licensor's consent to any assignment of this Agreement, Licensee shall be required to pay Licensor an administrative fee of $NA. In the event that Licensee requests Licensor's consent to any assignment or sublease of 10 any individual Schedule, Licensee shall be required to pay Licensor an Administrative Fee for each License as specified in the affected Schedule 2. 12.5 Brokerage Fees. Each of Licensor and Licensee represent and warrant -------------- to the other that no broker war, involved for such representing person in connection with this transaction and each of Licensor and Licensee agrees to indemnify and hold Licensor harmless from and against the claims of any broker acting on behalf of the indemnifying party in connection with this transaction. 12.6 Quiet Enjoyment. The Licensor covenants and agrees that, upon --------------- Licensee's paying the License Fee and observing and performing all of the terms, covenants and conditions on Licensee's part to be observed and performed under this Agreement (including any License), Licensee shall peacefully and quietly enjoy the Tower Facilities covered by each License during the applicable License Term. 12.7 References. Any reference herein to a Section shall be deemed to ---------- refer to the applicable Section of this Agreement unless otherwise expressly stated herein. Any reference to an Appendix shall be deemed to refer to the applicable Appendix attached hereto, all such Appendix being incorporated herein and made a part hereof by this reference, Any reference to a Schedule shall be deemed to refer to any Schedule signed by Licensor and Licensee and, when so signed, shall he incorporated herein and made a part hereof by this reference. 12.8 No Third Party Beneficiaries. This Agreement is solely for the ---------------------------- benefit of the parties hereto, their successors and assigns permitted under this Agreement and the indemnified parties under Sections 9.1 and 9.2, and no provisions of this Agreement shall be deemed to confer upon any other Person any remedy, claim, liability, reimbursement, cause of action or other right. 12.9 Recordation of Memorandum. At Licensee's request and expense ------------------------- (including all reasonable expenses incurred by Licensor hereunder), Licensor agrees to execute a memorandum of agreement for a particular License in a form acceptable to Licensor, Licensee agrees to provide Licensor with a certified copy of any such memorandum with five (5) Business Days following any recordation of such memorandum. 12.10 Limited Relationship. Nothing contained in this Agreement shall be -------------------- deemed or construed by the parties hereto or by any third Person to create the relationship of principal and agent, partnership, joint venture or any association between Licensor and Licensee other than contracting parties. 12.11 Applicable Standard. Any approval, consent, decision or election to ------------------- be made or given by a party hereunder may be made or given In such party's sole judgment and discretion, unless a different standard (such as reasonableness or good faith) is provided for explicitly. 12.12 Multiple Counterparts. This Agreement may be executed in one or --------------------- more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 12.13 Interest. Any payment not made on the date required by this -------- Agreement shall accrue interest at the Past Due Rate from the due dare of such payment until the date such payment is paid. 12.14 Interpretation. Each of the parties has agreed to the use of the -------------- particular language of the provisions of this Agreement, and any questions of doubtful interpretation shall not be resolved by any rule or interpretation against the draftsman, but rather in accordance with the fair meaning thereof, having due regard to the benefits and rights intended to be conferred upon the parties hereto and the limitations and restrictions upon such rights and benefits intended to be provided. 12.15 Dispute Resolution. ------------------ (a) The parties shall first attempt to resolve any claim, controversy or dispute, whether sounding in contract, statute, tort, fraud, misrepresentation or other legal theory, arising between the parties to this Agreement or between one of the parties to this Agreement and the employees, agents, officers, directors or affiliated business of the other party, through amicable settlement discussions. In the event the parties are unable to settle such 11 dispute within thirty (30) days after initiation of settlement discussions, either party may refer the matter for final resolution by arbitration as prescribed in this Section 12.15. (b) All controversies relating to this Agreement and any License shall be settled by arbitration, unless otherwise expressly provided to the contrary elsewhere in this Agreement. The arbitration proceedings shall be held in Suffolk County, Massachusetts or, if arbitration is unavailable there, in the closest county in which arbitration is available, decided by one arbitrator, and governed by the Commercial Arbitration Rules of the American Arbitration Association, as they may exist at the time of the arbitration (excluding payment of all fees and expenses of the parties relating to the arbitration, including without limitation attorneys' fees, and the costs and expenses of the arbitration proceeding, which fees and expenses shall be borne by the losing party in the arbitration unless otherwise required by the applicable state law), and otherwise in accordance with the governing law applicable pursuant to Section 12.2. A judgment upon the award rendered by the arbitration may be entered in any court of competent jurisdiction. All notices of judicial services in reference to arbitration or enforcement shall be deemed given if transmitted as required by the aforesaid rules, unless otherwise required by the governing law applicable pursuant to Section 12.2. 12.16 Defaults. -------- (a) Licensee and Licensor shall have fifteen (15) days after receipt of written notice to cure any monetary Licensor Default or Licensee Default, respectively, and thirty (30) days after receipt of written notice to cure any non-monetary Licensor Default or Licensee Default, respectively; provided however, that if any Licensor Default or Licensee Default is not capable of being cured within the requisite period of time, then so long as the party charged with the default has diligently pursued such cure of the default within the prescribed period, the party shall be given the necessary time to cure the default. If subsequent to the foregoing requisite periods of time, there continues to be an event of Licensor Default or Licensee Default, the non- defaulting party may upon thirty (30) days written notice, terminate this Agreement with respect to the applicable Schedule and institute any other proceedings at law or in equity to recover damages from the other party. (b) Upon the occurrence of any Licensee Default which is not cured in accordance with Section 12.16(a), Licensor may enter upon the affected Licensed Space(s) without being liable for prosecution or any claims of Damages of such entry, and do whatever Licensee is obligated to do under the terms of this Agreement or any individual License to correct the default. Licensee agrees to reimburse Licensor on demand for any expenses that Licensor may incur in effecting compliance with Licensee's obligations under this Agreement or any License in this manner, and Licensee further agrees that Licensor shall not be liable for any Damages resulting from such action. No action by Licensor pursuant to this Section 12,16(b) shall be construed as an election on Licensor's part to terminate this Agreement or any individual License, unless a written notice of such intention is given to Licensee. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the 19th of February, 1999 (the "Effective Date"). LICENSOR: AMERICAN TOWER, L.P., a Delaware limited partnership By: ATC GP Inc. its sole general partner By: (SEAL) ----------------------------------------- Name: Jeffrey A. Ebihara Title: Vice President Date: February 8, 1999 12 LICENSEE: AGW LEASING COMPANY, INC., a Delaware corporation By: (SEAL) --------------------- Name: Shelley Spencer Title: Secretary Date: February 19, 1999 13 APPENDIX I DEFINED TERMS Administrative Fee - as defined in Schedule 2. Affiliate(s) means, with respect to any Person, (i) any other Person directly or indirectly controlled by, controlling or under common control with such first Person and (ii) any director or officer of such first Person or of any Person referred to in clause (1) above. For the purposes of this definition control of any Person means ownership, directly or indirectly, of 50% or more of the voting stock of such Person, if a corporation, and ownership of 50% or more of the equity or beneficial interest in any other Person. The general partner of any Person which is a partnership will be deemed to control such Person. Agreement - as defined in the introductory paragraph, Authorized Personnel -as defined in Section 7. Business Day means a day other than a Saturday, Sunday or legal holiday for commercial banks under the laws of the United States or the Commonwealth of Massachusetts. Claims means demands, claims, suits, actions, proceedings or investigations brought against a Person by an unrelated or unaffiliated Person. Communication Tower(s) - as defined in Section 2. Damages means debts, liabilities, obligations, losses, damages, cost and expenses, whether actual, consequential or punitive, interest (including, without limitation, prejudgment interest), penalties, reasonable legal fees, disbursements and costs of investigations, deficiencies, levies, duties and imposts. Effective Date - as defined in Section 4.1. FCC - as defined in Section 8.3, First Extension Period - as defined in Schedule 2. Indemnified Party - shall mean any Person entitled to indemnification under Section 9.1 or Section 9.2 hereof. Initial License Fee - as defined in Schedule 2. Legal Requirements - shall mean any law, statute, code, ordinance, order, rule, regulation, judgment, decree, injunction, franchise, permit, certificate, license, authorization, or other directional requirement (including, without limitation, any of the foregoing that relates to environmental standards or controls) of any governmental authority. License - shall mean, with respect to any Licensed Spare, the terms and conditions between Licensor and Licensee governing the license of such space as set forth in this Agreement and the Schedule or Schedules relating to the licensing of such space. License Commencement Date - as defined in Schedule 2. License Term - as defined in Section 4.2. Licensed Space - as defined in Section 3. 1. Licensee - as defined in the introductory paragraph. Licensee Default - means the occurrence! of either or both of the following events: (a) failure by Licensee at any time to pay, when due, any sums payable by Licensee hereunder within ten (10) days after notice of such failure is given to Licensee by Licensor and (b) failure by Licensee to observe or perform any other covenant, agreement, condition or provision of this Agreement or any License, if such failure shall continue for more than thirty (30) days after notice of such failure is given to Licensee by Licensor, provided that there shall not be a Licensee Default under this clause (b) with respect to matters that cannot be reasonably cured within such 30 day period so long as within such 30 day period Licensee has commenced such cure and diligently proceeds in a reasonable manner thereafter to complete the same. 14 License Fee -as defined in Section 6.1. Licensor - as defined in the introductory paragraph. Licensor Default - means the occurrence of either or both of the following events: (a) failure by Licensor at any time to pay, when due, any sums payable by Licensor hereunder within ten (10) days after notice of such failure is given to Licensor by Licensee and (b) failure by Licensor to observe or perform any other covenant, agreement, condition or provision of this Agreement or any License, if such failure shall continue for more than thirty (30) days after notice of such failure is given to Licensor by Licensee, provided that there shall not be a Licensor Default under this clause (b) with respect to matters that cannot be reasonably cured within such 30 day period so long as within such 30 day period Licensor has commenced such cure and diligently proceeds in a reasonable manner thereafter to complete the same. Notice Address - as defined in the Schedules. Past Due Rate - as defined in Section 6.4. Person means any natural person, firm, partnership, association, corporation, limited liability company, company, trust, entity, public body or government. Primary Term - as defined in Schedule 2. Remittance Address - as defined in Schedule 2, Reservation Fee - as defined in Schedule 1. Reservation Period - as defined in Schedule 1. Reserved Space - as defined in Section 11. RFI - means radio frequency interference Schedule(s) - means Schedule 1 (with respect to Reserved Space) or Schedule 2 (with respect to Licensed Space), collectively or individually, which is executed by both Licensor and Licensee and accepted by both parties during the Term in accordance with Section 3. Second Extension Period - as defined in Schedule 2. Term - as defined in section 4.1. Third Extension Period - as defined in Schedule 2. Tower Facilities - means, with respect to any License, the tower site, tower, equipment structures and other facilities covered by such License. Work -as defined in Section 8.2. 15 APPENDIX 11 INSURANCE A. LICENSOR shall maintain in full force during the term of this Agreement the following insurance: 1. Worker's Compensation and Employers' Liability insurance as prescribed by applicable law, including insurance covering liability under the Longshoremen's and Harbor Workers' Act and the Jones Act, if applicable; 2. Comprehensive General Liability Insurance (Bodily Injury and Property Damage), the limits of liability of which shall not tie less than $1,000,000 per occurrence. 3. An umbrella policy of riot less than Five Million Dollars ($5,000,000), The above insurance shall provide that LICENSEE will receive not less than 30 days written notice prior to any cancellation of, or material change in coverage. The insurance specified in this Item A shall contain a waiver of subrogation against LICENSEE and shall name LICENSEE as additional insured provided that the insurance is primary coverage with respect to off insured, and contains a standard cross-liability endorsement. B. LICENSEE shall maintain in full force during the term of this Agreement, and shall cause all contractors or subcontractors performing Work on any Licensed Site prior to the commencement of any such Work on behalf of Licensee, the following insurance: 1. Worker's Compensation and Employers' Liability Insurance as prescribed by applicable law, including insurance covering liability under the Longshoremen's and Harbor Workers' Act and the Jones Act, if applicable; 2. Comprehensive General Liability insurance (Bodily Injury and Property Damage), the limits of liability of which shall not be less than $1,000,000 per occurrence. 3. An umbrella policy of not less than Five Million Dollars ($5,000,000). The above insurance shall provide that LICENSOR will receive not less than 30 days written notice prior to any cancellation of, or material change in coverage, The insurance specified in this Item B shall contain a waiver of subrogation against LICENSOR and shall name LICENSOR as additional insured provided that the insurance is primary coverage with respect to all insured, and contains a standard cross-liability endorsement. C. Notwithstanding the foregoing insurance requirements, (a) the insolvency. bankruptcy, or failure of any insurance company carrying insurance for LICENSEE, or failure of any such insurance company to pay claims accruing, shall not be held to waive any of the provisions of this Agreement or relieve LICENSEE from any obligations under this Agreement, and (b) the Licensor reserves the right, from time to time, to increase the required liability limits described above in A Items A and/or B in accordance with then-current customary insurance requirements in the tower industry nationally. 16 SCHEDULE 1 SPACE RESERVATION REQUEST/CO-LOCATION APPLICATION This Schedule 1 is executed and delivered pursuant to that certain Master Tower Space Reservation and License Agreement between Licensor and Licensee dated , 1999 (the "Master Agreement"). All terms and conditions of the Master Agreement are incorporated herein by reference and made a part hereof for all purposes. Licensee hereby requests that the following space be reserved on the terms indicated below: TO BE COMPLETED BY LICENSEE: - --------------------------- Licensee Information: - -------------------- Licensee's Name: ___________________________________ Notice Address: ___________________________________ Contact Name: ___________________________________ Contact Number: ___________________________________ Tower Information: Tower Name: ____________ Coordinates:________ Tower Number: ____________ Reservation Information: - ----------------------- Reservation Period: _____ months commencing ____, 199__ Licensee Equipment Information: - ------------------------------ Call Sign: ____________ RX Frequency:_______ Antenna Height: ____________ Antenna Type:_______ TX Frequency: ____________ Trans. Line:________ Antenna Equipment to be installed on Tower:
------------------------------------------------------------------------------------------ #1 #2 #3 ------------------------------------------------------------------------------------------ Quantity: ------------------------------------------------------------------------------------------ Manufacturer: ------------------------------------------------------------------------------------------ Type & Model #: ------------------------------------------------------------------------------------------ Antenna Weigh/Length: ------------------------------------------------------------------------------------------ Line Type: ------------------------------------------------------------------------------------------ Line Quality & Diameter: ------------------------------------------------------------------------------------------ Antenna Mount Height: ------------------------------------------------------------------------------------------ Tower Leg: ------------------------------------------------------------------------------------------ Direction of Radiation: ------------------------------------------------------------------------------------------ Requested Mounting Position: ------------------------------------------------------------------------------------------
Transmission and Other Equipment to be located in (check one): ____ Licensee's Building, or ____ Licensor's Building
--------------------------------------------------------------------------------------------- #1 #2 #3 --------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------- Number of cabinets: L --------------------------------------------------------------------------------------------- # of Transmitters per Cabinet: --------------------------------------------------------------------------------------------- Manufacturer: --------------------------------------------------------------------------------------------- Type & Model #: --------------------------------------------------------------------------------------------- Type of Service: --------------------------------------------------------------------------------------------- Rack Dimensions: --------------------------------------------------------------------------------------------- Rated Power: ---------------------------------------------------------------------------------------------
17 --------------------------------------------------------------------------------------------- Call Sign: --------------------------------------------------------------------------------------------- TX Frequency: --------------------------------------------------------------------------------------------- RX Frequency: --------------------------------------------------------------------------------------------- Elec. Service Amps/volts* --------------------------------------------------------------------------------------------- Number of Outlets: --------------------------------------------------------------------------------------------- Power Outlets: --------------------------------------------------------------------------------------------- ERP: --------------------------------------------------------------------------------------------- Dimensions (W" x D" x H") --------------------------------------------------------------------------------------------- Combiner/# of Parts: --------------------------------------------------------------------------------------------- Cabinet also contains: --------------------------------------------------------------------------------------------- Ground Space Dimension (If app) ---------------------------------------------------------------------------------------------
TO BE COMPLETED BY LICENSOR - --------------------------- In the event that Licensee requests ground space for the construction or installation of a building or shelter to be owned by Licensee, the space to be reserved for the location of such building is described on Exhibit A attached hereto. Reservation Fee: $________________ Administrative Fees: Access pursuant to Section 7 $_______ Assignment pursuant to Section 12.4 $_______ Late Payments pursuant to Sections 6.3 and 8.5(b) $_______ RF Compliance Information (if then available) pursuant to Section 83 $_______ Notice Address: 1760 The Exchange, N.W. Suite 200 Atlanta, Georgia 30339 Contact Name: Sue B. Chapman Contact Number: (770) 953-9400 [OPTIONAL] In the event that the Reserved Space described herein is converted to Licensed Space, the following terms shall apply to such License: License Fee: $__________ , payable _________________________ Annual Escalation of License Fee: Amount equal to the greater of (a) four percent (4%), or (b) the Consumer Price Index, but in no event to exceed five percent (5%) per annum. Primary Term: Five (5) years First Extension Period: Five (5) years Second Extension Period: Five (5) years Third Extension Period: Five (5) years 18 Agreed to and Accepted by Agreed to and Accepted by: LICENSEE: LICENSOR: AGW Leasing Company, Inc. American Tower, L.P. By: ATC GP Inc., its sole general partner By: (SEAL) By: (SEAL) ---------------------------- ---------------------------- Name:__________________________ Name:__________________________ Title:_________________________ Title:_________________________ Date:__________________________ Date:__________________________ This Schedule does not constitute Reserved Space until completed and executed by both parties in accordance with Section 3.1(a) 19 SCHEDULE 2 TOWER SPACE LICENSE REQUEST/REQUEST TO CONVERT This Schedule 2 is executed and delivered pursuant to that certain Master Tower Spare Reservation and License Agreement between Licensor and Licensee dated , 1999 (the "Master Agreement"). All terms and conditions of the Master Agreement are incorporated herein by reference and made a part hereof for all purposes. Licensee hereby requests that the following space be licensed, or converted from previously Reserved Space, on the terms indicated below: Licensee Information: - -------------------- Licensee's Name: ______________________________ Notice Address: ______________________________ ______________________________ ______________________________ Contact Name: ______________________________ Contact Number: ______________________________ Licensor Information: - -------------------- Notice Address: American Tower, LP 1760 The Exchange, N.W. Suite 200 Atlanta, Georgia 30339 Contact Name: Sue B. Chapman Contact Number: 770-953-9400 Remittance Address: American Tower, L.P. 1760 the Exchange, N.W. Suite 200 Atlanta, Georgia 30339 Attn: Accounting Department Tower Information: - ----------------- Tower Name: ___________Coordinates:_______ Tower Number: ___________ Licensee Fees and Term: - ----------------------- License Commencement Date:____________________________________ License Fee: __________________, payable _________ Annual Escalation of License Fee: Amount equal to the greater of (a) four percent (4%), or (b) the Consumer Price Index, but in no event to exceed five percent (5%) per annum. Primary Term: Five (5) years First Extension Period: Five (5) years Second Extension Period: Five (5) years Third Extension Period: Five (5) years 20 Administrative Fees: - -------------------- Access pursuant to Section 7 ____________ Assignment pursuant to Section 12.4 ____________ Late Payments pursuant to Sections 6.3 and 8.5(b) ____________ RF Compliance Information (if then available) pursuant to Section 8.3 $___________ Licensee Equipment Information: - ------------------------------ Call Sign: __________ RX Frequency:________ Antenna Height: __________ Antenna Type:________ TX Frequency: __________ Trans. Line: ________ In the event that Licensee desires ground space for the construction or installation of a building or shelter to be owned by Licensee, the space to be licensed for the location of such building is described on Exhibit A attached hereto. Antenna Equipment to be installed on Tower:
------------------------------------------------------------------------------------------ #1 #2 #3 ------------------------------------------------------------------------------------------ Quantity: ------------------------------------------------------------------------------------------ Manufacturer: ------------------------------------------------------------------------------------------ Type & Model #: ------------------------------------------------------------------------------------------ Antenna Weigh/Length: ------------------------------------------------------------------------------------------ Line Type: ------------------------------------------------------------------------------------------ Line Quality & Diameter: ------------------------------------------------------------------------------------------ Antenna Mount Height: ------------------------------------------------------------------------------------------ Tower Leg: ------------------------------------------------------------------------------------------ Direction of Radiation: ------------------------------------------------------------------------------------------ Requested Mounting Position: ------------------------------------------------------------------------------------------
Transmission and Other Equipment to be located in (check one): ____ Licensee's Building, or ____ Licensor's Building
------------------------------------------------------------------------------------------ #1 #2 #3 ------------------------------------------------------------------------------------------ --------------------------------------------------------------------------------------------- Number of cabinets: --------------------------------------------------------------------------------------------- # of Transmitters per Cabinet: --------------------------------------------------------------------------------------------- Manufacturer: --------------------------------------------------------------------------------------------- Type & Model #: --------------------------------------------------------------------------------------------- Type of Service: --------------------------------------------------------------------------------------------- Rack Dimensions: --------------------------------------------------------------------------------------------- Rated Power: --------------------------------------------------------------------------------------------- Call Sign: --------------------------------------------------------------------------------------------- TX Frequency: --------------------------------------------------------------------------------------------- RX Frequency: --------------------------------------------------------------------------------------------- Elec. Service Amps/volts* --------------------------------------------------------------------------------------------- Number of Outlets: --------------------------------------------------------------------------------------------- Power Outlets: --------------------------------------------------------------------------------------------- ERP: --------------------------------------------------------------------------------------------- Dimensions (W" x D" x H") --------------------------------------------------------------------------------------------- Combiner/# of Parts: --------------------------------------------------------------------------------------------- Cabinet also contains: --------------------------------------------------------------------------------------------- Ground Space Dimension (If app) ---------------------------------------------------------------------------------------------
21 Other Provisions: - ---------------- All licenses for tower sites located in the state of Florida shall include the following provisions in this section: "Radon is a naturally occurring radioactive gas that, when it has accumulated in a building in sufficient quantities may present health risks to persons who are exposed to it over time. Levels of radon that exceed federal and state guidelines have been found in buildings in Florida. Additional information regarding radon and radon testing may be obtained from your county public health unit." Additional provisions may be inserted here on a site-specific basis. Agreed to and Accepted by Agreed to and Accepted by: LICENSEE: LICENSOR: AGW Leasing Company, Inc. American Tower, L.P. By: ATC GP Inc., its sole general partner By: (SEAL) By: (SEAL) ---------------------------- ------------------------------ Name:__________________________ Name:__________________________ Title:_________________________ Title:_________________________ Date:__________________________ Date:__________________________ This Schedule does not constitute Licensed Space until completed and executed by both parties in accordance with Section 3.1 22 FIRST AMENDMENT TO SCHEDULE 2 ----------------------------- TOWER SPACE LICENSE ------------------- THIS FIRST AMENDMENT TO SCHEDULE 2, TOWER SPACE LICENSE (the "Amendment") is made and entered into as of the 20th day of July, 2000, by and between AMERICAN TOWER, LP. ("Licensor") and AGW LEASING COMPANY, INC., ("Licensee"). WITNESSETH: ----------- WHEREAS, Licensor and Licensee entered into that certain Master Tower Space Reservation and License Agreement dated February 19, 1999, ("Master Lease") for the reservation and/or licensing of space by Licensee on tower owned or operated by Licensor ("Master Lease"); and WHEREAS, Licensor and Licensee entered into that certain Tower Space License, Schedule 2 to the Master Lease, dated June 26, 2000, for the tower site located at 389 Green Swamp Road, Bolton, North Carolina ("License Agreement"); and WHEREAS, Licensor and Licensee wish to modify the License Agreement as set forth hereinafter. NOW, THEREFORE, for and in consideration of the mutual covenants and agreements herein contained and the sum of Ten Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. The "Antenna Mount Height" as described under section entitled Antenna Equipment" on page 2 of the License Agreement is hereby amended to read 265 feet. 2. All terms used herein shall have the same meaning as when used in the License Agreement unless specifically revised, altered or amended herein. 3. Except as specifically revised or amended hereby, all of the terms, conditions, covenants and agreements in the License Agreement and the Master Agreement shall remain in full force and effect, shall be binding upon Licensor and Licensee, their heirs, successors and assigns and are hereby ratified and affirmed. SIGNATURES BEGIN ON FOLLOWING PAGE 23 IN WITNESS WHEREOF, Licensor and Licensee have set their hand and affixed their respective seals as of the day and year first above written. LICENSOR: Signed, sealed and delivered in AMERICAN TOWER, LP., in the presence of: by: ATC GP, Inc., its sole general partner _____________________________ Unofficial Witness By:______________________________ _____________________________ Name: Richard C. Beesley Notary Public Title: Vice President/Area Gen. Manager Date: 1st August 2000 [NOTARY SEAL] [CORPORATE SEAL] LICENSEE: Signed, sealed and delivered in AGW LEASING COMPANY, INC. in the presence of: a Delaware corporation _____________________________ Unofficial Witness By:_____________________________ _____________________________ Name: Shelley Spencer Notary Public Title: V.P. Law & Secretary Date: 7/22/00 [NOTARY SEAL] [CORPORATE SEAL] 24 EX-10.5.3 6 0006.txt MASTER ANTENNA SITE LEASE NO. J50 EXHIBIT 10.5.3 MASTER ANTENNA SITE LEASE NO. J50 - -------------------------------------------------------------------------------- LESSOR: PINNACLE TOWERS INC. LESSEE: AGW LEASING COMPANY, INC. 1549 RINGLING BOULEVARD HARRIS TOWER THIRD FLOOR 233 PEACHTREE ST. NE SARASOTA, Fl. 34236 SUITE 1700 ATLANTA, GA 30303 - -------------------------------------------------------------------------------- Lessor operates the Antenna Site(s) described in the Antenna Site Lease Schedule(s) executed and delivered by Lessor and Lessee pursuant to this Lease from time to time (each a "Schedule" and, collectively, the "Schedules") each of which, when and as executed, are and shall be incorporated herein by this reference. Lessor desires to least to Lessee and Lessee desires to lease from Lessor certain space at the site(s) more particularly described in the Schedule(s) for installation and operation of Lessee's equipment on the terms set forth in the Schedule(s) and herein. If the terms of a Schedule conflict with this Lease, the Schedule shall control. 1. Leased Premises. Lessor hereby leases to Lessee certain space at the --------------- Site(s) as specified and described in the Schedule(s) attached hereto and incorporated herein by this reference (individually and collectively the "Leased Premises'). If a Schedule provides that Lessee's equipment will be connected to a multiplexer, Lessee shall be responsible for all costs of multiplexer modules and other equipment required for the connection. 2. Term. ---- (a) Commencement of each site specific schedule(s) shall begin upon completion of installation at site. (b) The initial term and, if applicable, renewal terms of this Lease for any antenna system shall be as specified on a Schedule. If a Schedule provides for renewal terms, then, provided Lessee is not in default, the lease term for the antenna system identified in the Schedule shall automatically renew at the commencement of each such renewal term unless, upon written notice to Lessor no later than ninety (90) days before the expiration of the term then current Lessee terminates the Schedule. (c) If Lessee holds over the lease premises after the final term of a Schedule, the Schedule shall revert to a month-to-month term, and rent shall be 150% of the rent for the last mouth of the preceding term. Lessor shall have the right during such month-to-month term to terminate the Schedule without cause upon thirty (30) days notice to Lessee. 3. Rent. ---- (a) Lessee shall pay rent at the rate(s) specified in a Schedule. Rent for any fractional month at the beginning or end of a term shall be prorated. (b) Lessee shall pay rent by electronic transfer or direct to Lessor's lockbox account at Pinnacle Towers Inc., P.O. Box 550094, Tampa, FL 33655-0094 no later than the first day of each calendar month with respect to which it is payable. If payment is not received by the 10th of any month, Lessor has the option to charge a late fee equal to the greater of $25 or 1 1/2% per month of the amount due. (c) Any security deposit required by a Schedule will be held in a non-interest bearing account and shall be returned to Lessee thirty (30) days following the conclusion of the lease term of the Schedule, provided Lessee is not in default. (d) Lessee shall pay all sales or use taxes applicable to rent payable under this Lease or as a direct result of Lessee's equipment being located on the Leased Premises, 4. Installation. ------------ (a) Lessee shall install and operate only the equipment identified in the Schedule(s), and the cost of Lessee's installation and licensing fees shall be borne solely by Lessee. Lessee shall comply with all Site rules and standards contained in Exhibit A to this Lease, each of which are incorporated herein by this reference. 1 (b) During installation, Lessee shall not cause interference of any kind to the activities of Lessor or lessees that have executed leases prior to Lessee on the Site. If such interference is caused by Lessee and cannot be reduced to levels reasonably acceptable to Lessor, Lessee shall immediately halt all installation work, and Lessor may elect to terminate this Lease by giving Lessee ten (10) days written notice. 5. Uses of Leased Premises. ----------------------- (a) Lessee shall use the Leased Premises and conduct its communications operations in compliance with the terms of the FCC licenses that it's equipment operates under or applicable regulations imposed by any other governmental agency. Lessee shall, if requested, provide Lessor with copies of such permits. If, through no fault of Lessee, a license is denied, and Lessee promptly notifies and provides evidence to Lessor of the denial, this Lease may be terminated by Lessee thirty (30) days following such written notification. (b) Lessee, Lessee's contractors, subcontractors, agents, affiliates, employees or SprintCom, Inc., it's successors, affiliates and related parties ("SprintCom") - as entities that have access, shall have a non-exclusive right to access the premises twenty-four (24) hours a day, 365 days a year for its employees, agents, or representatives as designated. In accordance with procedures in Exhibit A, Lessee will be issued a key, key card, and/ or access code to unlock the gate and transmitter room for maintenance purposes. Ibis key may not be duplicated, loaned, or transferred to any other entity. If this key or keycard is lost or the integrity of security is breached by Lessee, Lessee will bear the expense for Lessor to re-tool the locks, reprogram the security system, and provide new keys and/or keycards for all authorized persons. Lessee shall provide Lessor the name of Lessee's custodian of the key or keycard; should the custodian change, Lessee shall notify Lessor, in writing, of the new custodian's identity within twenty-four (24) hours. (c) Before performing any installation or maintenance work at a Site, Lessee shall notify Lessor and obtain Lessor's approval of the work to be performed and the persons to perform the work, which approval shall not be unreasonably withheld., conditioned or delayed. All contractors and subcontractors of Lessee who perform any services on the Leased Premises must be approved by Lessor in advance and must hold all licenses necessary for the work being performed. (d) Lessee shall not bring onto the Site(s) any hazardous substances or hazardous wastes, in violation of law. (e) Lessee shall not cause interference of any kind to the operations of the Lessor or other lessees at the Site(s), that have executed leases prior to Lessee, in excess of levels permitted by the FCC, as well -as interference to consumer electronic devices and blanketing interference as defined by section 73-318 of the FCC rules. If Lessee is notified that its operations are causing objectionable interference, Lessee shall immediately undertake all necessary steps to determine die cause of and eliminate such interference. If the interference continues for a period in excess of forty-eight (48) hours following notification, Lessor shall have the right to cause Lessee to cease operating e offending equipment or to reduce the power sufficiently to remove the interference until the condition can be remedied. Lessee shall continue to be obligated to pay rent and Lessor shall not be held liable for any damages or loss of revenues. If Lessee is required to discontinue its operation under this section for a period of sixty (60) days, and provided Lessee has diligently pursued all reasonable cures and is unable to eliminate the interference, then Lessee shall have the right to terminate this Lease. Provided Lessee's equipment is operating properly, if the operations of any equipment installed after Lessee's equipment cause objectionable interference to Lessee's operation, then Lessor shall require the interfering lessee to remedy the interference and bear the costs thereof. (f) Lessee understands that it is the intention of Lessor to accommodate as many users as possible at its Site(s). Lessee shall cooperate with Lessor in rescheduling its transmitting activities, reducing power, or interrupting its activities for limited periods of time in order to permit the safe installation of new equipment or new facilities at the Site(s) or to permit repairs to facilities of any user of the Site(s) or to the Site(s) or related facilities. (g) Lessor makes no guaranty or warranty, including any implied warranty of merchantability or fitness for a particular use. Lessee has examined the Leased Premises and determined that they are suitable for its purposes. 6. Utilities. Lessee shall pay all installation costs for electrical --------- power feeds, phone lines, and other utilities to its equipment. Lessee shall pay for all Lessee's electrical power usage either directly to the utility company or as a reimbursement to Lessor. 2 7. Insurance. Insurance requirements for Lessee and Lessee's contractors --------- are contained in Exhibit B attached hereto and incorporated herein by this reference. 8. Maintenance of Site. ------------------- (a) Lessor shall maintain the Site(s) in good repair, ordinary wear and tear excepted, and in compliance with applicable sections of Part 17 of the FCC's rules pertaining to lighting, marking, inspection, and maintenance. In cases where such FCC regulations require the painting of Lessee's feedlines, Lessee hereby consents to such painting. (b) Lessee shall maintain its equipment in accordance with standards of good engineering practice to assure that it conforms with the site standards identified in Exhibit A which standards are attached hereto and incorporated herein by this reference, and shall at the conclusion of a Schedule surrender posses ion of the Leased Premises to Lessor in the same condition they were at the commencement of the Schedule, ordinary wear and tear excepted. (c) Lessor accepts sole responsibility for the Site's compliance with all tower or building marking and lighting regulations promulgated by the Federal Aviation Administration ("FAA") or the Federal Communications Commission ("FCC"), as applicable. Lessor represents and warrants that the Site complies with all applicable tower or building marking or lighting regulations promulgated by the FAA or the FCC. Lessor further represents and warrants that the Site's lighting, where required by current FCC and/or FAA regulations is/or will be monitored on a 24-hour per day 7 days per week basis. Lessor agrees to immediately notify SprintCom's Network Operations Control Center ("NOCC") at 913-859-1000 of lighting outages or impairments at the Site after reporting the situation to the FAA within the time required by the FAA. Lessor agrees to indemnify and to hold Lessee harmless from any fines or other liabilities caused by Lessor's failure to comply with applicable FAA and /or FCC requirements. (d) Lessor agrees that Lessee may install, at Lessee's sole cost and expense and as required for Lessee's equipment, provided space is available at specific site, a (I.) backup generator to provide AC generator to provide backup AC power in the event of an AC power outage at the Site, and/or (II.) tower lighting alarm monitoring system (including, but not limited to, commercial power and a dedicated surveillance telephone line) to monitor the status of the tower/building lighting. Lessee's installation of such backup generator and/or tower/building lighting will not relieve Lessor of its primary responsibility for compliance with all applicable tower or building marking and lighting requirements nor Lessor's obligation to indemnify and hold Lessee harmless from any fines or other liabilities caused by Lessor's failure to comply with such requirements. 9. Alteration by Lessee. -------------------- (a) Lessee may not make improvements or alterations to the Site(s), Tower(s), Building(s), or any portion of the Leased Premises without the expressed written permission of Lessor, in Lessor's sole discretion. Any such improvements that are approved by Lessor and thereafter made by Lessee shall become the property of Lessor upon termination or expiration of this Lease or Schedule. (b) Lessee may make changes and alterations in its equipment provided that (i) such changes or alterations conform with standards of good engineering practice and the provisions of Section 5, (ii) plans and specifications are first submitted to and approved in writing by Lessor, which approval shall not be unreasonably withheld, and (iii) any proposed changes or alterations do not increase the "wind loading" of the tower. At Lessor's request, Lessee will provide an independent professional analysis of "wind loading" and stress to determine any changes that equipment replacements or alterations would cause. 10. Site Damage; Damage to Lessee's Equipment; Service Interruption. ---------------------------------------------------------------- (a) If a Site is fully or partially destroyed or damaged, Lessor or Lessee, at its option, may elect to terminate a Schedule upon ten (10) days written notice. In this event Lessee shall owe rent only up to the date on which Lessee was unable to conduct its normal operations solely due to the damage or destruction of the Site. (b) Lessor, at its option, may elect to repair or rebuild the Site, in an expedient manner, in which case, the Schedule shall remain in force. If reconstruction or repair cannot reasonably be undertaken without dismantling Lessee's antenna, then Lessor may remove Lessee's antenna and interrupt Lessee's operations, thereafter replacing the antenna as soon as reasonably possible. Lessee shall be entitled to a pro rata abatement of rent for the time it is unable to conduct its normal operations as a result of such total or partial destruction or damage or need of repair. 3 (c) Under no circumstances whatsoever shall Lessor be responsible for damage to or loss of Lessee's equipment, or for financial loss due to business interruption, unless by Lessor's willful misconduct or neglect. (d) Lessor shall incur no liability to Lessee for failure to furnish space and/or electrical power if prevented by war, fires, accidents, acts of God, or other causes beyond its reasonable control. During such period, Lessee shall be entitled only to a pro rata abatement of rent for the time it is unable to conduct substantially normal operations as a result of such circumstances, except that Lessee shall not be entitled to any abatement for outages of less than twenty-four (24) hours consecutive duration. 11. Eminent Domain. If the land or Leased Premises upon which a tower, -------------- foundation, or building is located are acquired or condemned under the power of eminent domain, whether by public authority, public utility, or otherwise, then the applicable Schedule shall terminate as of the date of the acquisition. Lessor shall be entitled to the entire amount of any condemnation award, and Lessee shall be entitled to make claim for and retain a condemnation award based on and attributable to the expense and damage of removing its fixtures. 12. Indemnification. Lessee shall indemnify, hold harmless, and defend --------------- Lessor for and against any and all liabilities, claims, demands, suits, damages, actions, recoveries, judgments, and expenses (including court costs, reasonable attorneys' fees, and costs of investigation) resulting from injuries to or death of any person or any damage to property or loss of revenues due to discontinuance of operations at the Leased Premises resulting from or that is claimed to result from or arise out of any act or omission of Lessee or its contractors, subcontractors, agents, or representatives in or around the Leased Premises or any breach of this Lease by Lessee, except to the extent such liabilities are directly caused by the willful misconduct or gross negligence of Lessor. Lessor shall indemnify, hold harmless, and defend Lessee for, from, and against any and all liabilities, claims, demands, suits, damages, actions, recoveries, judgments, and expenses (including court costs, reasonable attorneys' fees, and costs of investigation), resulting from injuries to or death of any person or any damage to property at the Leased Premises resulting from, or that is claimed to result from or arise out of any act or omission of Lessor in or around the leased Premises or any breach of this Lease by Lessor, except to the extent such liabilities are related to the willful misconduct or gross negligence of Lessee. 13. Assignment. Lessee shall not assign, mortgage, or encumber this Lease ---------- and shall not sublet or permit the Leased Premise or any part thereof to be used by others without the express written approval of Lessor, which consent shall not be unreasonably withheld or delayed. No sublease or authorized use by others "I relieve Lessee of its obligations under this Lease. Lessor may assign, mortgage, or encumber its rights under this Lease at any time. Notwithstanding the foregoing, Lessee has the right without the necessity of obtaining Lessor's consent, to assign this Master Antenna Site Lease or any Site Schedule to a Lessee Affiliate (as defined herein), provided that the Lessee notifies Lessor in writing of such assignment For purposes hereof, "Lessee Affiliate" shall mean any entity which controls, is controlled by, or is under common control with Lessee or to any entity resulting from the merger or consolidation of Lessee, or to any person or entity which acquires substantially all of the assets of Lessee, provided that such assignee assumes in full all of the obligations of Lessee under this Master Antenna Site Lease and the Site Schedules that may be assigned. Notwithstanding the above, Lessee shall be permitted to assign its rights under the Master Antenna Site Lease or any Site Schedules to SprintCom, upon written notice to Lessor. 14. Default by Lessee. If Lessee fails to make payments within ten (10) ----------------- days of a written notice of payment default, or fails to comply with any other term this Lease and does not cure such other failure within thirty (30) days after Lessor provides Lessee with written notice, Lessor shall have the option to terminate this Lease or any Schedule, in which event Lessee shall surrender possession of the Leased Premises within ten (10) days, or to pursue any other remedy available to Lessor under this Lease or otherwise provided by law or equity. Lessor may also apply any or all of the deposit or prepaid rent to cure a default. Lessee shall be liable for all expenses, including attorneys' fees and costs, incurred by Lessor in connection with any litigation arising out of this Lease, including, without limitation, any action to enforce the terms hereof, or in connection with any action for the recovery of the Leased Premises itself Any repossession by Lessor of the Leased Premises shall not affect the obligation f Lessee for the unexpired term of a Schedule, unless Lessor terminates the Schedule or this Lease. 4 15. Termination. Each Site Schedule may be terminated without further ----------- notice on thirty (30) days prior written notice as follows: (a) by either party upon a default of any covenant or term hereof by the other party, which default is not cured within sixty (60) days of receipt of written notice of default provided that the grace period for any monetary default is ten (10) days from receipt of written notice, and, provided further, that any non-monetary default which cannot be cured within such sixty (60) day period shall not be a default hereunder so long as such defaulting party diligently proceeds to cure such default upon receipt of notice thereof, or (b) by Lessee if it does not obtain or maintain or have the authorization to operate under any license, permit or other approval necessary for the construction and operation of Lessee's Facilities; (c) Licensee or Licensor if Licensee or Licensor is unable to occupy and utilize the premises due to an action of the FCC, including without limitation, a take back of channels or change in frequencies or by Licensee if its Sprint PCS Management Agreement is terminated. 16. Default by Lessor. Upon the occurrence of any act or omission by ----------------- Lessor that would give Lessee the right to damages or the right to terminate a Schedule or this Lease, Lam shall not sue for damages or exercise any right to terminate this Lease or a Schedule until it gives Lessor and any mortgagee of this Lease notice of the act or omission and a reasonable time (which shall not be less than thirty (30) days) to remedy such act or omission. 17. Removal of Lessee's Equipment. At the termination of a Schedule, ----------------------------- provided Lessee is not in default Lessee shall have thirty (30) days to remove its equipment. Lessee shall pay all costs in connection with the removal. 18. Subordination. This Lease is and shall be subject and subordinate to ------------- all mortgages that may now or hereafter affect the Leased Premises and to all renewals, modifications, consolidations, replacements, and extensions thereof; provided, however, as a condition precedent to any such subordination, the party secured by such instrument shall covenant for itself and any purchaser at foreclosure not to disturb Lessee's quiet enjoyment so long as Lessee is not in default hereunder. This subordination shall be self-operative and no further instrument of subordination shall be required by any mortgagee. However, upon written request from Lessor, Lessee shall execute a certificate confirming such subordination. 19. Liens. Lessee shall not suffer or permit any liens to stand against ----- the Leased Premises, Site(s) or any part thereof by reason of any work, labor, service, or materials done for, or supplied for, or supplied to or claimed to have been done for, or supplied to, Lessee or anyone holding Lessee's property or any part thereof through or under Lessee ( "Mechanics' Liens"). If any Mechanics' Lien shall at any time be filed against the Leased Premises or Site(s), Lessee shall cause it to be discharged of record within thirty (30) days after the date of filing by either payment, deposit, or bond. If Lessee fails to discharge any such Mechanics' Lien within such period, then, in addition to any other right or remedy of Lessor, Lessor may, but shall not be obligated to, procure the discharge of the Mechanics' Lien. All amounts incurred by Lessor, including reasonable attorneys' fees, in procuring the discharge of such Mechanics' Lien, together with interest thereon at I!% per annum from the date of incurrence, shall become due and payable immediately by Lessee to Lessor. (b) Lessor waives any lien rights it may have concerning the Lessee's Facilities at each individual Site which are deemed Lessee's personal property and not fixtures, and Lessee has the right to remove the same at any time without Lessor's consent. (c) Lessor acknowledges dud Lessee may enter into a financing arrangement including promissory notes and financial and security agreements for die financing of the Lessee's Facilities (the "Collateral") with a third party financing entity (and may in the future enter into additional financing arrangements with other financing entities). In connection therewith, Lessor (i) consents to the installation or the Collateral; (ii) disclaims any interest in the Collateral, as fixtures or otherwise; and (iii) agrees that the Collateral shall be exempt from execution, foreclosure, sale, levy, attachment or distress for any Rent due or to become due and that such Collateral may be removed at any time without recourse to legal proceedings. 20. Estoppel Certificates. At any time, but not with less than ten (10) --------------------- days prior notice, Lessee shall execute, acknowledge, and deliver to Lessor a statement in writing certifying that this Lease and applicable Schedule(s) are unmodified and in full force and effect (or, if there have been any modifications, that the Lessee is in 5 full force and effect as modified and stating the modifications), and the dates to which rent and other charges, if any, have been paid in advance. 21. Environmental Indemnification. Lessor shall hold Lessee harmless from ----------------------------- and indemnify Lessee against any damage, loss, expense, response costs or liability, including consultant fees and attorney's fees, resulting from the presence of hazardous substances on, under or around Property or resulting from hazardous substances being generated, stored, disposed of or transported to, on under or around the Property by any party other than Lessee or its employees, agents or contractors. Lessee shall hold Lessor harmless from and indemnify Lessor against any damage, loss, expense, response costs or liability, including consultant fees and attorneys' fees, resulting from hazardous substances generated, stored, disposed of or transported to, on or under the Property as a result of Lessee's use of the Property. For purposes of this Master Antenna Site Lease, "hazardous substance" shall mean (1) any substance which contains gasoline, diesel fuel or other petroleum hydrocarbons, (2) any substance which is flammable, radioactive, corrosive or carcinogenic, (3) any substance, the presence of which on the Property causes or threatens to cause a nuisance or health hazard affecting human health, the environment, the Property or property adjacent thereto, or (4) any substance, the presence of which on the Property requires investigation or remediation under any Hazardous Substance Law (as hereinafter defined), as the same may hereafter be amended. "Hazardous Substance Law" means the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. 9601 et seq.; the Resource Conservation and Recovery Act, 42 U.S.C. 6901 et seq.; the Hazardous Materials Transportations Act, 49 U.S.C. 1801 et seq.; the Clean Water Act, 33 U.S.C. 1251 et seq.; the Clean Air Act, 42 U.S.C. 7401 et seq.; the Toxic Substances Control Act, 15 U.S.C. 2601 et seq.; the Emergency Planning and Community Right to Know Act (SARA Title III 42 U.S.C. 11,00 1 et seq.; and any other applicable federal, state, or local law or regulation. 22. Miscellaneous. (a) The remedies provided herein shall be cumulative and shall not preclude the assertion by any party hereto of any other rights or the seeking of any other remedies against the other parties hereto. (b) Should Lessor permit a continuing default by Lessee under this Lease, die obligations of Lessee hereunder shall continue, and such permissive default shall not be construed as a renewal of the term hereof nor as a waiver of any of the rights of Lessor or obligations of Lessee hereunder. (c) In addition to the other remedies in this Lease, and anything contained herein to the contrary notwithstanding, Lessor shall be entitled to specific performance or injunctive relief of any violation or attempted or threatened violation of this Lease by Lessee without the necessity to post a bond. (d) This Lease may be executed in counterparts, and any number of counterparts signed in the aggregate by the parties will constitute a single, original instrument. (e) This Lease, including the exhibits, schedules, lists and other documents referred to herein, contain the entire understanding of the parties with respect to its subject matter. There are no restrictions, agreements, promises, warranties, covenants, or understandings other than expressly set forth herein or therein. This Lease supersedes all prior agreements and understandings between the parties with respect to its subject matter. No modification of this Lease shall be effective unless contained in a writing signed, dated and fully witnessed by the authorized representative of both parties. (f) All notices, requests, claims, demands, and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered personally by FAX, by courier or mailed (certified mail, postage prepaid, return receipt requested) to Lessor at the address shown herein and to Lessee at the address shown on a Schedule or to such other address as any party may have furnished to the other in writing in accordance with this provision. (g) This Lease shall be governed by, construed and enforced in accordance with the laws of the State of Florida without regard to its conflict of laws rules. (h) Lessor or Lessee, at its option, may request that a Memorandum of this Lease be recorded in the public records of the county in which the Leased Premises is located. Any fees, costs, taxes or expenses relating to the Memorandum of Lease or relating to the recording of the Memorandum of Lease shall be paid by Lessee. The form of the Memorandum of Lease to be utilized is attached hereto as Exhibit "C" and is incorporated herein. Any other form Memorandum of Lease shall be approved by Lessor, in Lessor's sole discretion. IN WITNESS THEREOF, this Lease has been duly executed and delivered by Lessor and Lessee on the date indicated below. 6 LESSOR: PINNACLE TOWERS INC. WITNESS: BY: ---------------------------- ----------------------------- WITNESS: DATE: ---------------------------- --------------------------- LESSEE: AGW LEASING CO, INC. WITNESS: BY: ---------------------------- ----------------------------- WITNESS: DATE: ---------------------------- --------------------------- 7 EXHIBIT A TO PINNACLE TOWERS INC. MASTER ANTENNA SITE LEASE # ANTENNA SITE STANDARDS ---------------------- 1. Purpose: In order to minimize interference to every Lessee's operations and ------- equipment, and to maintain good engineering practice, the following installation and maintenance standards are being established and may be amended by Lessor when deemed necessary. 2. Pre-Installation Standards: Prior to any installation, Lessee must provide -------------------------- Lessor with complete plans for approval, which will not be unreasonably withheld conditioned or delayed, including list of proposed equipment and subcontractors, 'and no work may be performed until approval has been given and all criteria has been met. All equipment must be placed in approved locations only, and any changes must be approved by Lessor before the installation begins. The Lessor or its representative shall be on-site during major work on the tower. Lessee must notify the Lessor at least five (5) days in advance of any installation work. Following initial installation, routine maintenance work to Lessee's equipment may be performed without prior notice. 3. Installation: ------------ (a) The following minimum protective devices must be properly installed: (1) Lightning arrestor in feedline at wall feedthru plate for all non-broadcast antennas. (2) Surge protectors in any AC & phone he circuit. (3) Transmitter RF shielding kit if applicable. (4) Isolator and harmonic filter. (5) Duplexer or cavity bandpass filter. (b) All transmitters, duplexers, isolators, multicouplers, etc. must be housed in a metal cabinet or rack-mounted. (c) All transmission lines entering the building must be 1/2" Heliax/Wellflex or better via a wall feedthru plate, terminating in a properly installed lightning arrestor with an ID tag on both ends of the line. (d) Solid outer shield cable such as Superflex or Heliax/Wellflex must be used for all intercabling outside the cabinet. The use of braided RF cable (e.g., RG8) will NOT be permitted outside the cabinet to minimize RF leakage which could cause interference. (e) All antenna, power and phone cables shall be routed to the base station in a neat manner using routes provided for that purpose. All phone lines shall use shielded cable properly grounded. (f) All stations are to obtain power from the power panel and/or AC receptacle provided for their specific use. (g) All RF equipment cabinets must be grounded to the site ground system using copper strap or ribbon cable with cadweld or silver solder connections. (h) All antenna lines shall be electrically bonded to the tower at the antenna and at the bottom of the tower using grounding kits installed per manufacturer's specifications, and all antenna brackets must be pre-approved. (i) All equipment cabinets shall be identified with a typed label under plastic on which the Lessee's name, address and 24-hour phone number must be listed, in addition to a copy of Lessee's FCC license. (j) Monitor speakers shall be disabled except when maintenance is being performed. (k) All antenna lines will be tagged within twelve (12) inches of the antenna, at the entrance to the building, at the repeater or base station cabinets and/or at the mulficoupler/combiner ports. (l) No drilling, welding or alteration of the tower is permitted for any reason. (m) All ferrous metals located outside of the building or on the tower shall be either stainless steel or hot-dipped galvanized, not plated. (n) Painted towers will require the painting of feedline by the Lessee prior to or before completion of the install. 8 4. General. Lessee must comply with any applicable instructions regarding any ------- site security system (a) Gates shall remain closed at all times unless entering or exiting the premises. When leaving the building, ensure that all doors are locked and the security system is armed. (b) Any tower elevator may be used only after receiving proper instruction on its use, signing a waiver and receiving authorization from the Lessor. (c) This lease does not guarantee parking space. If space is available, park only in the designated areas. Do not park so as to block any ingress or egress except as may be necessary to load or unload equipment. Parking is for temporary use while working at the site. (d) Do not adjust or tamper with the thermostats or HVAC systems. (e) Access to the building roof is restricted to authorized maintenance personnel. 9 EX-10.7.1 7 0007.txt LEASE AGREEMENT EXHIBIT 10.7.1 LEASE AGREEMENT EARLE FURMAN & ASSOCIATES, INC. PELHAM 85 BUSINESS CENTER TWELVE LOGUE COURT GREENVILLE, SOUTH CAROLINA THIS LEASE AGREEMENT (this "Lease") is made and entered into as of the 25/th/ day of August, 1999, by and between Robert W. Bruce, individually, and the Camperdown Company, Inc., hereafter called the "LESSOR" and AGW Leasing Company, Inc., hereafter called the "LESSEE" WITNESSETH ---------- For and in consideration of the rent provided herein and the mutual covenants and agreements hereinafter set forth, the parties hereto agree for themselves, their successors and assigns, as follows: 1. PREMISES. -------- 1.1 Description of Premises. Lessor hereby leases to Lessee, and Lessee ----------------------- hereby accepts and rents from Lessor, that certain office/warehouse space (the "Premises") containing a total of approximately 40,000 square feet, located within the building commonly known as Building B (the "Building"), which Building contains a total of approximately 103,426 square feet and is located within the Pelham 85 Business Park (the "Project"), situated in Greenville County, South Carolina and more fully described on Exhibit 1 attached hereto and --------- incorporated herein by reference. The Premises (measured to the dripline) is more particularly shown and outlined in the plan of the Building attached hereto as Exhibit 1(a) and incorporated herein by reference, and is leased to Lessee ------------ together with the non-exclusive, irrevocable right to use and occupy, in common with Lessor and other tenants of the Building and the Project, all parking areas, driveways, sidewalks and other common facilities designated by Lessor from time to time in the Project. Lessor hereby designates certain portions of the common area adjacent to and behind the Premises identified on Exhibit 11,(q) -------------- for the exclusive use of the Lessee and approves the installation of fencing by the Lessee to restrict access thereto. Lessee shall have the right to install additional utilities (including telephone utilities and grounding systems) to serve the Premises provided Lessee will bear all the costs of such installation and modifications necessary to install the utilities. Lessor consents to the installation and consents to, grant any easement to the extent necessary to permit the expansion of existing or installation of additional utilities. 1.2 Construction of Premises. Lessor shall have no responsibility for the ------------------------ construction of any improvements to the Premises. 2. TERM. The term of this Lease (the "Term") shall commence on August 16, ---- 1999, (the "Commencement Date") and shall end at 11:59 p.m. on October 14, 2014 (the "Expiration Date"), unless the Term is otherwise extended or sooner terminated as hereinafter expressly 1 provided. As used herein, the term "Lease Year" shall mean each year of the Term commencing on the first day of the first full calendar month following the Rental Commencement Date, or any anniversary thereof, and ending at the expiration of twelve (12) calendar months thereafter. 2.1 Option. Lessee shall have the right to extend this Agreement for one ------ (1) five-year option beginning immediately after the initial term of this agreement provided Lessee is not in a material default \with any portion of this agreement and provided Lessee gives to Lessor written notice of its intent to extend this agreement at least six (6) months prior to the expiration of the initial term. Rent during the option period shall be at a rent computed by adjusting the monthly rate in effect at the end of the primary term by the lesser of (1) five percent (5%) per year compounded increase or (2) the percentage change during the previous fifteen (15) years in the of Consumer Price Index, as herein defined, as shown by the most recent available published Index preceding the subject lease anniversary date. Consumer Price Index shall mean the Ail Items Index as published by the U. S. Bureau of Labor Statistics. 3. BASE RENT. Beginning on the Recital Commencement Date (as hereinafter --------- defined) and continuing throughout the full Term of this Lease, Lessee shall pay to Lessor without notice, demand, reduction, abatement, setoff or any defense, minimum base rent (the "Base Rent") in equal monthly installments, in advance, on or before the first day of each month in accordance with the Base Rent Schedule attached hereto as Exhibit 3 and incorporated herein by reference. The ---------- "Rental Commencement Date" shall be October 15, 1999, If the Rental Commencement Date is a date other than the first day of a calendar month, the Base Rent shall be prorated daily from such date to the first day of the next calendar month and paid on the Rental Commencement Date. 4. SECURITY DEPOSIT. Not applicable. ---------------- 5. ADDITIONAL RENT. --------------- 5.1 Operating Expenses. Lessee agrees to pay as Additional Rent b ------------------ proportionate share of the amount paid by Lessor during the Term for operation and maintenance of the Project (collectively "Operating Expenses"). Operating Expenses shall include the following: (i) all expenses for operation, repair, replacement and maintenance as necessary to keep the Building and common area of the Project and the grounds, and parking areas associated therewith in good order, condition and repair, including but not limited to, utilities for the common areas of and relating to the Project expenses associated with the driveways and parking areas (including repaving and snow, trash and ice removal), lighting facilities, landscaped areas, walkways, directional signage, curbs, drainage strips, sewer lines, all charges assessed against the Project pursuant to any applicable easements, covenants or development standards. administrative fees (including property management fees) and (ii) all reasonable and customary insurance premiums paid by Lessor with respect to the Project, including public liability insurance. The cost for all capital improvements that would be capitalized or depreciated under generally accepted accounting principles shall not be included in calculating operating Expenses; provided, however, notwithstanding the foregoing, that Operating Expenses shall include amortization of all costs of capital improvements which are for the purpose of reducing Operating Expenses and 2 which ultimately result in a reduction in Lessee's proportionate share of Operating Expenses, but only to the extent of such reduction. Operating Expenses shall not include expenses for the costs of any maintenance and repair required to be performed by Lessor at its own expense under Section 15.1 of this Lease, operating Expenses shall not include (i) leasing commissions, (ii) Lessor's home office expenses, (iii) cost billed to specific tenants or other third parties, (iv) costs associated with financing the Building or Project, (v) depreciation, or (vi) costs paid by the proceed of insurance received by Lessor, The proportionate share of Operating Expenses to be paid by Lessee shall be a percentage of the Operating Expenses based upon the proportion that the square footage of the Premises bears to the total square footage of the Project (such figure referred to as "Lessee's Operating Expense Percentage"). Lessor shall estimate the total amount of Operating Expenses to be paid by Lessee during each calendar year promptly after the beginning of each calendar year during the Term, and Lessee shall pay to Lessor one-twelfth (1/12) of such sum on the first day of each calendar month during each such calendar year, or Part thereof, during the Term. Within a reasonable time after the end of each calendar year, Lessor shall submit to Lessee a statement of the actual amount of Operating Expenses for such calendar year, arid within thirty (30) days after receipt of such statement, Lessee shall pay any deficiency between the actual amount owed and the estimates paid during such calendar year, or in the event of overpayment, Lessor shall, at Lessors option, credit the amount of such Overpayment toward the next installment of Operating Expenses, or refund the amount of such overpayment to Lessee. If the Rental Commencement Date shalt fall on other than the first day of the calendar year, or if the Expiration Date shall fall on other than the last day of the calendar year, Lessee's share of the Operating Expenses for such calendar year shall be apportioned prorata. The estimated operating expenses per square foot for the Premises for the current year are $0.55 per square foot. 5.2 Real Estate Taxes. As Additional Rent, Lessee shall pay its ----------------- proportionate part of any ad valorem taxes assessed and allocable to Project. The Lessee's proportionate part of the ad valorem taxes shall be a fraction, the numerator of which is the number of square feet of floor area in the Premises herein described and the denominator of which is the total number of rentable square feet of floor area in Building, which Lessor and Lessee hereby acknowledge to be 103,426 square feet. Lessor shall provide evidence of such ad valorem taxes to the Lessee and the additional rent shall be paid upon thirty (30) days written notice to Lessee of the amount due or at Lessor's option the additional rent due hereunder shall be estimated and paid in advance in equal monthly installments on the first day of each calendar month and adjusted within sixty (60) days after the close of each calendar year. If the term of this Lease shall begin on and/or terminate at a time other than the beginning (or ending as the case may be) of a tax year, a proper apportionment of said real estate taxes for the year shall be made to cover the fraction of a year included with in the Term of this Lease. Ad valorem tax increases attributable to Lessee's improvements shall be the expense of Lessee alone. 5.3 Other Additional Rent Provisions. Any amounts required to be paid by -------------------------------- Lessee under this Section 5 and any charges or expenses incurred by Lessor on behalf of Lessee shall be considered "Additional Rent" payable in the same manner and upon the same terms and 3 conditions as the Base Rent hereunder. Any failure on the part of Lessee to pay such Additional Rent when and as the same shall become due shall entitle Lessor to the remedies available to it for non-payment of Base Rent Lessee's obligations for payment of Additional Rent shall begin to accrue on the Rental Commencement Date. As used in this Lease, the term "Rent" shall include Base Rent and Additional Rent, except as otherwise expressly provided to the contrary. 6 LATE PAYMENTS. All unpaid Rent and other sums of whatever nature owed by ------------- Lessee to Lessor under this Lease and remaining unpaid fifteen (15) business days after the due date shall bear a late penalty equal to five (5%) percent of the amount due. Acceptance by Lessor of any payment from Lessee hereunder in an amount less than that which is currently due shall in no way affect Lessor's rights under this Lease and shall in no way constitute an accord and satisfaction. 7. UTILITIES AND SERVICES. As of the Rental Commencement date, the Premises ---------------------- will be separately metered for utilities. Except as expressly set forth in this Lease, Lessee shall pay for all utilities or services related to its use of the Promises including, but not limited to, electricity, gas, heat, water, sewer, telephone and janitorial services, together with all deposits and fees in connection therewith. If Lessee fails to pay any utility (excepting telephone) bills or charges, Lessor may, at its option, upon reasonable notice to Lessee pay the same and in such event, the amount of such payment, together with interest thereon at twelve percent (12%) from the date of such payment by Lessor, will be added to Lessee's next due payment as Additional Rent. Lessor shall not be responsible for the stoppage or interruption of utilities services nor shall Lessor be liable to Lessee or any other person for any damage occasioned by failure in any utility system or by the bursting or leaking of any vessel or pipe in or about the Premises (except to the extent of liability or casualty insurance proceeds actually recovered by Lessor or paid on account of Lessor), or for any damage occasioned by water coming into the Premises or arising from the acts or neglects of occupants of adjacent property, unless the same is caused by the negligent or willful misconduct of Lessor. 8. TAXES. Lessee shall pay any taxes, documentary stamps or assessments of ----- any nature imposed or assessed upon Lessee's occupancy of the Premises or upon Lessee's furniture, furnishings, trade fixtures, equipment machinery, inventory, merchandise or other personal property located on the Premises and owned by or in the custody of Lessee Promptly as all such taxes or assessments may become due and payable without any delinquency. If applicable in the jurisdiction where the Premises are located, Lessee shall pay and be liable for all rental tax (only to the extent such rental tax is levied in lieu of ad valorem property taxes against: the Premises), sales, use and inventory taxes or other similar taxes, if any, levied or imposed by any city, state, county or other governmental body having authority, such Payments to be in addition to all other payments required to be paid Lessor by Lessee under the terms of this Lease. Such payment shall be ma i de by Lessee directly to such governmental body if billed to Lessee, or if billed to Lessor, such payment shall be paid concurrently with the payment of the Base Rent. Additional Rent, or such other charge upon which the tax is based, all as set forth herein. Notwithstanding the foregoing, Lessee shall have the right, at its sole cost and expense, to contest any tax contemplated by this Section 8 provided that (i) Lessee shall send Lessor notice of Lessee's intent 4 to contest such taxes, and (ii) upon contesting the amount of such taxes, Lessee shall deposit the amount of such taxes into an escrow account reasonably acceptable to Lessor. 9. LESSEE IMPROVEMENTS. Lessee's Improvements will be in compliance with ------------------- Title 111 of the Americans With Disabilities AM Public Law 101-336. 10 ALTERATIONS AND IMPROVEMENTS BY LESSEE. --------------------------------------- 10.1 Lessor's Consent Required. Lessee shall not make or permit to be ------------------------- made any structural changes, alterations, additions or improvements to the Premises ("Lessee Alteration") without first obtaining the prior written consent of Lessor, which consent shall not be unreasonably withheld conditioned or delayed. If Lessor fails to reject any requested Lessee Alteration within thirty (30) days after Lessor's receipt of detailed and final plans, specifications or drawings depicting the desired Lessee Alteration, such requested Lessee Alteration shall be deemed approved in accordance with the plans, specifications or drawings submitted by Lessee. Further, Lessor shall have the right to approve the general contractor to be used by Lessee in connection with such structural work which approval shall not be unreasonably withheld, conditioned or delayed. Notwithstanding the foregoing, Lessee shall be permitted to make nonstructural changes, alterations or improvements to the Premises without Lessor's prior consent, provided Lessee shall deliver to Lessor a copy of all plans for non-structural work and shall comply with the requirements of Sections 10.2 and 10.4. 10.2 Requirements. In the event Lessee desires to make any Lessee ------------ Alteration, Lessee shall, prior to the commencement thereof, furnish Lessor with an original Builder's Risk policy of insurance in form and amount of coverage reasonably acceptable to Lessor, showing Lessee as named insured and Lessor as loss payee, all Lessee Alterations shall be performed in accordance with all legal requirements applicable thereto and in a good and workmanlike manner with first class materials. 10.3 Lessor's Property on Expiration. All Lessee Alterations, including, ------------------ but not limited to, all walls, railings, carpeting, floor and wall coverings and other permanent real estate fixtures (excluding, however, Lessee's trade fixtures and equipment including Lessee's telecommunications switch and related equipment) made by, for, or at the direction of Lessee, shall when made, become the property of Lessor and shall remain upon the Premises at the expiration or earlier termination of this Lease; provided, however, that if Lessor at the time of giving its approval to any lessee Alteration notifies Lessee that approval is conditioned upon restoration, then prior to the expiration of the Term of this Lease, Lessee shall, at its sole cost and expense, remove such Lessee Alterations and restore the Premises to its condition prior to the marking of such Lessee Alteration. 10.4 Protection Against Liens. Lessee shall post a large and conspicuous ------------------------ notice that the Lessor is not responsible for the materials and labor furnished to the Lessee and shall otherwise comply with the provisions of Section 29-6-80, Code of Laws of South Carolina, 1976, as amended to protect the Lessor from - -------------------------------------- liability for any mechanic liens which may result from the Lessee's work. Lessee agrees to keep the Premises free and clear of all mechanic liens. In the 5 event that a lien is filed against the Premises or the Lessors property as a result of labor or material supplied to the Premises at the request . of Lessee, the Lessee agrees to within 80 days either obtain the release and discharge or bond off of such mechanic lien. In the event that the Lessee shall fail to discharge or bond off such lien within such period of time, the Lessor shall have the right to either discharge or bond such lien and Lessee shall immediately reimburse Lessor for all costs and expenses relating thereto, In all events, the Lessee shall be responsible for all expenses incurred by the Lessor as a result of the filing of a mechanic's lien against the Premises, including reasonable attorney fees and expenses. 11 USE OF PREMISES. Lessee shall use the Premises only for the storage, --------------- operation and maintenance of telecommunications equipment, including a telecommunications switch, general office or warehouse purposes including packaging and distribution of containers and any incidental sale of equipment and shall comply with all laws, ordinances, orders, rules and regulations (including without limitation the zoning classifications existing as of the Rental Commencement Date) of any lawful governmental authority, agency or other public or private regulatory authority having jurisdiction over the Premises, without limiting the generality of the above provision, the Premises shall not be used for the treatment storage, use or disposal of toxic or hazardous waste or substances, or any other substance, that is prohibited, limited or regulated by any governmental or quasi-governmental authority, except as permitted by applicable law. Notwithstanding the foregoing, Lessee shall have the right to use ordinary cleaning supplies and solvents in the ordinary course of business and to store and handle any other substance and material in compliance with applicable law. Lessee shall save Lessor harmless from any penalties, fines, costs, expenses or damages resulting from failure so to comply. Lessee or Lessor shall not do any act or follow any practice relating to the promises which shall constitute a nuisance or detract in any way from the reputation of the Project as a first class office/warehouse development. Lessees duties in this regard shall include making arrangements at Lessee's expense for the proper storage and timely disposition of garbage and refuse, and allowing no noxious or offensive odors, fumes, gases, smoke, dust, steam or vapors, or any loud or disturbing noise or vibrations to originate in or emit from the Premises. Lessee shall save Lessor harmless from any claims, liabilities, penalties, fines, costs, expenses or damages resulting from the failure of Lessee to comply with the provisions of this Section 11. Notwithstanding the foregoing provisions of this Section 11, with respect to the exterior of the Buildings and the common areas of the Project, Lessor shall comply with all laws, ordinances, orders, rules and regulations (including without limitation, the zoning classifications existing as of the Rental Commencement Date) of any lawful authority having jurisdiction over the Project. 12. LESSOR'S RESERVATION OF RIGHTS. Lessor reserves the right to change the ------------------------------ name or address of the Project; to install and maintain a sign or signs on the exterior of the Project, to grant to other tenants of the Project a nonexclusive, revocable license to use and occupy, in common with Lessor, the common areas of the Project, parking facilities, paved areas and drives, landscaping and such other common facilities as may be designated from time to time by Lessor: and to designate certain portions of such common areas of the Project adjacent to promises leased to individual tenants as being for the exclusive use of that tenant,. so long as such designation does not materially affect the use and enjoyment or the common area and premises by other tenants. 6 13. INSURANCE. --------- 13.1 Required Coverage. Lessee covenants and agrees that from and after ----------------- the date of occupancy by the Lessee, Lessee will carry and maintain, at its sole cost and expense, the insurance required under Section 13.1 (a) and 13,1(b) below. All such policies of the insurance shall be issued in form acceptable to Lessor by insurance companies with a rating of not less than "A", if available, in the most current available Best's Insurance Reports, and licensed to do business in the state in which the Building is located, Throughout the Term of this Lease, Lessee shall carry and maintain the following types of insurance: (a) Liability insurance in the Commercial General Liability form (or reasonable equivalent thereto) covering the Premises and Lessee's use thereof against claims for personal injury or death, property damage and product liability occurring upon, in or about the Premises, such insurance to be written on an occurrence basis (not a claims made basis), to be in combined single limit amounts not less then $1,000,000.00 and to have general aggregate limits of not less than $1,000,000.00 for each policy year. The insurance coverage required under this Section 13.1 (a) shall, in addition, extend to any liability of Lessee arising out of the indemnities provided for in Section 14 and, if necessary, the policy shall contain a contractual endorsement to that effect The general aggregate limits under the Commercial General Liability insurance policy or policies must apply separately to the Premises and to Lessee's use thereof (and not to any other location or use of Lessee) and such policy shall contain an endorsement to that effect. Notwithstanding the foregoing, Lessee shall have the right to carry the liability insurance provided above in the form of a blanket insurance policy, covering additional items or locations or insureds, provided, however, that, (1) Lessor, and any other parties in interest designated by Lessor to Lessee, from time to time, shall be named as additional insureds thereunder as its interests may appear, (2) the coverage afforded Lessor and such other parties designated by Lessor will riot be reduced or diminished by reason of use of such blanket policy of insurance, and (3) any such policy shall provide, at a minimum, for the minimum liability limitations hereinabove provided in this Section 13 with respect to Lessee's interests in and to the Premises and the Project. (b) Insurance covering all of the items included in Lessee's leasehold improvements, heating, ventilating and air conditioning equipment, trade fixtures, merchandise and personal property from time to time in, on or upon the Premises, in an amount not less than one hundred percent (100%) of their full replacement value from time to time during the Term, providing protection against perils included within the standard form of "all-risks" fire and casualty insurance policy, together with insurance against sprinkler damage, vandalism and malicious mischief. 13.2 Policy Requirements. Each of Lessee's insurance policies required ------------------- above shall: (i) name Lessor, as well as any mortgagee or ground lessor of Lessor, of whom Lessor hag notified Lessee, as an additional insured and the coverage described in Section 13.1(b) shall also name Lessor as loss payee; (ii) provide that a certificate evidencing such insurance shall be delivered to Lessor prior to possession of the Premises by Lessee and thereafter within thirty (30) days prior 7 to the expiration of each such policy, and, as often as any such policy shall expire or terminate; (iii) contain a provision that the insurer will give to Lessor and such other parties in interest at least thirty (30) days notice in writing in advance of any material change, cancellation, termination or lapse, or the effective date of any reduction in the amounts of insurance; and (N) be written as a primary policy which does not contribute to and is not in excess of coverage which Lessor may carry. Notwithstanding the provisions of subparagraph (iii) of the preceding sentence, Lessee shall be responsible for providing Lessor with at least twenty-five (25) days notice in advance of any material change, cancellation, termination or lapse, or the effective date of any reduction in the amounts of insurance. 13.3 Waiver of Subrogation. Lessor and Lessee hereby waive any rights --------------------- each may have against the other on account of any loss or damage occasioned to Lessor or Lessee, as the case may be, their respective property, the Premises, its contents or to the other portions of the Building, arising from any risk covered by all risks fire and extended coverage insurance, and to the extent of recovery under valid and collectible policies of such insurance, provided that such waiver doer, not invalidate such policies or prohibit recovery thereunder, and provided that the other party can obtain a waiver in all policies carried by such party without incurring unreasonable additional cost. The parties hereto each on behalf of their respective insurance companies insuring the property of either Lessor or Lessee against any such loss, Waiver any right of subrogation that such insurers may have against Lessor or Lessee, as the case may be. 13.4 Lessor's Insurance. Lessor shall maintain and pay for fire ------------------ insurance with extended coverage, covering the Building, including the Premises, in an amount not less than the amount equal to the Replacement Cost of the Improvements; provided, however, such coverage shall not include any furniture, furnishings, trade fixtures, equipment, machinery, inventory, merchandise or any other personal property of Lessee in the Premises, Lessor shall also maintain commercial general liability insurance covering the Building having general aggregate limits of not less than $1,000,000,00. 14. INDEMNIFICATION. Lessee shall defend, indemnify and hold harmless the Lessor from and against any claims, damages, or expenses, whether due to damage to the Premises, claims for injuries to persons or property, or administration or criminal action by a governmental authority, where such claims arise out of or from use or occupancy of the Premises by Lessee, its agents, employees or invitees, except where such damage, claims or penalties are caused by negligence of Lessor, its employees or agents. Lessor shall defend, indemnify and hold harmless Lessee from and against any claims, damages, or expenses, whether due to damage to the Premises, claims for injuries to persons or property, or administration or criminal action by a governmental authority, where such claims arise out of or from the gets or omissions of Lessor, its agents. employees or invitees. 15. MAINTENANCE AND REPAIRS. ----------------------- 15.1 Lessor. During the Term of the Lease, Lessor shall be responsible ------ for repairs, replacement and maintenance to the roof, exterior walls, structural portions, including foundation 8 and subflooring, of the Premises, and the common areas of the Project. If the cause of such repairs or replacements is the result of the negligence, misconduct or intentional acts or omissions of Lessee, its employees or agents, and the expense of such repairs or replacements are not fully covered and paid by Lessor's insurance, then Lessee shall pay Lessor the full amount of expenses not covered. Lessor's duty to maintain, repair and replace as prescribed in this Section 15.1 shall be Lessee's sole remedy and shall be in lieu of all other warranties or guaranties of Lessor, express or implied, except to the extent any damage to Lessee's property is a result of Lessor's negligent failure to repair, replace or maintain as expressly required under this paragraph 15. 1. 15.2 Lessee. Lessee shall be responsible for the repair, replacement and ------ maintenance in good order and condition of all parts and components of the Premises, other than those specified for maintenance by Lessor above, including, without limitation, the plumbing, wiring, electrical systems, heating systems, air conditioning systems, glass and plate glass, equipment and machinery constituting fixtures, unless such repairs or replacements are required primarily as a result of the negligence or willful misconduct of Lessor, its employees, invitees or licensees in which case, if such repairs or replacements are not fully covered and paid by Lessee's insurance, then Lessor shall pay the Lessee the full amount of expenses not covered. Lessee's duty to maintain the heating and air conditioning systems shall specifically include tie duty to enter into and maintain at Lessee's sole expense during the entire Term of this Lease a contract for the routine and periodic maintenance and regular inspection of such heating and air conditioning systems, the replacement of filters as recommended and the performance of other recommended periodic servicing in accordance with applicable manufacturer's standards and recommendations. Lessee shall provide Lessor a copy of said HVAC maintenance contract within thirty (30) days of occupancy and upon each renewal of said maintenance agreement. Such contract shall (i) be with a reputable contractor reasonably satisfactory to Lessor, (ii satisfy the requirements for routine and periodic maintenance, if any, necessary to keep all applicable manufacturers warranties in full force and affect, and (iii) provide that in the event this Lease expires or is earlier terminated for any reason whatsoever that said contract shall be immediately terminable by Lessor or Lessee without any cost expense or other liability on the part of Lessor. In the event Lessee falls to perform its obligations under this paragraph in a prompt manner, Lessor shall give Lessee ten (10) days' prior written notice to perform such obligations, and thereafter, if Lessee fails to perform such obligations within said ten (10) day period, or if the performance of such obligations will take more than ten (10) days to complete, and Lessee fails to commence performance of such obligations within ten (10) days of Lessors written notice or if Lessee fails to promptly and diligently pursue the performance of such obligation until completion, Lessor shall have the right to perform such obligations on behalf of Lessee, in which event the cost of such performance, together with a service charge equal to fifteen percent (15%) of such cost shall be due and payable by Lessee to Lessor immediately upon demand as Additional Rent hereunder. 16. TRADE FIXTURES AND EQUIPMENT. Any trade fixtures or equipment installed ---------------------------- by Lessee in the Premises at Lessee's expense shall remain Lessee's personal property and Lessee shall have the right at any time during the Term of this Lease to remove such fixtures or equipment. Upon removal of any fixtures or equipment Lessee shall immediately restore the Premises to substantially the same condition as they were when received by Lessee, ordinary 9 wear and tear, fires, and acts of God alone excepted. Upon termination or expiration of this Lease, Lessee shall have fifteen (15) days after the effective date of such termination to remove any of Lessee's trade fixtures and equipment from the Promises and repair all damage to the premises caused by such removal in which event Lessee shall be obligated to pay Rent at the then-current per them rate for every day Lessee fails to remove such fixtures or equipment after the expiration or effective termination date of this Lease. In addition, notwithstanding any such termination or expiration, the indemnifications of Lessor or Lessee provided in this Lease shall expressly survive such termination of this Lease. 17. DAMAGE OR DESTRUCTION OP PREMISES. In the event of total or partial --------------------------------- destruction of the Premises by fire or other casualty insured by Lessor, Lessor agrees to promptly restore and repair the Premises (to the same level of finish as existed prior to Lessee's occupancy) at Lessors expense to the extent Lessor receives insurance proceeds therefor. Rent shall proportionately abate during the time that the Premises or any part thereof are unusable by reason of such damage thereto. Except as provided herein, damage to or destruction of all or any portion of the Premises by fire or by any other cause shall not terminate this Lease, nor entitle Lessee to surrender the Premises nor in any way affect Lessee's obligation to pay the Rent and other sums payable hereunder. Lessor shall notify Lessee with ten (10) business days of an event causing a total or partial destruction of the Premises, (a) that its insurance proceeds will be sufficient for Lessor to fulfill ft obligations to repair and restore the Premises (to the same level of finish as existed prior to Lessees occupancy) under this section; (b) if the insurance proceeds are not sufficient to repair or restore the Premises, whether Lessor intends to repair and restore the Premises; and (c) the time frame in which such repairs and restoration will be completed, if Lessor notifies Lessee that its insurance proceeds will not be sufficient to fulfill Lessor's obligations to restore and repair the Premises and Lessor has elected not to repair or restore the Premises or that the time frame for completion of the repairs or restoration will exceed 90 days, Lessee shall have the option to: (a) terminate the Lease; or (b) make the repairs and restore the Premises. If Lessee elects to repair and restore the Premises, Lessor shall pay to Lessee all insurance proceeds received by the Lessor for such repairs and restoration. if those proceeds are insufficient to cover Lessee's costs, Lessee will be entitled to offset any costs of the repairs and restoration until the costs are recovered in full by the Lessee. 18. CONDEMNATION. If all of the Premises or the Project is taken or condemned ------------ for a public or quasi-public use, or if a material portion of the Premises is taken or condemned for a public or quasi-public use and the remaining portion thereof is not usable by Lessee, in the reasonable judgment of Lessee and Lessor, this Lease shall terminate as of the earlier of the date title to the condemned real estate vests in the condemnor and the date on which Lessee is deprived of possession of the Premises. In such event, the Base Rent herein reserved and all Additional Rent and other sums payable hereunder shall be apportioned and paid in full by Lessee to Lessor to that date, all Rent and other sums payable hereunder prepaid for periods beyond that date shall forthwith be repaid by Lessor to Lessee, and neither party shall thereafter have any liability hereunder, except that any obligation or liability of either party, actual or contingent under this Lease which has accrued on or prior to such termination date shall survive. 10 If only part of the Premises is taken or condemned for a public or quasi-public use and this Lease does not terminate as provided above, Lessor to the extent of the award it receives, shall restore the Premises to a condition and to a size as nearly comparable as; reasonably possible to the condition and size thereof immediately prior to the taking, and there shall be an equitable abatement of the Rent according to the value of the Premises before and after the taking. Pending such determination, if Lessee is entitled to a refund because of an overpayment of Rent, Lessor shall make the same! promptly, or in lieu thereof credit the amount thereof to future installments of Rent as they become due at Lessee's option. Lessor shall be entitled to receive the entire award in any proceeding with respect to any taking, without deduction therefrom for any estate vested in Lessee by this Lease, and Lessee shall receive no part of such award. Nothing herein contained shall be deemed to prohibit Lessee from making a separate claim, against: the condemnor, to the extent permitted by law. 19. GOVERNMENTAL ORDERS. Lessee agrees, at its own expense, to comply ------------------- promptly with all requirements of any legally constituted authority made necessary by reason of Lessee's use or occupancy of the Premises, including filing for Lessee's Occupancy Permit, unless such requirements are being contested by Lessee in good faith and upon advice of counsel in which event Lessee shall comply as obligated by the result of any such contest. Lessor agrees to comply promptly with any such requirements if not made necessary by reason of Lessee's occupancy. It is mutually agreed however, between Lessor and Lessee, that if in order to comply with such requirements, the parties shall have the following rights, (1) if the costs of compliance with the requirements are imposed on the Lessee, the Lessee shall have the right to terminate the Lease by giving Lessor twelve (12) months prior written notice; (2) if the costs of compliance are imposed on the Lessor, the Lessor will pursue all available legal remedies to challenge the imposition of the requirements or reduce the costs of compliance; (3) if the Lessors challenge is unsuccessful, the parties will use their best efforts to modify the Lease to comply with the applicable requirements and to preserve to the extent possible the economic arrangements set forth in the Lease; (4) if despite the efforts of the parties pursuant W this section the costs of compliance with the requirements exceed the then current year's Base Rent: (a) the Lessor shall have the right to terminate the Lease by giving Lessee twelve (12) months prior written notice; and (b) the Lessee shall have the right to terminate the Lease by giving Lessor twelve (12) months prior written notice. 20. LESSOR'S ACCESS TO PREMISES. Lessors property manager and Lessor's --------------------------- officers and authorized employees, or any other party authorized by Lessor of whom Lessee has received prior notice and to whom Lessee has not objected, shall have the right to enter the Premises at all reasonable times and upon reasonable notice for the purpose of making repairs. Lessor's representatives shall only enter the Premises while an authorized representative of Lessee is present except in the case of an emergency, Lessor shall give Lessee reasonable prior written notice not less than two (2) days in advance of Lessor's intended entry upon the Premises. Further, during the last six (6) months of the Term Lessor and those persons authorized by it shall have the right during business hours and upon reasonable notice to show the Premises to prospective tenants. 21. LESSEE DEFAULT. --------------- 11 21.1 Events of Default. Upon the occurrence of any one or more of the ----------------- following events (the "Events of Default") by the Lessee, the Lessor shall have the right to exercise any rights or remedies available in this Lease, at law or in equity. Events of Default shall be: (I) Lessee's failure to pay when due any rental or other sum of money payable hereunder if such failure is not cured within fifteen (15) days after written notice thereof, (ii) Lessee's failure to perform any other of the terms, covenants or conditions contained in this Lease if not remedied within thirty (30) days after receipt of written notice thereof or, if such failure is not capable of being remedied within thirty (30) days, if Lessee does not commence such remedy within thirty (30) days and thereafter diligently pursue it to completion; (M) Lessee shall become bankrupt or insolvent or file any debtor proceedings, or file pursuant to any statute a petition in bankruptcy or insolvency or for reorganization, or file a petition for the appointment, of a receiver or trustee for all or substantially all of its assets, and such petition or appointment shall not have been set aside within sixty (60) days from the date of such petition or appointment, or if such Lessee makes an assignment for the benefit of creditors, or petitions for or enters into such an arrangement. 21.2 Lessor's Remedies. In addition to its other remedies, Lessor, upon ----------------- an Event of Default by Lessee, shall have the immediate right, after any applicable grace period expressed herein, to terminate and cancel this Lease. In the event of an election of termination by Lessor, Lessor may recover from Lessee damages, including the costs of recovering the Premises, and Lessee shall remain liable to Lessor for the total annual rental (which may at Lessor's election be accelerated to be due and payable in full as of the date of the Event of Default and recoverable as damages in a lump sum) as would have been payable by Lessee hereunder for the remainder of the Term less the rentals actually received from any reletting. If any Rent owing under this Lease is collected by or through an attorney, Lessee agrees to pay Lessor's reasonable attorneys fees to the extent allowed by applicable law. 22. LESSOR DEFAULT. In the event that the Lessor shall breach its -------------- obligations under this Lease, the Lessee shall give the Lessor written notice and thirty (30) days to cure such default. In the event the Lessor shall fall to cure such default within the 30 day period, the Lessee shall have the right to exercise any rights or remedies available in this Lease, at law or in equity. In any action which may be brought to enforce the provisions of this Lease, the prevailing party in such action shall be entitled to receive from the other party all costs and expenses, including attorneys' fees, incurred by the prevailing party in such action. 23. SUBORDINATION AND ATTORNMENT. This Lease is subject: and subordinate to ---------------------------- any and all deeds to secure debt, mortgages, deeds of trust or other security instruments ("Security Instruments") now or hereafter placed on the property of which the Premises are a part, and this clause shall be self-operative without any further instrument necessary to effect such subordination; provided. however, in each case the holder of any Security Instrument shall agree that this Lease shall not be divested by foreclosure or other default proceedings thereunder so long as no Event of Default by Lessee shall then be existing under the terms of this Lease and that such holder or acquirer shall be bound hereby and responsible to perform all obligations of 12 Lessor under this Lease. However, if requested by Lessor, Lessee shall promptly execute and deliver to Lessor any such certificate or certificates reasonably acceptable to Lessee as Lessor may reasonably request evidencing subordination of this Lease to or the assignment of this Lease as additional security for such mortgages or deeds of trust, so long as such certificate also evidences the within nondisturbance agreement. Provided such holder or acquirer shall so agree as provided in the first sentence of this Paragraph 24, Lessee shall continue its obligations under this Lease in full force and effect notwithstanding any such default proceedings under a Security Instrument and shall attorn to the mortgagee, trustee or beneficiary of such Security Instrument, and their successors or assigns, and to the transferee under any foreclosure or default proceedings. Lessee will, upon request by Lessor, execute and deliver to Lessor or to any other person designated by Lessor, any instrument or instruments in form and content reasonably acceptable to Lessee evidencing its agreement to so attorn and perform under this Lease, so long as such instrument also evidences the within non-disturbance agreement 24. ASSIGNMENT AND SUBLETTING. Lessee shall not assign, sublet mortgage, ------------------------- pledge or encumber this Lease, the Premises, or any interest in the whole or in any portion thereof, without the prior written consent of Lessor whose consent shall not be unreasonably withheld; provided, however, that Lessee shall have the right, upon prior written notice to Lessor, to assign this Lease to a parent, affiliate or subsidiary corporation of Lessee and to SprintCom, Inc., its successors, affiliates and related parties.. If Lessee makes any assignment, mortgage, sublease or pledge of this Lease or the Premises, Lessee will still remain liable for the performance of all terms of this Lease and any rental or any fees or charges received by Lessee in excess of the Rent payable to Lessor hereunder shall be also paid to Lessor as Additional Rent under this Lease, unless Lessee is expressly released in writing by Lessor. Lessor agrees to release Lessee from all liability hereunder Upon an assignment of this Lease to: (1) an entity to whom this Lease may be assigned by Lessee upon notice to the Lessor or (2) a future Lessee with comparable creditworthiness to the Lessee or at least $25 Million in net worth. 25. TRANSFER OF LESSOR'S INTEREST. If Lessor shall sell, assign or transfer ----------------------------- all or any part of its interest in the Premises or in this Lease to a successor in interest which expressly assumes the obligations of Lessor hereunder and provides Lessor and Lessee with proof of adequate insurance (which covers the risk and liabilities and is not less in covered amounts than Lessors Insurance) at the time of such transfer, then Lessor shall thereupon be released or discharged from all covenants and obligations hereunder, and Lessee shall look solely to such successor in interest for performance of all of Lessor's obligations; provided, that the Lessor shall not be relieved of its liability, if any, to the Lessee for acts or omissions that occurred prior to the transfer. Lessees obligations under this Lease shall in no manner be affected by Lessor's assignment hereunder, and Lessee shall thereafter attorn and look solely to such successor in interest as the Lessor hereunder. 26. COVENANT OF QUIET ENJOYMENT. Lessor represents that it has full right --------------------------- and authority to lease the Premises and that Lessee shall peacefully and quietly hold and enjoy the Premises for the full term hereof so long as it does not default in the performance of any of the terms hereof. 13 27. ESTOPPEL CERTIFICATES. Within ten (10) days after a request by Lessor or --------------------- any mortgagee or ground lessor of Lessor, Lessee shall deliver a written estoppel certificate, in form supplied by or acceptable to Lessor, certifying any facts that are then true with respect to this Lease, including, but not limited to, that this Lease is in full force and effect, that no default exists on the part of Lessor or Lessee, that Lessee is in possession, that Lessee has commenced the payment of Rent, and that there are no defenses or offsets claimed by Lessee with respect to payment of Rent under this Lease or, if such defense or offsets existing forth the same. Likewise, within ten (10) business days after a request by Lessee. Lessor shall deliver to Lessee a similar estoppel certificate covering such matters as are reasonably required by Lessee. 28. FORCE MAJEURE. In the event Lessor or Lessee shall be delayed, hindered ------------- or prevented from the performance of any act required hereunder, by reason of governmental restrictions, scarcity of labor or materials, strikes, fire, or any other reasons beyond their control, the performance of such act shall be excused for the period of delay, and the period for performance of any such act shall be excused as necessary to complete performance after the delay period, However, the provisions of this Section 28 shall in no way be applicable to the obligations of Lessee or Lessor to pay, repay or reimburse any sums, monies, costs, charges or expenses owing from one to the other under this Lease, including without limitation, Lessee's obligations to pay Rent hereunder. 29. REMEDIES CUMULATIVE - NON-WAIVER. Unless otherwise specified in this -------------------------------- Lease, no remedy of Lessor or Lessee shall be considered exclusive of any other remedy, but each shall be distinct, separate and cumulative with other available remedies. Each remedy available Under this Lease or at law or in equity may be exercised by Lessor or Lessee from time to time as often as the need may arise. No course of dealing between Lessor and Lessee, or any delay or omission of Lessor or Lessee in exercising any right arising from the other party's default, shall impair such right or be construed to be a waiver of default. 30. HOLDING OVER. If Lessee remains in possession of the Premises or any ------------ part thereof after the expiration of the Term this lease, whether with or without Lessor's acquiescence, Lessee shall be deemed only a tenant-at- sufferance and there shall be no renewal of this Lease without a written agreement signed by both parties specifying such renewal. During any such period, the Rent hereunder shall be an amount equal to one hundred thirty-five percent (135%) of the Rent payable during the last Lease Year of the Term of this Lease. 31. NOTICES. Any notice allowed or required by this Lease shall be in ------- writing, and shall be deemed effective upon receipt (of refusal of receipt) by the addressee thereof when sent by either (i) United States mail, via certified mail or registered Mail, return receipt requested, With proper postage prepaid, or (ii) nationally recognized overnight courier (for example, Federal Express). Notices shall be addressed as follows: 14 AS TO LESSOR: Mr. Robert W. Bruce P. 0. Box 601 Greenville, South Carolina 29602 Also Camperdown Company, Inc. P. 0. Box 1,36 Greenville, South Carolina 29502 Attn; Robert W. Bruce, President Also Earle Furman & Associates, Inc. Attn: J. Earle Furman, Jr. 669 North Academy St. Greenville, South Carolina 29601 AS TO LESSEE: AirGate PCS, Inc. Harris Tower 233 Peachtree Street NE Atlanta, GA 30303 Attn: Vice President of Engineering and Operations The addresses of Lessor and Lessee and the party, if any, to whose attention a notice or copy of some shall be directed nay be changed or added from time to time by either party giving notice to the other in the prescribed manner. Upon request, Lessee shall also send a copy of all notices from Lessee to any mortgagee or ground lessor of Lessor; provided, however, that in no event shall Lessee be required to send more than two (2) additional notices to any mortgagees or ground lessors. 32. LEASING COMMISSION. Lessor and Lessee represent and warrant each to the ------------------ other that they have not dealt with any broker or other person claiming any entitlement to any commission in connection with this transaction except Earle Furman & Associates, Inc. (and ICON Commercial as cooperating broker) ("Broker"). Lessor and Lessee agree to indemnity and save each other harmless from and against any and all claims, suits, liabilities, costs, judgments and expenses, including reasonable attorneys' fees, for any leasing commissions or other commissions, fees, charges or payments resulting from or arising out of their respective actions in connection with this Lease except as to Broker or Brokers herein identified. Lessor agrees to 15 be responsible for the leasing commission due Broker(s) pursuant to a separate written agreement between Lessor and Broker, and to hold Lessee harmless respecting the same. 33. Intentionally omitted. 34. SURRENDER OF PREMISES. At the expiration or earlier termination of the --------------------- Term of this Lease. Lessee shall surrender the Premises and, subject to the terms of this Lease, all improvements, alterations and additions thereto, and keys therefor to Lessor, clean and neat, and in the same condition as at the rental Commencement Date, natural wear and tear and Items to be maintained by Lessor pursuant to Paragraph 15.1 hereof excepted. 35. ENVIRONMENTAL MATTERS. ---------------------- 35.1 Lessee hereby agrees to indemnify and hold lessor harmless from and against any and all claims, liabilities, and costs, (including reasonable attorney's fees) relating to the use of the Premises by the Lessee which is caused by the use, storage, release, disposal, or generation by Lessee or its agents, employees, contractors, or invitees (but not by others) of any Hazardous materials (as hereinafter defined) in, on, or about the Project or the Premises. 35.2 If the Lessee shall become aware of, or have reasonable cause to believe, that any Hazardous Materials have come to be located on or beneath the Premises or Property in amounts greater than permitted by law, the Lessee shall give written notice of such condition to the Lessor, In addition, the Lessee shall immediately notify the Lessor in writing of (i) any governmental or regulatory action instituted or threatened relating to any Hazardous Materials on or about the Premises; (ii) any claim made or threatened by any person relating to any Hazardous Materials that have come to be located in or on the Premises or the Property; (iii) any reports Made to any local, state or federal environmental agency arising out of or in connection with any Hazardous Materials in or on the Promises or the Property, including any complaints, notices, warnings, or asserted violations in connection therewith, of which the party becomes aware. 35.3 As used in this Agreement, the term "Hazardous Materials" means any substance, material, or waste now or hereafter determined by any federal, state or local governmental authority to be capable of posing a risk of injury to health, safety, or property. As used in this Agreement, the term "Environmental Law" means any federal, state or local statute, law, rule, regulation, ordinance, code, policy or rule of common law and any judicial or administrative interpretation thereof, including any judicial or administrative order, consent decree or judgment, relating to the environment health, safety or Hazardous Materials. 36. NO REPRESENTATIONS. Neither Lessor nor Lessor's agent has made any ------------------ representations or promises, except such as are contained herein or endorsed hereon, to the Lessee respecting the condition of the Demised Premises or any other matter or thing relating to the Demised Premises or the Lease. The taking possession of the Demised Premises by the Lessee shall be conclusive evidence against the Lessee or anyone holding under this Lease that the Demised Premises were in good and satisfactory condition when possession of the Demised 16 Premises was so taken; subject to punch list hems and latent defects, each of which shall be repaired promptly by Lessor at Lessor's expense. 37. PARKING. The Lessee, its employees, visitors and guests are authorized ------- to make reasonable use of the parking facilities which form part of the Project, subject to posted rules and regulations and at the sole risk of each driver and user of said facility, but in all events free of charge, Lessee shall cooperate with the Lessor in limiting the use of said parking facility by Lessee, its employees, guests and visitors to the approximate proportionate share in relationship to the Premises which is one parking space per one thousand (1,000) square feet of Premises. The parking facility shall not be used for the storage of abandoned or defective vehicles or for any other purpose except transient parking. Neither Lessee nor Lessee's employees, officers, agents, guests, invitees or other persons visiting the Premises shall have any rights to any particular parking space or spaces, and no special markings or signs may be placed on any parking spaces by Lessee. A minimum of 30 parking spaces will be provided. 38. MISCELLANEOUS. -------------- 38.1 Evidence of Authority. If requested by either party, the other party --------------------- shall furnish appropriate legal documentation evidencing the valid existence and good standing of such other party and the authority of any parties signing this Lease to W for such other party. 38.2 Nature and Extent of Agreement. This Lease, together with all ------------------------------ exhibits hereto, contains the complete agreement of the parties concerning the subject matter, and there are no oral or written understandings, representations, or agreement pertaining thereto which have not been incorporated herein. This Lease creates only the relationship of landlord and tenant between the parties, arid nothing herein shall impose upon either party any powers, obligations or restrictions not expressed herein. 38.3 Binding Effect. This Lease shall be binding upon and shall inure to -------------- the benefit of the parties hereto and their respective heirs, successors and assigns, This Lease may be executed in multiple counterparts, each of which shall constitute an original, but all of which taken together shall constitute one and the same agreement. This Lease shall not be binding on Lessor until executed by Lessor and delivered to Lessee. 38.4 Captions and Headings. The captions and headings in this Lease are --------------------- for convenience and reference only, and they shall in no may be held to explain, modify, or construe the meaning of the terms of this Lease. 38.5 Rules and Regulations. The rules and regulations attached as --------------------- Exhibit 4 ("Rules and Regulations") are Lessor's Rules and Regulations for the - ---------- Project and Buildings. Lessee shall faithfully observe and comply with such Rules and Regulations and such reasonable changes therein (whether by modification, elimination, addition or waiver) as Lessor may hereafter make and communicate in writing to Lessee, which shall be necessary or desirable for the reputation, safety, care or appearance of the Project and Buildings or the preservation of good order therein or the operation or maintenance of the Project and Buildings or the equipment thereof of the 17 comfort of tenants or others in the Project and Buildings. Lessor agrees to equitably enforce observation and performance of the Rules and Regulations for the best interest of the Project and Buildings as a whole. 38.6 Severability. If any term, covenant, condition or provision of this ------------ Lease, or the application thereof to any person or circumstance, shall ever be held to be invalid or unenforceable, then in each such event the remainder of this Lease or the application of such term, covenant, condition or provision to any other person or any other circumstance (other than those as to which it shall be invalid or unenforceable) shall remain valid and enforceable to the fullest permitted by law. 38.7 Governing Law. This Lease shall be construed according to, and be ------------- governed by, the laws of the State of South Carolina. 38.8 Time of Essence. Time is of the essence of this Lease. --------------- 38.9 Recording. It is not intended that this Lease be recorded, but at --------- the request of either party the other party shall execute a Memorandum or Short Form Lease and the Lease Shall be recorded with the requesting party paying the recording costs. 39. ADDENDUM. Modifications to this Agreement, if any, are presented in -------- Exhibit S which is attached and a part of this Lease Agreement. In the event of - --------- any inconsistency between the provisions contained within the body of this Lease and the Addendum, the provisions of the Addendum shall control. IN WITNESS WHEREOF, the parties have caused this Lease to be duly executed and sealed pursuant to authority duly given, as of the day and year first above written. LESSEE: AGW Leasing Company, Inc. Witness By: Witness Date: LESSOR: Robert W. Bruce Witness By: Witness Date: LESSOR: Camperdown Company, Inc. Witness By: Witness Date: 18 EX-21 8 0008.txt SUBSIDIARIES OF AIRGATE PCS, INC. Exhibit 21 Subsidiaries of AirGate PCS, Inc. Name State of Organization AGW Leasing Co., Inc. Delaware AirGate Network Services, LLC Delaware EX-23 9 0009.txt CONSENT OF KPMG EXHIBIT 23 INDEPENDENT ACCOUNTANTS' CONSENT The Board of Directors AirGate PCS, Inc.: We consent to the incorporation by reference in the registration statement (No. 333-34416) on Form S-8 of AirGate PCS, Inc. of our reports dated November 10, 2000, relating to the consolidated balance sheets of AirGate PCS, Inc. and subsidiaries as of September 30, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for the year ended September 30, 2000, the nine months ended September 30, 1999, and the year ended December 31, 1998 and the related financial statement schedule, which reports appear in the September 30, 2000, annual report on Form 10-K of AirGate PCS, Inc. /s/ KPMG LLP Atlanta, Georgia December 15, 2000 EX-24 10 0010.txt POWER OF ATTORNEY EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: That the person whose signature appears below, as a Director or Officer of AirGate PCS, Inc. (the "Company"), a Delaware corporation with its general offices in Atlanta, Georgia, does hereby make, constitute and appoint Thomas M. Dougherty, Alan B. Catherall, or Barbara L. Blackford, or any one of them acting alone, his or her true and lawful attorneys, with full power of substitution and resubstitution, in his or her name, place and stead, in any and all capacities, to execute and sign: (i) The Company's Annual Report on Form 10-K; (ii) Any registration statement on Form S-8 to register shares of the Company's common stock to be issued under the AirGate 2001 Employee Purchase Plan, as approved by the Board of Directors of the Company; and (iii) Any amendments or post-effective amendments to any registration statement previously filed by the Company, and any and all amendments to any of the foregoing, and documents in connection therewith, all to be filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, giving and granting unto said attorneys full power and authority to do and perform such actions as fully as they might have done or could do if personally present and executing any of said documents. IN WITNESS WHEREOF, the undersigned as caused this Power of Attorney to be executed as of this 14th day of December 2000. /s/ John R. Dillon - --------------------------------- -------------------------------- W. Chris Blane, Director and John R. Dillon, Director V.P. of Business Development - --------------------------------- --------------------------------- Thomas D. Body, III, Director and Thomas M. Dougherty, Director and V.P. of Strategic Development President and CEO /s/ Gill Cogan /s/ Robert A. Ferchat - --------------------------------- --------------------------------- Gill Cogan, Director Robert A. Ferchat, Director --------------------------------- Barry Schiffman, Director EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: That the person whose signature appears below, as a Director or Officer of AirGate PCS, Inc. (the "Company"), a Delaware corporation with its general offices in Atlanta, Georgia, does hereby make, constitute and appoint Thomas M. Dougherty, Alan B. Catherall, or Barbara L. Blackford, or any one of them acting alone, his or her true and lawful attorneys, with full power of substitution and resubstitution, in his or her name, place and stead, in any and all capacities, to execute and sign: (i) The Company's Annual Report on Form 10-K; (ii) Any registration statement on Form S-8 to register shares of the Company's common stock to be issued under the AirGate 2001 Employee Purchase Plan, as approved by the Board of Directors of the Company; and (iii) Any amendments or post-effective amendments to any registration statement previously filed by the Company, and any and all amendments to any of the foregoing, and documents in connection therewith, all to be filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, giving and granting unto said attorneys full power and authority to do and perform such actions as fully as they might have done or could do if personally present and executing any of said documents. IN WITNESS WHEREOF, the undersigned has caused this Power of Attorney to be executed as of this 15th day of December 2000. - --------------------------------- -------------------------------- W. Chris Blane, Director and John R. Dillon, Director V.P. of Business Development - --------------------------------- --------------------------------- Thomas D. Body, III, Director and Thomas M. Dougherty, Director and V.P. of Strategic Development President and CEO - --------------------------------- --------------------------------- Gill Cogan, Director Robert A. Ferchat, Director /s/ Barry Schiffman --------------------------------- Barry Schiffman, Director EX-27 11 0011.txt FINANCIAL DATA SCHEDULE
5 1,000 YEAR SEP-30-2000 OCT-01-1999 SEP-30-2000 58,384 0 9,259 (563) 2,902 74,315 196,586 (13,005) 268,948 37,677 167,999 0 0 128 (49,745) 268,948 2,981 24,502 5,685 32,892 56,134 0 26,120 (81,323) 0 (81,323) 0 0 0 (81,323) (6.60) (6.60)
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