<PAGE>
As filed with the Securities and Exchange Commission on August 2, 1999
Registration No. 333-79189-02
Registration No. 333-79189-01
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
Amendment No. 3
TO
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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<TABLE>
<S> <C> <C> <C>
AirGate PCS, Inc. Delaware 4812 58-2422929
AGW Leasing Company, Inc. Delaware 4812 58-2441171
(Exact name of registrants as (State or other jurisdiction) (Primary Standard Industry (I.R.S. Employer
specified in their charters) of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
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<TABLE>
<S> <C>
Harris Tower Thomas M. Dougherty
Suite 1700 AirGate PCS, Inc.
233 Peachtree Street, N.W. Harris Tower
Atlanta, Georgia 30303 Suite 1700
(404) 525-7272 233 Peachtree Street, N.W.
(Address, including zip code, and Atlanta, Georgia 30303
telephone number, including area (404) 525-7272
code, of registrants' principal (Name, address, including zip code, and
executive offices) telephone number, including area code,
of agent for service)
</TABLE>
---------------
Copies to:
Mary M. Sjoquist, Esq. Gary P. Cullen, Esq.
Joseph G. Passaic, Jr., Esq. Skadden, Arps, Slate, Meagher & Flom
Patton Boggs LLP (Illinois)
2550 M Street, NW 333 West Wacker Drive
Washington, DC 20037 Chicago, Illinois 60606
(202) 457-6000 (312) 407-0700
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
---------------
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If the Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
The Registrants hereby amend this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrants
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
EXPLANATORY NOTE
This registration statement contains two forms of prospectus. The common
stock prospectus will be used in connection with an offering of common stock of
AirGate PCS, Inc. The senior subordinated discount notes prospectus will be
used in a concurrent senior subordinated discount notes offering by AirGate
PCS, Inc. The common stock prospectus and senior subordinated discount notes
prospectus will be substantially identical, except for the front cover page,
table of contents, summary of the offering, risk factors relating to the
particular offering, description of securities, underwriting section, United
States federal income tax consequences section and back cover page, and except
that the dilution and dividend policy sections contained in the common stock
prospectus will not appear in the senior subordinated discount notes
prospectus. The differing pages for the senior subordinated discount notes
prospectus included herein are each labeled "Alternate Senior Subordinated
Discount Notes Pages." The form of common stock prospectus is included in this
registration statement, and the form of the Alternate Senior Subordinated Notes
Pages of the senior subordinated discount notes prospectus follows the common
stock prospectus.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+We will amend and complete the information in this prospectus. Although we +
+are permitted by U.S. federal securities laws to offer these securities using +
+this prospectus, we may not sell them or accept your offer to buy them until +
+the documentation filed with the Securities and Exchange Commission relating +
+to these securities has been declared effective by the SEC. This prospectus +
+is not an offer to sell these securities or our solicitation of your offer to +
+buy these securities in any state or other jurisdiction where that would not +
+be permitted or legal. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION -- August 2, 1999
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Prospectus
, 1999
[LOGO] AirGate PCS
6,333,333 Shares of Common Stock
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AirGate PCS, Inc.:
. AirGate PCS, Inc.
Harris Tower
Suite 1700
233 Peachtree Street, N.E.
Atlanta, Georgia 30303
(404) 525-7272
Proposed Symbol & Market:
. PCSA/Nasdaq National Market
The Offering:
. We are offering 6,333,333 shares of our common stock.
. We have granted the underwriters an option to purchase a maximum of 949,999
additional shares of common stock to cover over-allotments.
. This is our initial public offering. We anticipate the initial public
offering price will be between $14.00 and $16.00 per share.
---------------------------------------------------------
<TABLE>
<S> <C> <C>
Per Share Total
- ----------------------------------- --------------------------------------------
Public offering price: $ $
Underwriting fees:
Proceeds to AirGate:
</TABLE>
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This investment involves risk. See "Risk Factors" beginning on page 5.
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Neither the SEC nor any state securities commission has determined whether this
prospectus is truthful or complete. Nor have they made, nor will they make, any
determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
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Donaldson, Lufkin & Jenrette
Credit Suisse First Boston The Robinson-Humphrey Company
<PAGE>
[One page of four photographs depicting customers using wireless telephones]
[Graphic displaying a map of the United States highlighting Sprint PCS'
licensed areas with blow-up picture of AirGate PCS' territory]
[Series of pictures of a wireless telephone, Sprint PCS network operations
center, Sprint PCS store and a national retail store which has an agreement
with Sprint and Sprint PCS to sell their products and services]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary.................................................... 1
Risk Factors.......................................................... 5
Forward-Looking Statements............................................ 14
Use of Proceeds....................................................... 15
Dividend Policy....................................................... 15
Capitalization........................................................ 16
Dilution.............................................................. 17
Selected Financial Data............................................... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................................................... 20
Industry Background................................................... 27
Business.............................................................. 29
The Sprint PCS Agreements............................................. 44
Description of Certain Indebtedness................................... 58
Management............................................................ 64
Principal Stockholders................................................ 71
Certain Transactions.................................................. 73
Regulation of the Wireless Telecommunications Industry................ 74
Description of Capital Stock.......................................... 78
Shares Eligible for Future Sale....................................... 80
Underwriting.......................................................... 82
Legal Matters......................................................... 85
Experts............................................................... 85
Available Information................................................. 85
Index to Consolidated Financial Statements............................ F-1
----------------
</TABLE>
This prospectus includes product names, trade names and trademarks of other
companies.
<PAGE>
PROSPECTUS SUMMARY
Statements in this prospectus regarding Sprint or Sprint PCS are derived from
information contained in our agreements with Sprint PCS, periodic reports and
other documents filed with the Securities and Exchange Commission, or press
releases issued by Sprint Corporation and Sprint PCS. References to AirGate as
a provider of wireless personal communication services or similar phrases
generally refer to our designing, constructing and managing a personal
communication services network in our territory under our long-term agreements
with Sprint and Sprint PCS.
The Company
We have entered into a management agreement with Sprint PCS whereby we have
the exclusive right to provide 100% digital, 100% PCS products and services
under the Sprint and Sprint PCS brand names in our territory in the
southeastern United States. Based on the population of our territory, we are
the second largest Sprint PCS affiliate in the United States. Under our long-
term agreements with Sprint PCS, we will exclusively market personal
communications services, generally known as PCS, under the Sprint and Sprint
PCS brand names. As a Sprint PCS affiliate, we will offer the same products and
services that have made Sprint PCS the fastest growing wireless company in the
United States based on total new subscribers in 1998. We have completed our
radio frequency design, network design and substantial site acquisition and
cell site engineering, and commenced construction of our personal
communications services network in November 1998. Our network will be built to
meet or exceed the high standards for technical and service quality established
by Sprint PCS. We will use Sprint PCS' established back office services to
handle customer activation, billing and customer care. The customer, who
effectively will see our products and services as those of Sprint PCS, will be
able to make and receive calls, on handsets with both digital and analog
capability, over Sprint PCS' network and other wireless networks with which
Sprint PCS has roaming agreements.
As of June 30, 1999, Sprint PCS, together with its affiliates, operated PCS
systems in 286 metropolitan markets within the United States, including all of
the 50 largest metropolitan areas. 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.
We will benefit from Sprint PCS' national advertising campaigns and will have
access to major national retailers for distribution under existing Sprint PCS
contracts. We plan to launch commercial PCS service in the first quarter of
2000 with initial coverage to over 1.5 million residents and expect to offer
service to more than 5.0 million residents, or 74% of the population in our
territory, by the end of the fourth quarter of 2000. Today, we are a
development stage company and have not generated any revenues.
Our territory has a resident population of more than 6.8 million and covers
21 contiguous markets in one of the fastest growing regions in the United
States. The territory covers almost the entire state of South Carolina,
including Charleston, Columbia and Greenville-Spartanburg, parts of North
Carolina, including Asheville, Wilmington and Hickory, and the eastern Georgia
cities of Augusta and Savannah. Our territory is contiguous to important Sprint
PCS markets which are already operational, including Atlanta, Georgia;
Charlotte and Raleigh, North Carolina; Norfolk, Virginia; and Knoxville,
Tennessee. In addition to serving the resident populations of these markets,
1
<PAGE>
our territory welcomes over 27 million visitors each year to popular vacation
and tourist destinations, which include Myrtle Beach, Charleston and Hilton
Head Island, South Carolina; the Outer Banks of North Carolina; and Savannah,
Georgia. As a result, we will generate roaming revenue from visitors to our
territory who will use our PCS network for seamless national Sprint PCS
services.
Under existing Sprint PCS agreements with national third-party retailers,
including distribution agreements with Circuit City, Office Depot and Best Buy
and an exclusive PCS distribution agreement with RadioShack, we will have
access to more than 250 retail outlets to sell and distribute Sprint PCS
products and services throughout our territory. We also intend to offer Sprint
PCS products and services through 12 of our own Sprint PCS stores and through
local retailers with strong community connections. We will combine the strength
of these retail outlets with Sprint PCS' national sales force, which focuses on
Fortune 500 companies, national inbound telemarketing sales force and
electronic commerce sales platforms. In addition, we expect that approximately
30% of the population in our territory will receive their local telephone
service from Sprint by the end of 2000. This provides us with an additional
established distribution channel for selling Sprint PCS products and services.
We believe this combination of major national and local distribution channels
provides us with a competitive advantage over other wireless providers in our
territory.
Sprint PCS has invested $44.6 million to purchase the PCS licenses in our
territory and incurred additional expenses to remove microwave signals from the
licensed spectrum, a process generally referred to as microwave clearing. Under
our long term agreements with Sprint PCS, we will manage the network on Sprint
PCS' licensed spectrum as well as the Sprint and Sprint PCS brands 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 benefits, Sprint PCS will retain 8% of collected service
revenues and we are entitled to receive 92%. Collected service revenues do not
include revenues from roaming and subscriber equipment sales of which we are
entitled to 100%. Under the agreements with Sprint PCS, we also have the option
to purchase back office services from Sprint PCS at rates reflecting Sprint
PCS' economies of scale.
We have an experienced senior management team, including a former regional
president of Sprint PCS. These executives have an average of more than 15 years
of experience in building wireless telecommunications systems in the Southeast.
We believe that the net proceeds from our concurrent offerings of common
stock and senior subordinated discount notes, together with our financing from
Lucent Technologies Inc., will completely fund our capital expenditures,
including our PCS network build-out, operating losses, working capital
requirements and other cash needs through 2002, at which point we expect to
have achieved break-even operating cash flow.
2
<PAGE>
The Offering
Common Stock Offered........
6,333,333 shares
Common Stock to be
Outstanding After the
Offering.................... 11,217,244 shares
Use of Proceeds.............
We will use:
.the net proceeds from the sale of our common
stock;
.the net proceeds from the concurrent sale of
the senior subordinated discount notes;
and
.the financing provided by Lucent
to fund the following:
.capital expenditures, including the build-
out of our PCS network;
.operating losses;
.working capital requirements; and
.debt service payments, including the
repayment of existing debt.
See "Use of Proceeds."
Proposed Nasdaq National
Market Symbol..............
"PCSA"
Risk Factors................ See "Risk Factors" beginning on page 5 for a
discussion of the material factors that you
should consider before purchasing shares of
common stock.
This summary of the offering includes 985,641 shares of common stock issuable
upon the consummation of this offering due to the conversion of outstanding
promissory notes and related accrued interest. See "Certain Transactions."
Unless otherwise indicated, the share information in this prospectus
excludes:
. up to 949,999 shares that may be issued to the underwriters to cover
over-allotments. See "Underwriting."
. 2,000,000 shares of common stock reserved for issuance under our 1999
Stock Option Plan including employee grants of 1,075,000 shares effected
on July 28, 1999. See "Management--1999 Stock Option Plan."
. 243,001 shares of common stock issuable upon the exercise of outstanding
exercisable warrants. See "Certain Transactions."
All references to shares of common stock in this prospectus reflect a 39,134-
for-1 split of our common stock which was effective as of July 9, 1999 and a
subsequent reverse stock split of 0.996-for-1 of our common stock which was
effective July 28, 1999.
The closing of our offering of common stock and our completion of a
concurrent offering of senior subordinated discount notes, under a separate
prospectus, are conditioned on each other, and both offerings are conditioned
on execution of definitive documentation covering the Lucent financing.
3
<PAGE>
The Concurrent Senior Subordinated Discount Notes Offering
Issuer......................
AirGate PCS, Inc.
Securities Offered.......... $ million aggregate principal amount at
maturity of % senior subordinated discount
notes, due 2009. We will issue the senior
subordinated discount notes at a price to
investors that will yield gross proceeds to us of
approximately $150.0 million.
Maturity Date...............
, 2009.
Change of Control...........
If we experience a change of control, holders of
our senior subordinated discount notes will have
the right to require us to repurchase our senior
subordinated discount notes at a price equal to
101% of their accreted value or the principal
amount, as applicable, together with accrued and
unpaid interest, if any, to the date of
repurchase.
Restrictive Covenants....... The indenture governing the senior subordinated
discount notes will contain covenants that, among
other things, will limit our ability and the
ability of our subsidiary and our future
subsidiaries to:
.incur additional indebtedness or issue preferred
stock;
. pay dividends, redeem capital stock or make
other restricted payments or investments;
.create liens on assets;
.merge, consolidate or dispose of assets;
.enter into certain transactions with affiliates;
and
.enter into sale and leaseback transactions.
4
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors in addition to the
other information contained in this prospectus before purchasing the common
stock we are offering.
Risks Particular to AirGate
The termination of our affiliation with Sprint PCS 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 agreements with Sprint PCS 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 Sprint PCS agreement or the failure of Sprint PCS to perform its
obligations under the Sprint PCS agreements would severely restrict our ability
to conduct our business.
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, and anticipates entering into, affiliation
agreements similar to ours with companies in other territories pursuant to its
nationwide PCS build-out strategy. Our results of operations are dependent on
Sprint PCS' national network and, to a lesser extent, on the networks of its
other affiliates. Sprint PCS and its affiliate program are subject, to varying
degrees, to the economic, administrative, logistical, regulatory and other
risks described in this prospectus. Sprint PCS' and its other affiliates' PCS
operations may not be successful.
We do not have an operating history and if we do not successfully manage our
anticipated rapid growth, we may not be able to complete our PCS network by our
target date, if at all
Our performance as a PCS provider will depend on our ability to manage
successfully the network build-out process, implement operational and
administrative systems, expand our base of 12 employees as of June 30, 1999 and
train and manage our employees, including engineering, marketing and sales
personnel. We have completed our radio frequency design, network design and
substantial site acquisition and cell site engineering, and commenced
construction of our PCS network in November 1998. Based on our build-out plan,
we do not expect to launch commercial PCS operations until the first quarter of
2000. We will require expenditures of significant funds for the development,
construction, testing and deployment of our PCS network before commencement of
commercial PCS operations. These activities are expected to place significant
demands on our managerial, operational and financial resources.
The inability to use Sprint PCS' back office services and third party vendors'
back office systems could disrupt our business
Our operations could be disrupted if Sprint PCS is unable to maintain and
expand its back office services such as customer activation, billing and
customer care, or to efficiently outsource those services and systems through
third party vendors. The rapid expansion of Sprint PCS' business is expected to
continue to pose a significant challenge to its internal support systems.
Additionally,
5
<PAGE>
Sprint PCS has relied on third-party vendors for a significant number of
important functions and components of its internal support systems and may
continue to rely on these vendors in the future. We depend on Sprint PCS'
willingness to continue to offer such services to us and to provide these
services at competitive costs. Our services agreement with Sprint PCS provides
that, upon nine months' prior written notice, Sprint PCS may elect to terminate
any such service beginning January 1, 2002. If Sprint PCS terminates a service
for which we have not developed a cost-effective alternative, our operating
costs may increase beyond our expectations and restrict our ability to operate
successfully.
If we fail to complete the build-out of our PCS network, Sprint PCS may
terminate our management agreement, and we would no longer be able to offer
Sprint PCS services
A failure to meet our build-out requirements for any one of the individual
markets in our territory, or to meet Sprint PCS' technical requirements, would
constitute a breach of our management agreement with Sprint PCS that could lead
to its termination. If the management agreement is terminated, we will no
longer be able to offer Sprint PCS products and services. Our agreements with
Sprint PCS require us to build our PCS network in accordance with Sprint PCS'
technical and coverage requirements. These agreements also require that we
provide network coverage to a specified percentage, ranging from 39% to 86%, of
the population within each of the 21 markets which make up our territory by
specified dates.
We have substantial debt which we may not be able to service and which may
result in our lenders controlling our assets in an event of default
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 may not have sufficient funds to pay interest on, and principal of,
our debt;
. 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 borrowings under 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
. due to the liens on substantially all of our assets and the pledges of
stock of our subsidiary and future subsidiaries that secure our senior
debt and our senior subordinated discount notes, lenders or holders of
our senior subordinated discount notes may control our assets or our
subsidiaries' assets upon a default.
As of June 30, 1999, after giving effect to the common stock offering, the
senior subordinated discount notes offering and the conversion of $7.6 million
of convertible notes plus accrued interest of $127,000, our outstanding long-
term debt would have totaled $160.0 million. In addition, under our current
business plan, we expect to incur substantial additional debt before achieving
break-even operating cash flow, including $143.5 million of additional
borrowings under our financing from Lucent.
6
<PAGE>
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 complete the build-out of our
network
We have received $10.0 million to date from Lucent. The remaining $143.5
million which we expect to receive in the future to meeting all of the
conditions specified in the financing documents on October 1, 2000 and, in
addition, is subject at each funding date to several conditions, including the
following:
. acquiring certain minimum subscribers and achieving minimum population
coverage by our network;
. 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, the lenders may not
lend any or all of the remaining amounts, and if other sources of funds are not
available, we may not be in a position to complete the build-out of our PCS
network. If we do not have sufficient funds to complete our network build-out,
we may be in breach of our management agreement with Sprint PCS and in default
under our financing from Lucent and under the senior subordinated discount
notes.
If we lose the right to install our equipment on wireless towers owned by
other carriers or fail to obtain zoning approval for our cell sites, we may
have to rebuild our network
We expect more than 85% of our cell sites to be collocated on facilities
shared with one or more wireless providers. We will collocate over 150 of these
sites on facilities owned by one wireless carrier. If our master collocation
agreement with that carrier were to terminate, we would have to find new sites,
and if the equipment had already been installed we might have to rebuild that
portion of our network. Some of the cell sites are likely to require us to
obtain zoning variances or other local governmental or third party approvals or
permits. We may also have to make changes to our radio frequency design as a
result of difficulties in the site acquisition process.
We may have difficulty in obtaining infrastructure equipment required in order
to meet our network construction deadlines required under our management
agreement
If we are not able to acquire the equipment required to build our PCS network
in a timely manner, we may be unable to provide wireless communications
services comparable to those of our competitors or to meet the requirements of
our agreements with Sprint PCS. The demand for the equipment that we require to
construct our PCS network is considerable, and manufacturers of this equipment
could have substantial order backlogs. Accordingly, the lead time for the
delivery of this equipment may be long. Some of our competitors purchase large
quantities of communications equipment and may have established relationships
with the manufacturers of this equipment. Consequently, they may receive
priority in the delivery of this equipment.
Sprint PCS' vendor discounts may be discontinued, which could increase our
equipment costs
We intend to purchase our infrastructure equipment under Sprint PCS' vendor
agreements that include volume discounts. If Sprint PCS were unable to continue
to obtain vendor discounts for its affiliates, the loss of vendor discounts
could increase our equipment costs.
The failure of our consultants and contractors to perform their obligations
may delay construction of our network which may lead to a breach of our
management agreement
The failure by any of our vendors, consultants or contractors to fulfill their
contractual obligations to us could materially delay construction of our PCS
network. We have retained Lucent
7
<PAGE>
and other consultants and contractors to assist in the design and engineering
of our systems, construct cell sites, switch facilities and towers, lease cell
sites and deploy our PCS network systems and we will be significantly dependent
upon them in order to fulfill our build-out obligations.
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 as Sprint PCS owes us no
duties except as set forth in the management agreement, these conflicts may not
be resolved in our favor. The conflicts and their resolution may harm our
business. For example, Sprint PCS prices its national plans based on its own
objectives and could set price levels that may not be economically sufficient
for our business. In addition, upon expiration, Sprint PCS could decide to not
renew the management agreement 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 may sell 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 by our lender, pursuant to which Sprint PCS may
purchase our obligations under the Lucent financing and obtain the rights of a
senior lender. To the extent Sprint PCS purchases these obligations, Sprint
PCS' interests as a creditor could conflict with ours. Sprint PCS' rights as a
senior lender would enable it to exercise rights with respect to our assets and
continuing relationship with Sprint PCS in a manner not otherwise permitted
under our agreements with Sprint PCS.
Certain provisions of our agreements with Sprint PCS may diminish the
valuation of our company
Provisions of our agreements with Sprint PCS could effect 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% or 80% 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 agreements with Sprint PCS may limit the saleability and/or
reduce the value a buyer may be willing to pay for our business and may operate
to reduce the "entire business value" of our company.
We may not be able to compete with larger, more established businesses
offering similar products and services
Our ability to compete will depend, in part, on our ability to anticipate and
respond to various competitive factors affecting the telecommunications
industry, including new services that may be introduced, changes in consumer
preferences, demographic trends, economic conditions and discount pricing
strategies by competitors. We will compete in our territory with two cellular
providers, both
8
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of which have an infrastructure in place and have been operational for a number
of years. They have significantly greater financial and technical resources
than we do, could offer attractive pricing options and may have a wider variety
of handset options. We expect that existing cellular providers will upgrade
their systems and provide expanded, digital services to compete with the Sprint
PCS products and services that we intend to offer. These wireless providers
require their customers to enter into long-term contracts, which may make it
more difficult for us to attract customers away from them. Sprint PCS generally
does not require its customers to enter into long-term contracts, which may
make it easier for other wireless providers to attract Sprint PCS customers
away from Sprint PCS. We will also compete with several PCS providers and other
existing communications companies in our territory. A number of our cellular
and PCS competitors will have access to more licensed spectrum than the 10 MHz
licensed to Sprint PCS in our territory. In addition, any competitive
difficulties that Sprint PCS may experience could also harm our competitive
position and success.
Our services may not be broadly used and accepted by consumers
PCS systems have a limited operating history in the United States. The extent
of potential demand for PCS in our markets cannot be estimated with any degree
of certainty. If we are unable to establish and successfully market PCS
services we may not be able to attract customers in sufficient numbers to
operate our business successfully.
The technology we use has limitations and could become obsolete
We intend to employ digital wireless communications technology selected by
Sprint PCS for its network. Code division multiple access, known as CDMA,
technology is a relatively new technology. CDMA may not provide the advantages
expected by Sprint PCS. If another technology becomes the preferred industry
standard, we may be at a competitive disadvantage and competitive pressures may
require Sprint PCS to change its digital technology which, in turn, may require
us to make changes at substantially increased costs. We may not be able to
respond to such pressures and implement new technology on a timely basis, or at
an acceptable cost.
If 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.
9
<PAGE>
Non-renewal or revocation by the Federal Communications Commission 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 Federal
Communications Commission, generally referred to as 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.
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 intend to, but do not
currently, maintain "key man" life insurance for some of our executive officers
or other employees.
We may not achieve or sustain operating profitability or positive cash flow
from operating activities
We expect to incur significant operating losses and to generate significant
negative cash flow from operating activities until 2002 while we develop and
construct our PCS network and build our customer base. If and when we start to
provide services to customers, our operating profitability will depend upon
many factors, including, among others, our ability to market our services,
achieve our projected market penetration and manage customer turnover rates. If
we do not achieve and maintain operating profitability and positive cash flow
from operating activities on a timely basis, we may not be able to meet our
debt service requirements.
We may need more capital than we currently project to build out our PCS
network
The build-out of our PCS network will require substantial capital. Additional
funds would be required in the event of significant departures from the current
business plan, unforeseen delays, cost overruns, unanticipated expenses,
regulatory changes, engineering design changes and other technological risks.
Due to our highly leveraged capital structure, additional financing may not be
available or, if available, may not be obtained on a timely basis and on terms
acceptable to us or within limitations permitted under our existing debt
covenants. Failure to obtain additional financing, should the need for it
develop, could result in the delay or abandonment of our development and
expansion plans.
Unauthorized use of our PCS network could disrupt our business
We will likely incur costs associated with the unauthorized use of our PCS
network, including administrative and capital costs associated with detecting,
monitoring and reducing the incidence of fraud. Fraud impacts interconnection
costs, capacity costs, administrative costs, fraud prevention costs and
payments to other carriers for unbillable fraudulent roaming.
10
<PAGE>
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 the senior subordinated discount notes or our common stock and
could reduce the price of our company in the event of a sale. Provisions of our
certificate of incorporation and bylaws could also operate to discourage, delay
or make more difficult a change in control of our company. 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 stockholder. 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. See "Description of Capital Stock."
We face risks relating to the year 2000 issue
If our systems, the systems of our vendors, consultants and contractors, or
the systems of Sprint and Sprint PCS and their vendors, consultants and
contractors, are not year 2000 compliant or are unable to recover from system
interruptions which may result from the year 2000 date change, our business
could be materially adversely affected. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Impact of Year 2000
Issue on the Operations and Financial Condition of AirGate."
Industry Risks
We may experience a high rate of customer turnover which would increase our
costs of operations and reduce our revenue
Our strategy to reduce customer turnover may not be successful. The PCS
industry has experienced a higher rate of customer turnover as compared to
cellular industry averages. The rate of customer turnover may be the result of
several factors, including network coverage; reliability issues such as blocked
calls, dropped calls and handset problems; non-use of phones; change of
employment; non-use of customer contracts, affordability; customer care
concerns and other competitive factors. Price competition and other competitive
factors could also cause increased customer turnover.
Wireless providers offering services based on alternative technologies may
reduce demand for PCS
The wireless telecommunications industry is experiencing significant
technological change, as evidenced by the increasing pace of digital upgrades
in existing analog wireless systems, evolving industry standards, ongoing
improvements in the capacity and quality of digital technology, shorter
development cycles for new products and enhancements and changes in end-user
requirements and preferences. There is also uncertainty as to the extent of
customer demand as well as the extent to
11
<PAGE>
which airtime and monthly recurring charges may continue to decline. As a
result, our future prospects and those of the industry, and the success of PCS
and other competitive services, remain uncertain.
Regulation by government agencies may increase our costs of providing service
or require us to change our services
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, generally referred to
as the FAA, and, depending on the jurisdiction, state and local regulatory
agencies and legislative bodies. Adverse decisions regarding these regulatory
requirements could negatively impact Sprint PCS' operations and our cost of
doing business. The Sprint PCS agreements reflect an affiliation that the
parties believe meets the FCC requirements for licensee control of licensed
spectrum. If the FCC were to determine that our agreements with Sprint PCS need
to be modified to increase the level of licensee control, we have agreed with
Sprint PCS to use our best efforts to modify the agreements as necessary to
cause the agreements to comply with applicable law and to preserve to the
extent possible the economic arrangements set forth in the agreements. If the
agreements cannot be modified, the agreements may be terminated pursuant to
their terms.
Use of hand-held phones may pose health risks
Media reports have suggested that certain radio frequency emissions from
wireless handsets may be linked to various health problems, including cancer,
and may interfere with various electronic medical devices, including hearing
aids and pacemakers. Concerns over radio frequency emissions may discourage use
of wireless handsets or expose us to potential litigation.
Risks Relating to the Offering
Our current management and directors may be able to control the outcome of
significant matters presented to stockholders as a result of their ownership
position following the completion of this offering
Upon completion of this offering, our current management and directors will
beneficially own approximately 43% of our outstanding common stock on a diluted
basis, or approximately 40% if the underwriters' over-allotment option is
exercised in full. Consequently, such persons, as a group, may be able to
control the outcome of matters submitted for stockholder action including the
election of members to our board of directors and the approval of significant
change in control transactions. This may have the effect of delaying or
preventing a change in control. See "Management" and "Principal Stockholders."
An active market for the common stock may not develop which may inhibit the
ability of our stockholders to sell common stock following this offering
An active or liquid trading market in our common stock may not develop upon
completion of this offering, or if it does develop, it may not continue. The
initial public offering price of our common stock will be determined through
our negotiations with the underwriters and may be higher than the market price
of common stock after this offering. See "Underwriting" for a discussion of the
factors to be considered in determining the initial public offering price.
12
<PAGE>
The price of our common stock may be volatile
The market price of our common stock could be subject to significant
fluctuations in response to variations in quarterly operating results,
announcements of technological innovations or new products and services by us
or our competitors, our failure to achieve operating results consistent with
securities analysts' projections, the operating and stock price performance of
other companies that investors may deem comparable to us and other events or
factors. Factors such as announcements of the introduction of new or enhanced
services or related products by us or our competition, announcements of joint
development efforts or corporate partnerships in the wireless
telecommunications market, market conditions in the technology,
telecommunications and other emerging growth sectors, and rumors relating to us
or our competitors may also have a significant impact on the market price of
our common stock.
The stock market has experienced extreme price volatility. Under these market
conditions, stock prices of many emerging growth and development stage
companies have often fluctuated in a manner unrelated or disproportionate to
the operating performance of such companies. Since we are a development stage
company, our common stock may be subject to greater price volatility than the
stock market as a whole.
Purchasers in this offering will experience dilution
The initial public offering price is substantially higher than the net
tangible book value per share of the outstanding common stock will be
immediately after the offering. Any common stock you purchase in the offering
will have a post-offering net tangible book value per share of $7.25 less than
the price you paid for the share, assuming an initial public offering price of
$15.00 per share, the midpoint of the range set forth on the cover page of this
prospectus. See "Dilution."
Possible future sales of our common stock by management and other affiliates
could cause the market price of our common stock to decrease
A substantial number of shares of our common stock could be sold into the
public market after this offering. The occurrence of such sales, or the
perception that such sales could occur, could materially and adversely affect
our stock price and could impair our ability to obtain capital through an
offering of equity securities. The shares of common stock being sold in this
offering will be freely transferable under the securities laws immediately
after issuance, except for any shares sold to our "affiliates." All of our
stockholders, members of our senior management and our directors have agreed
pursuant to written "lock-up" agreements that, for a period of 180 days from
the date of this prospectus, they will not, among other things, sell their
shares. As a result, upon the expiration of the lock-up agreements 180 days
after the date of this prospectus, an additional 2,490,385 shares of our common
stock will be eligible for sale subject, in most cases, to volume and other
restrictions under federal securities laws. See "Shares Eligible for Future
Sale."
You may not receive a return on investment through dividend payments or the
sale of your shares
We do not anticipate paying any cash dividends on our common stock in the
foreseeable future. Instead, we intend to retain future earnings to fund our
growth. Therefore, you will not receive a return on your investment in our
common stock through the payment of dividends and may not realize a return on
your investment even if you sell your shares.
13
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains statements about future events and expectations,
which are "forward-looking statements." Any statement in this prospectus that
is not a statement of historical fact may be deemed to be a forward-looking
statement. These statements include:
. forecasts of growth in the number of consumers using PCS services;
. statements regarding our plans for and costs of the build-out of our PCS
network;
. statements regarding our anticipated revenues, expense levels, liquidity
and capital resources and projection of when we will launch commercial
PCS service and achieve break-even operating cash flow;
. statements regarding our preparedness for the year 2000 date change; and
. other statements, including statements containing words such as
"anticipate," "believe," "plan," "estimate," "expect," "seek," "intend"
and other similar words that signify forward-looking statements.
Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause our actual results, performance
or achievements to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements.
Specific factors that might cause such a difference include, but are not
limited to:
. our dependence on our affiliation with Sprint PCS;
. the need to successfully complete the build-out of our PCS network;
. our lack of operating history and anticipation of future losses;
. our dependence on Sprint PCS' back office services;
. potential fluctuations in our operating results;
. our potential need for additional capital;
. our potential inability to expand our services and related products in
the event of substantial increases in demand for these services and
related products;
. our competition; and
. our ability to attract and retain skilled personnel.
See additional discussion under "Risk Factors" beginning on page 5.
14
<PAGE>
USE OF PROCEEDS
The net proceeds to be received from the sale of the common stock we are
offering, after deducting underwriting discounts and commissions and estimated
offering expenses are expected to be approximately $87.3 million, or
approximately $100.6 million if the underwriters' over-allotment option is
exercised in full, assuming an initial public offering price of $15.00 per
share, the midpoint of the range set forth on the cover page of this
prospectus. The net proceeds to be received from the sale of the senior
subordinated discount notes we are offering, after deducting underwriting
discounts and commissions and estimated offering expenses, are expected to be
approximately $143.7 million. We intend to use the net proceeds from the common
stock offering and the senior subordinated discount notes offering, together
with the financing from Lucent, to fund:
. capital expenditures, including the build-out of our PCS network, of
approximately $196.7 million;
. operating losses and working capital requirements of approximately $93.2
million; and
. debt service payments, including the repayment of existing debt
consisting of a $7.7 million unsecured promissory note bearing interest
at an annual rate of 14.0% which matures in December 2000 and a $1.0
million note payable to a bank bearing interest at an annual rate of
prime plus 0.5% which currently matures in August 1999.
Pending such uses, we expect to invest the net proceeds from the sale of the
common stock in short-term investment grade securities which will earn
interest.
The foregoing discussion represents our best estimate of the allocation of
the net proceeds of this offering based upon our current plans. Actual
expenditures may vary substantially from these estimates and we may find it
necessary or advisable to reallocate the net proceeds within the above-
described categories or to use portions thereof for other purposes.
DIVIDEND POLICY
We intend to retain our future earnings, if any, to fund the development and
growth of our business and, therefore, do not anticipate paying any cash
dividends in the foreseeable future. Our future decisions concerning the
payment of dividends on the common stock will depend upon our results of
operations, financial condition and capital expenditure plans, as well as such
other factors as the board of directors, in its sole discretion, may consider
relevant. In addition, our existing indebtedness restricts, and we anticipate
our future indebtedness may restrict, our ability to pay dividends.
15
<PAGE>
CAPITALIZATION
The following table sets forth the cash and cash equivalents and our actual
capitalization:
. as of June 30, 1999; and
. as adjusted to reflect the conversion of $7.6 million in convertible
notes plus accrued interest of $127,000 into 985,641 shares of common
stock; the sale in the common stock offering of 6,333,333 shares of
common stock at an initial offering price of $15.00 per share, the
midpoint of the range set forth on the cover of the common stock
prospectus, less underwriting discounts and commissions and estimated
offering expenses of $7.7 million; the sale of $150.0 million gross
proceeds of % senior subordinated discount notes due 2009 in our senior
subordinated discount notes offering, less aggregate underwriting
discounts and commissions and estimated offering expenses of
$6.3 million; and the completion of the Lucent financing, including the
payment of origination fees and other fees and expenses of $4.9 million.
<TABLE>
<CAPTION>
As of June 30, 1999
---------------------
Actual As Adjusted
(In thousands)
(Unaudited)
<S> <C> <C>
Cash and cash equivalents................................ $ 2,910 $220,410
======== ========
Short-term debt:
Notes payable(1)........................................ $ 4,146 $ 150
Long-term debt:(2)
Lucent financing........................................ 10,000 10,000
% senior subordinated discount notes due 2009........ -- 150,000
Other long-term debt(3)................................. 7,700 --
-------- --------
Total long-term debt.................................... 17,700 160,000
-------- --------
Stockholders' equity (deficit):
Preferred stock, par value $.01 per share; 5,000,000
shares authorized; no shares issued and outstanding.... -- --
Common stock, par value $.01 per share, 25,000,000
shares authorized; 3,898,270 shares outstanding,
actual; 11,217,244 shares outstanding, as
adjusted(4)(5)......................................... 39 112
Additional paid-in capital.............................. 15,867 109,919
Accumulated deficit(1).................................. (19,419) (23,071)
-------- --------
Total stockholders' equity (deficit)................... (3,513) 86,960
-------- --------
Total capitalization................................. $ 14,187 $246,960
======== ========
</TABLE>
- --------------------
(1) Actual includes a $1.0 million credit facility with a bank and $7.7 million
face value of notes payable to affiliates less a $4.6 million unrecognized
discount. As adjusted reflects the conversion of $7.6 million face value of
outstanding promissory notes with an allocation of the $4.6 million
unrecognized discount to accumulated deficit and additional paid-in
capital, and repayment of the $1.0 million credit facility.
(2) Includes current maturities.
(3) Actual consists of a promissory note issued to a third party in connection
with our acquisition of certain site acquisition and engineering costs. As
adjusted reflects repayment of this note.
(4) Shares of common stock outstanding reflect a 39,134-for-one stock split
effective July 9, 1999 and a reverse stock split of 0.996-for-one effective
July 28, 1999.
(5) Excludes 2,000,000 shares of our common stock reserved for issuance under
our 1999 Stock Option Plan and warrants currently outstanding for 243,001
shares of common stock. On July 28, 1999, we granted to current employees
options to purchase 1,075,000 shares of our common stock pursuant to the
1999 Stock Option Plan.
16
<PAGE>
DILUTION
Our net tangible book value at June 30, 1999, was $(3.5) million or $(0.90)
per share of common stock. Net tangible book value per share represents the
amount of total tangible assets less total liabilities, divided by the number
of shares outstanding. After giving effect to:
. the sale in this offering of 6,333,333 shares of common stock at an
assumed initial public offering price of $15.00 per share, the midpoint
of the range set forth on the cover of this prospectus and the receipt of
proceeds therefrom;
. the effect of the conversion of $7.6 million in convertible notes plus
accrued interest of $127,000 into 985,641 shares of common stock upon the
closing of this offering; and,
. the deduction of underwriting discounts and commissions and estimated
offering expenses of $7.7 million
our as-adjusted net tangible book value as of June 30, 1999 would have been
approximately $87.0 million, or $7.75 per share. This represents an immediate
dilution of $7.25 per share to new investors purchasing shares of common stock
in the offering and an immediate increase in net tangible book value to
existing stockholders of $8.65 per share. The following table illustrates the
per share dilution:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share.............. $15.00
Net tangible book value per share as of June 30, 1999........ $(0.90)
Increase in net tangible book value per share attributable to
the offering and the conversion of notes payable to common
stock....................................................... 8.65
------
As adjusted net tangible book value per share after the
offering and conversion of notes payable.................... 7.75
------
Dilution per share to new investors.......................... $ 7.25
======
</TABLE>
The following table summarizes, on an as-adjusted basis as of June 30, 1999,
the number of shares of common stock purchased, the total consideration paid
and the average price per share paid by our existing stockholders and by new
investors purchasing shares of common stock in the offering, assuming an
offering price of $15.00 per share, the midpoint of the range set forth on the
cover page of this prospectus, before the deduction of underwriting discounts
and commissions and estimated offering expenses of $7.7 million payable by us:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ -------------------- Average
Price
Number Percent Amount Percent Per Share
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 4,883,911 44% $ 12,399,429 12% $ 2.54
New investors.............. 6,333,333 56 95,000,000 88 15.00
---------- --- ------------ --- ------
Total.................... 11,217,244 100% $107,399,429 100% $ 9.57
========== === ============ === ======
</TABLE>
The foregoing tables assume no exercise of the underwriters' over-allotment
option and no exercise of outstanding stock options and warrants. See
"Management--1999 Stock Option Plan" and "Management--Employment Agreements."
17
<PAGE>
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 period from inception, June 15, 1995, to December 31, 1995 is derived
from the unaudited consolidated financial statements of AirGate PCS, Inc. and
subsidiaries and predecessors. The selected financial data presented below
under the captions "Statement of Operations Data," "Other Data," and "Balance
Sheet Data" for, and as of the end of, each of the years in the three-year
period ended December 31, 1998, are derived from the consolidated financial
statements of AirGate PCS, Inc. and subsidiaries and predecessors, which
consolidated financial statements have been audited by KPMG LLP, independent
certified public accountants.
The selected financial data should be read in conjunction with the
consolidated financial statements for the three-year period ended December 31,
1998, the related notes and the independent auditors' report, which contains an
explanatory paragraph that states that our recurring losses from operations and
working capital and accumulated deficit raise substantial doubt about our
ability to continue as a going concern, appearing elsewhere in this prospectus.
The consolidated financial statements and the selected financial data do not
include any adjustments that might result from the outcome of that uncertainty.
The selected unaudited financial data presented below as of June 30, 1999 and
for the six month periods ended June 30, 1998 and 1999, are derived from our
unaudited consolidated financial statements included elsewhere in this
prospectus. The unaudited consolidated financial statements include all
adjustments, consisting of normal recurring accruals, that management considers
necessary to a fair presentation of financial position and results of
operations. Operating results for the six month period ended June 30, 1999 are
not necessarily indicative of the results that may be expected for the entire
year ending December 31, 1999.
<TABLE>
<CAPTION>
Period From
Inception,
June 15, For the Six Month
1995, to Periods Ended
December 31, For the Years Ended December 31, June 30,
------------ ---------------------------------- ------------------
1995 1996 1997 1998 1998 1999
(In thousands except per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Operating expenses:
General and
administrative........ $ 1,458 $ 1,252 $ 1,101 $ 2,596 $ 1,100 $ 1,799
Depreciation and
amortization.......... 18 19 998 1,204 746 409
------- ---------- ---------- ---------- -------- --------
Operating loss......... (1,476) (1,271) (2,099) (3,800) (1,846) (2,208)
Interest expense....... (217) (582) (817) (1,392) (510) (5,557)
------- ---------- ---------- ---------- -------- --------
Net loss............... $(1,693) $ (1,853) $ (2,916) $ (5,192) $ (2,355) $ (7,765)
======= ========== ========== ========== ======== ========
Other Data:
Operating loss before
fixed charges......... $(1,476) $ (1,271) $ (2,099) $ (3,800) $ (1,846) $ (2,208)
======= ========== ========== ========== ======== ========
Basic net loss per
share of common stock
(1)................... $ (0.43) $ (0.48) $ (0.75) $ (1.33) $ (0.60) $ (1.99)
======= ========== ========== ========== ======== ========
Diluted net loss per
share of common stock
(1)................... $ (0.34) $ (0.37) $ (0.58) $ (1.00) $ (0.47) $ (1.50)
======= ========== ========== ========== ======== ========
Pro forma net loss per
share of common stock
(1)................... $ (4.93) $ (3.41)
========== ========
</TABLE>
- ---------------------
(Footnotes on the following page)
18
<PAGE>
<TABLE>
<CAPTION>
As of December 31, As of June 30, 1999
---------------------------------- -----------------------
1995 1996 1997 1998 Actual As Adjusted(2)
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents........... $ 256 $ 6 $ 147 $ 2,296 $ 2,910 $220,410
Total assets........... 21,643 2,196 13,871 15,450 21,190 254,740
Long-term debt(3)...... -- -- 11,745 7,700 17,700 160,000
Stockholders' equity
(deficit)............. (1,272) (3,025) (1,750) (5,350) (3,513) 86,960
</TABLE>
- ---------------------
(1) Basic net loss per share of common stock is computed by dividing net loss
by the weighted average number of common shares outstanding. Diluted net
loss per share of common stock reflects the conversion of notes payable and
the dilutive effect of outstanding stock options and warrants. Pro forma
net loss per share of common stock has been presented for the latest fiscal
year and interim period. This presentation gives effect to the additional
interest expense to be incurred from the senior subordinated discount notes
offering.
(2) As adjusted Balance Sheet Data reflects the conversion of notes payable
plus accrued interest to 985,641 shares of common stock, the sale in the
common stock offering of 6,333,333 shares of common stock at an initial
offering price of $15.00 per share, the midpoint of the range set forth on
the cover of the common stock prospectus, less underwriting discounts and
commissions and estimated offering expenses of $7.7 million and the
concurrent sale of $150.0 million of gross proceeds of % senior
subordinated discount notes due 2009 in the senior subordinated discount
notes offering, less aggregate underwriting discounts and commissions and
estimated offering expenses of $6.3 million, the repayment of $8.7 million
in short-term and long-term debt and the completion of the financing from
Lucent, including the payment of origination fees and other estimated fees
and expenses of $4.9 million.
(3) Includes current maturities.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and the related notes included elsewhere in
this prospectus. The discussion contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially
from the results anticipated in these forward-looking statements as a result of
factors including, but not limited to, those under "Risk Factors" and elsewhere
in this prospectus.
Overview
On July 22, 1998, we entered into a management agreement with Sprint PCS
whereby we became the Sprint PCS affiliate with the exclusive right to provide
100% digital, 100% PCS services under the Sprint and Sprint PCS brand names in
our territory in the southeastern United States. We are a development stage
company and have not generated any revenues to date. We have completed our
radio frequency design, network design and substantial site acquisition and
cell site engineering, and commenced construction of our PCS network in
November 1998.
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 will manage the network on Sprint PCS'
licensed spectrum as well as 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 benefits, we are entitled to receive 92%, and Sprint PCS is
entitled to retain 8%, of collected service revenues from customers in our
territory. We are entitled to 100% of revenues collected from the sale of
handsets and accessories, on revenues received when Sprint PCS customers from a
different territory make a wireless call on our PCS network, and on roaming
revenues from non-Sprint PCS customers.
In addition, for specified fees, we may purchase certain back office
services, including customer activation, billing and customer care, directly
from Sprint PCS. We will purchase these services from Sprint PCS at a cost
which reflects Sprint PCS' economies of scale. We expect that the outsourcing
of these services will enable us to reduce capital expenditures for
administrative purposes and to operate with fewer employees than other wireless
providers.
Through June 30, 1999, we have acquired $7.7 million of capitalized network
assets from Sprint PCS and incurred $9.0 million of capital expenditures
related to the build-out of our PCS network. As a result of the progress made
on our PCS network build-out, we expect to be able to launch commercial PCS
operations in the first quarter of 2000. We expect to extend our coverage
during the balance of 2000 and to substantially complete the build-out of our
PCS network by the end of 2000 covering approximately 74% of the population in
our territory. We expect to continue to fill in coverage in 2001.
From our inception in June 1995 through August 1998, our operating activities
were focused on developing a PCS business in the southeastern United States,
including the purchase of four PCS licenses from the FCC. During this period we
did not generate any revenues and, as a result, have incurred operating losses
since inception. The operating results during this period are not indicative of
the anticipated results of operations which we expect to achieve, following
commencement of commercial operations, as a Sprint PCS affiliate.
20
<PAGE>
Results of Operations
Prospective Income Statements
Revenues. Under our management agreement with Sprint PCS, we are entitled to
receive 92% of collected service revenues from customers in our territory. For
financial reporting purposes, we will record 100% of collected service revenues
along with an expense equal to 8% of collected service revenues which Sprint
PCS is entitled to retain under our management agreement. In addition to
collected service revenues, we will generate revenues from the sale of handsets
and accessories and from roaming services provided to customers traveling onto
our PCS network. Sprint PCS is not entitled to retain any of these revenues. We
will make an appropriate accrual of bad debt expense on a monthly basis.
Through our marketing efforts, we will seek to distinguish our service
offerings on the basis of the quality of digital PCS services and extensive
wireless coverage our subscribers will receive through the Sprint PCS network.
We believe that the Sprint and Sprint PCS brand names and quality of digital
PCS service, coupled with Sprint PCS' established customer care and simplified
billing, will build customer loyalty and limit customer turnover, thereby
increasing revenues and margins.
Wireless providers that have offered poor or spotty coverage, inferior voice
quality, unresponsive customer care or confusing billing formats suffer higher
than average customer turnover rates. Accordingly, we will only launch service
in a particular market after comprehensive and reliable coverage and service
can be maintained in that market. In addition, we will use the Sprint PCS
billing platform and rate plans which are designed to offer simple and
understandable options. Specifically, the Sprint PCS Free and Clear rate plans
offer bundled minute options that include local, long distance and roaming on
the entire Sprint PCS network.
Operating Expenses. We expect our operating expenses will principally include
sales and marketing, network operations and general and administrative
expenses.
Sales and marketing expenses relate to our indirect distribution channels,
sales representatives, sales support personnel, our retail stores, advertising
programs and equipment costs and subsidies paid to third party retailers to
sell our handsets. We expect that our cost for each additional customer will be
higher in the initial years of operation and decline as our sales and marketing
expenses are distributed over a greater customer base and costs and subsidies
of handsets decline. We will benefit from the use of the Sprint and Sprint PCS
brand names, Sprint PCS national advertising and other marketing programs. We
will not pay Sprint PCS a marketing service fee. Our costs of handsets and
accessories will reflect Sprint PCS' volume discounts.
Network operations expenses include cell site collocation lease costs,
utilities, switch maintenance, switch site leases, engineering personnel,
backhaul and interconnect charges. We will also be charged roaming fees by
Sprint PCS and other wireless carriers when our customers make a wireless call
on networks outside our territory. More than 85% of our cell sites will be
collocated, which will result in higher cell site lease expenses. These higher
lease expenses will be offset in part by certain operating expense savings
resulting from collocation. Collocation will also substantially reduce our
capital expenditures and time to market. Collocation is the ability to locate
existing antennas and other transmission equipment on existing towers or other
existing structures. Collocation has the following three primary benefits:
. allows us to avoid the costs of building the tower and buying or leasing
the land;
21
<PAGE>
. allows us to more quickly install antennas than if we had to build the
towers ourselves; and
. allows us to avoid any zoning challenges that could prohibit use of the
location for a cell site since we will use existing towers.
On collocation sites we also are able to avoid paying the costs of maintenance
that are borne by the owner of the tower. This results in higher cell lease
expenses, but lower operating costs.
We will purchase a full suite of back office services from Sprint PCS.
. These services will be provided by Sprint PCS in the same manner and with
the same standard of care that Sprint PCS uses in conducting its own
business.
. Initially, the charges for these services, which are based on Sprint PCS'
cost and reflect their economies of scale, will be lower than if we
provided these services ourselves.
. In addition, we expect that, by using these established services, our
capital expenditures and demands on our management's time in connection
with back office services will be lower than if we developed and provided
the services ourselves. We will have access to these services until at
least December 31, 2001. Because of the economic benefits to us, we will
initially purchase:
.customer billing and collections;
.customer care;
.subscriber activation, including credit verification;
.handset logistics;
.network operations control center monitoring;
.national platform interconnectivity;
.voice mail;
.directory assistance and operator services;
.long distance;
.roaming fees and roaming clearinghouse fees; and
.inter-service area fees.
As indicated above, Sprint PCS will retain 8% of collected service revenues.
We will record this affiliation fee as an operating expense.
We will also incur certain general and administrative expenses relating to
corporate overhead, including salaries and other benefits.
Historical Income Statements
From June 15, 1995 (inception) to December 31, 1997:
From inception, June 15, 1995, through December 31, 1997, our operating
activities were focused on developing a PCS business which included the
purchase of four FCC PCS licenses. During this period, we incurred total
cumulative expenses of $6.5 million. These expenses related to salaries and
benefits, professional fees, interest expense, depreciation and amortization of
the FCC
22
<PAGE>
PCS licenses. All costs of start-up and organizational activities have been
expensed or incurred in accordance with AICPA Statement of Position 98-5.
For the year ended December 31, 1998:
In July 1998, we signed a series of agreements with Sprint PCS to operate as
the exclusive affiliate of Sprint PCS in certain markets in the southeastern
United States. As a part of these agreements, we were given the right to market
Sprint PCS' products and services in exchange for building, constructing and
managing a PCS network that will support the wireless service offerings of
Sprint PCS in our territory. In October 1998, AirGate PCS, Inc. was formed and
all operations related to the affiliation with Sprint PCS were transferred to
it and its subsidiaries. The FCC PCS licenses will not be used in our
continuing operations as a Sprint PCS affiliate and, therefore, have been
excluded from the financial statements of AirGate PCS, Inc. During 1998, we
focused on consummating our affiliation with Sprint PCS. Expenses incurred for
these purposes totaled $5.2 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
capitalized network assets which we purchased from Sprint PCS which include
radio frequency and engineering design data, site acquisition materials and
construction equipment. We also incurred $5.2 million of capital expenditures
related to the build-out of our PCS network.
For the six month period ended June 30, 1999:
From December 31, 1998 through June 30, 1999, we were focused on raising
capital to continue our PCS network build-out. We incurred expenses of $7.0
million during the six month period ended June 30, 1999. These expenses
consisted of salaries and benefits, professional fees, interest expense and
depreciation and amortization expense primarily related to our network build
out. We incurred capital expenditures of $4.4 million related to the continued
build-out of our PCS network which includes approximately $810,000 of
capitalized interest.
Interest expense for the period was $6.5 million, which included a $5.0
million charge to record the fair value of warrants and the beneficial
conversion feature related to the convertible notes issued to affiliates.
Liquidity and Capital Resources
Since inception, our activities have consisted principally of raising
capital, participating in PCS license auctions, consummating and supporting our
agreements with Sprint PCS, completing the initial design of our PCS network
and adding to our management team. We have relied on the proceeds from equity
and debt financing, rather than revenues, as our primary sources of capital.
Specifically, operations during this development phase have been funded through
equity infusions by Weiss Peck & Greer PCS Partners and Maxicom PCS L.L.C. as
well as convertible notes issued to the various venture capital funds of Weiss,
Peck & Greer Venture Partners and JAFCO America Ventures, Inc. These notes will
convert into common stock concurrently with this offering. In addition, we
issued a secured promissory note to Lucent for $10.0 million in June 1999 which
will be incorporated into the Lucent financing at the closing of the concurrent
offerings.
Completion of our PCS network will require substantial capital. Our build-out
plan includes the installation of three switches and over 500 cell sites by the
end of the fourth quarter of 2000. In addition, we will construct 12 company-
owned Sprint PCS stores and develop other administrative systems. Currently, we
estimate that the capital requirements to achieve our goals, including
23
<PAGE>
repayment of debt, operating losses and working capital for the period from
July 1, 1999 through the end of 2002, will total approximately $347.0 million.
The actual funds required to build out our PCS network and fund operating
losses and working capital needs may vary materially from these estimates, and
additional funds could be required in the event of unforeseen delays, cost
overruns, unanticipated expenses, engineering design changes and other
technology risks.
Currently, we have no sources of revenue to meet our anticipated capital
requirements. We expect the primary sources of funding to be the proceeds
provided by our concurrent offerings of common stock and senior subordinated
discount notes together with the financing from Lucent. As part of our
concurrent offerings, we are offering for sale senior subordinated discount
notes which will be issued in an aggregate principal amount and with an
interest rate sufficient to generate gross proceeds of approximately $150.0
million. The aggregate accreted value of the senior subordinated discount notes
will increase from $150.0 million at issuance at a rate of % compounded semi-
annually to a final accreted value equal to their aggregate principal amount of
$ million at the end of year five. After year five, we are required to pay
cash interest on the senior subordinated discount notes. The senior
subordinated discount notes will be secured by a senior subordinated pledge of
the capital stock of our future, direct subsidiaries, will be guaranteed by our
existing and our future subsidiaries and will be subordinated in right of
payment to our existing and future senior indebtedness.
We have entered into a commitment letter with Lucent Technologies Inc.
pursuant to which Lucent will provide a credit facility in the amount of up to
$153.5 million. We are currently negotiating the terms of a definitive
agreement which we expect will be executed either prior to or concurrently with
the closing of the offerings. Our financing with Lucent will be used to
purchase equipment, repay capitalized interest and cover approved working
capital costs. Borrowings under the Lucent financing are expected to be secured
by a first priority lien over all of our assets and the assets of our
subsidiary and future subsidiaries, and a pledge of the capital stock of our
subsidiary and future subsidiaries. As of June 30, 1999, we had $10.0 million
of borrowings outstanding under a secured promissory note payable to Lucent. At
closing, the outstanding borrowings will be incorporated into the Lucent
financing.
We believe that the net proceeds from our concurrent offerings of common
stock and senior subordinated discount notes, together with the Lucent
financing, will provide us with sufficient funds to complete our PCS network
build-out and fund operating losses and working capital requirements through
2002, at which point we expect to have achieved break-even operating cash flow.
If we expand more rapidly than currently anticipated, or if our working capital
needs exceed our current expectations, we will need to raise additional equity
or debt capital. We cannot be sure that we will be able to obtain the
additional financing to satisfy our cash requirements or to implement our
growth strategy on acceptable terms or at all. If we cannot obtain such
financing on terms acceptable to us, we may be forced to curtail our planned
business expansion and may be unable to fund our ongoing operations.
Impact of Year 2000 Issue on the Operations and Financial Condition of AirGate
The year 2000 issue arises as the result of computer programs having been
written, and systems having been designed, using two digits rather than four to
define the applicable year. Consequently, such software has the potential to
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations,
24
<PAGE>
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
We believe that our computer systems and software are year 2000 compliant. To
the extent that we implement our own computer systems and software in the
future, we will assess year 2000 compliance prior to their implementation. We
have not incurred any costs relating to year 2000 compliance. In the process of
designing and constructing our PCS network, we have entered into material
agreements with several third-party vendors. We rely on them for all of our
important operating, computer and non-information technology systems. We are
therefore highly dependent on Sprint PCS and other vendors for remediation of
their network elements, computer systems, software applications and other
business systems. We will purchase critical back office services from Sprint
PCS, and our network infrastructure equipment will be contractually provided by
a third party vendor with whom we have a material relationship. If either
Sprint PCS or this third party vendor fail to become year 2000 compliant, our
ability to commence operations may be materially delayed. We have contacted our
third party vendors and believe that they will be year 2000 compliant. However,
we have no contractual or other right to compel compliance by them.
We do not expect to commence operations until the first quarter of 2000.
Because of our reliance on third-party vendors, we believe that the impact on
us of issues relating to year 2000 compliance, if any, would be a delay in our
launching commercial PCS operations and not a disruption in service. We,
therefore, have not developed a contingency plan and do not expect to do so.
Quantitative and Qualitative Disclosure About Market Risk
We are exposed to market risks that are inherent in our financial
instruments. These instruments arise from transactions entered into in the
normal course of business. We are subject to interest rate risk on our
financing from Lucent and any future financing requirements. Our fixed rate
debt will consist primarily of the accreted balance of the senior subordinated
discount notes. Our variable rate debt will consist of borrowings made under
the Lucent financing.
The following table presents the estimated future outstanding long-term debt
at the end of each year and future required annual principal payments for each
year then ended associated with senior subordinated discount notes and the
Lucent financing based on our projected level of long-term indebtedness:
<TABLE>
<CAPTION>
Years Ending December 31,
------------------------------------------------
1999 2000 2001 2002 2003 Thereafter
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Senior subordinated
discount notes......... $156,375 $176,948 $200,228 $226,571 $256,380 $ --
Fixed interest rate
(1).................... 12.75% 12.75% 12.75% 12.75% 12.75% 12.75%
Principal payments...... -- -- -- -- -- 278,283
Lucent financing........ 13,500 55,500 121,679 152,994 150,969 --
Variable interest rate
(2).................... 9.25% 9.25% 9.25% 9.25% 9.25% 9.25%
Principal payments...... -- -- -- 506 2,025 150,969
</TABLE>
- ---------------------
(1) Assumed interest rate for senior subordinated discount notes, which will be
paid in full in 2009.
(2) Interest rate on the Lucent financing equals the London Interbank Offered
Rate ("LIBOR") +3.75%. LIBOR is assumed to equal 5.5% for all periods
presented.
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<PAGE>
Our primary market risk exposure relates to:
.the interest rate risk on long-term and short-term borrowings,
.our ability to refinance our senior subordinated discount notes at
maturity at market rates; and
. the impact of interest rate movements on our ability to meet interest
expense requirements and meet financial covenants.
We expect to manage the interest rate risk on our outstanding long-term and
short-term debt through the use of fixed and variable rate debt and interest
rate swaps. While we cannot predict our ability to refinance existing debt or
the impact interest rate movements will have on our existing debt, we continue
to evaluate our financial position on an ongoing basis.
Inflation
Management believes that inflation has not had, and will not have, a material
adverse effect on our results of operations.
26
<PAGE>
INDUSTRY BACKGROUND
Wireless communications systems use a variety of radio frequencies to
transmit voice and data. Broadly defined, the commercial wireless communication
industry includes one-way radio applications, such as paging or beeper
services, and two-way radio applications, such as cellular, PCS and enhanced
specialized mobile radio, known as ESMR, networks. Historically, each
application has been licensed and operates in a distinct radio frequency block.
In the commercial wireless communication industry there are two principal
services licensed by the FCC for transmitting two-way, real time voice and data
signals: "cellular" and "PCS." Cellular, which uses the 800 MHz frequency
block, is the predominant form of commercial wireless voice communications
service used by subscribers today. Cellular systems are analog-based, but over
the last several years cellular operators have started to deploy digital
service in the 800 MHz frequency block. Digital services have been deployed, as
a complement to the analog based services, in most of the major metropolitan
markets. Analog-based systems send signals in which the transmitted signal
resembles the input signal, the caller's voice, while in digital systems the
input is coded into a binary form before the signal is transmitted. In
addition, ESMR networks may provide up to 15 MHz of spectrum for interconnected
two-way real time voice and data services.
In 1993, the FCC allocated the 1900 MHz frequency block of the radio spectrum
for PCS. PCS differs from traditional analog cellular telephone service
principally in that PCS systems operate at a higher frequency and employ
advanced digital technology. Digital systems convert voice or data signals into
a stream of digits that permit a single radio channel to carry multiple
simultaneous transmissions. Digital systems also achieve greater frequency
reuse than analog systems resulting in greater capacity than analog systems.
This enhanced capacity, along with enhancements in digital protocols, allows
digital-based wireless technologies, whether using PCS or cellular frequencies,
to offer new and enhanced services, such as greater call privacy and more
robust data transmission features, such as "mobile office" applications
including facsimile, electronic mail and connecting notebook computers with
computer/data networks.
Since the introduction of commercial cellular service in 1983, the wireless
communications industry has experienced dramatic growth. The number of wireless
subscribers for cellular, PCS and ESMR has increased from an estimated 340,213
at the end of 1985 to over 69 million as of December 31, 1998, according to the
Cellular Telecommunications Industry Association ("CTIA"), an international
association for the wireless industry. The following chart illustrates the
annual growth in U.S. wireless communication customers for cellular, PCS and
ESMR through December 31, 1998.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------
1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C>
Wireless Industry
Statistics(1)
Total service revenues
(in billions).......... $ 7.8 $ 10.9 $ 14.2 $ 19.1 $ 23.6 $ 27.5 $ 33.1
Wireless subscribers at
end of period
(in millions).......... 11.0 16.0 24.1 33.8 44.0 55.3 69.2
Subscriber growth....... 46.0% 45.1% 50.8% 40.0% 30.4% 25.6% 25.1%
Average monthly revenues
per subscriber......... $68.68 $61.49 $56.21 $51.00 $47.70 $42.78 $39.43
</TABLE>
- ---------------------
Source: Cellular Telecommunications Industry Association.
(1) Reflects domestic commercially operational cellular, ESMR and PCS
providers.
27
<PAGE>
Paul Kagan Associates, Inc., an independent media and telecommunications
association, estimates that the number of wireless users will increase to
approximately 137 million and 169 million by 2002 and 2005, respectively. This
growth is driven largely by a substantial projected increase in PCS users, who
are forecast to account for approximately 34% and 42% of total users in 2002
and 2005, respectively, representing a significant increase over the
approximately 10% of total wireless customers using PCS as of the end of 1998.
Paul Kagan Associates, Inc. projects that total wireless industry penetration,
defined as the number of wireless subscribers nationwide divided by total
United States population, will grow from an estimated 25.3% in 1998 to 57.0% in
2005.
We believe that a significant portion of the predicted growth in the consumer
market for wireless telecommunications will result from anticipated declines in
costs of service, increased functional versatility, and increased awareness of
the productivity, convenience and privacy benefits associated with the services
offered by PCS providers. PCS providers are one of the first direct wireless
competitors of cellular providers to offer all-digital mobile networks. We also
believe that the rapid growth in the use of notebook computers and personal
digital assistants, combined with emerging software applications for delivery
of electronic mail, fax and database searching, will contribute to the growing
demand for wireless service.
Wireless communications systems, whether PCS or cellular, are divided into
multiple geographic coverage areas, known as "cells." In both PCS and cellular
systems, each cell contains a transmitter, a receiver and signaling equipment,
known as the "cell site." The cell site is connected by microwave or landline
telephone circuits to a switch that uses computers to control the operation of
the cellular or PCS communications system for the entire service area. The
system controls the transfer of calls from cell to cell as a subscriber's
handset travels, coordinates calls to and from handsets, allocates calls among
the cells within the system and connects calls to the local landline telephone
system or to a long distance carrier. Wireless communications providers
establish interconnection agreements with local exchange carriers and
interexchange carriers, thereby integrating their system with the existing
landline communications system. Because the signal strength of a transmission
between a handset and a cell site declines as the handset moves away from the
cell site, the switching office and the cell site monitor the signal strength
of calls in progress. When the signal strength of a call declines to a
predetermined level, the switching office may "hand off" the call to another
cell site where the signal strength is stronger.
Wireless digital signal transmission is accomplished through the use of
various forms of "air interface protocols." The FCC has not mandated a
universal air interface protocol for PCS systems. PCS systems operate under one
of three principal air interface protocols, CDMA, TDMA or GSM. TDMA and GSM are
both time division multiple access systems but are incompatible with each
other. CDMA is a code division multiple access system and is incompatible with
both GSM and TDMA. Accordingly, a subscriber of a system that utilizes CDMA
technology is unable to use a CDMA handset when traveling in an area not served
by CDMA-based PCS operators, unless the customer carries a dual-band/dual-mode
handset that permits the customer to use the analog cellular system in that
area. The same issue would apply to users of TDMA or GSM systems. All of the
PCS operators now have dual- or tri-mode handsets available to their customers.
Until digital networks become fully built-out, these handsets will be necessary
for a certain segment of the subscriber base.
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<PAGE>
BUSINESS
We have entered into a management agreement with Sprint PCS whereby we have
the exclusive right to provide 100% digital, 100% PCS products and services
under the Sprint and Sprint PCS brand names in our territory in the
southeastern United States. Based upon the population of our territory, we are
the second largest Sprint PCS affiliate in the United States. Our territory,
which covers almost the entire state of South Carolina, parts of North
Carolina, and the eastern Georgia cities of Augusta and Savannah, has a
resident population of more than 6.8 million and covers 21 contiguous markets
in one of the fastest growing regions in the United States based on population.
Sprint PCS
Sprint is a diversified telecommunications service provider whose principal
activities include long distance service, local service, wireless telephony
products and services, product distribution and directory publishing
activities, and other telecommunications activities, investments and alliances.
Sprint PCS, a wholly-owned subsidiary of Sprint, operates the only 100%
digital, 100% PCS wireless network in the United States with licenses to
provide service nationwide using a single frequency and a single technology.
The Sprint PCS network uses CDMA technology nationwide.
Sprint launched its first commercial PCS service in the United States in
November 1995. Since then, Sprint PCS has experienced rapid customer growth,
providing service to approximately 4.0 million customers as of June 30, 1999.
In the fourth quarter of 1998, Sprint PCS added approximately 830,000 net new
subscribers, the largest single quarter of customer growth ever reported by a
wireless provider in the United States. In the first quarter of 1999, Sprint
PCS added approximately 763,000 net new wireless subscribers, the second
largest quarter ever recorded by a wireless carrier in the United States. As of
June 30, 1999, Sprint PCS, together with its affiliates, operated PCS systems
in 286 metropolitan markets within the United States, including all of the 50
largest metropolitan areas. The following table, showing the quarterly end-of-
period subscriber data for Sprint PCS, illustrates Sprint PCS' subscriber
growth from the beginning of 1997 to the end of the second quarter of 1999.
<TABLE>
<CAPTION>
1997 1998 1999
----------------------- ----------------------- -----------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total subscribers.. 192 347 570 887 1,114 1,370 1,750 2,586 3,350 3,967
</TABLE>
Sprint PCS currently provides nationwide PCS service through a combination of:
.operating its own digital network in major metropolitan areas;
.strategic affiliations with other companies, primarily in and around
smaller metropolitan areas;
. roaming on analog cellular networks of other providers using dual-band,
dual-mode handsets; and
.roaming on digital PCS networks of other CDMA-based providers.
We are the second largest affiliate of Sprint PCS and will provide Sprint PCS
services in key cities contiguous to current and future Sprint PCS markets. Our
territory connects to Sprint PCS markets including Atlanta, Georgia; Charlotte
and Raleigh, North Carolina; Norfolk, Virginia; and Knoxville, Tennessee. The
build-out of our territory will significantly extend Sprint PCS' coverage in
the Southeast and we believe is important to its nationwide strategy.
29
<PAGE>
Competitive Strengths
Benefits of the Sprint PCS Affiliation
Our strategic affiliation with Sprint PCS provides us with many business,
operational and marketing advantages including the following:
Exclusive provider of Sprint PCS products and services. We are the exclusive
provider of Sprint PCS' 100% digital, 100% PCS products and services in our
territory. We will provide these products and services exclusively under the
Sprint and Sprint PCS brand names.
Strong brand recognition and national advertising support. We will benefit
from the strength and the reputation of the Sprint and Sprint PCS brands.
Sprint PCS' national advertising campaigns and developed marketing programs
will be provided to us at no additional cost under our agreements with Sprint
PCS. We will offer the same strategic pricing plans, promotional campaigns and
handset and accessory promotions that we believe have made Sprint PCS the
fastest growing wireless service provider in the United States.
Established and available distribution channels. We will have use of all the
national distribution channels used by Sprint PCS. These channels include:
. RadioShack stores on an exclusive basis for PCS;
. other major national third-party retailers such as Best Buy, Circuit City
and Office Depot;
. Sprint PCS' national inbound telemarketing sales force;
. Sprint PCS' national accounts sales team; and
. Sprint PCS' electronic commerce sales platform.
Nationwide coverage. We plan to operate our PCS network seamlessly with the
Sprint PCS national network. This will provide customers in our territory with
immediate nationwide roaming using Sprint PCS' network and other wireless
networks with which Sprint PCS has roaming agreements. As of June 30, 1999,
Sprint PCS, together with its affiliates, operated PCS systems in 286
metropolitan markets within the United States. Sprint PCS is still constructing
its PCS network. Accordingly, the areas currently served by Sprint PCS,
together with the areas covered by Sprint PCS' roaming agreements, do not cover
every area in the United States. We will receive roaming revenue from the use
of our PCS network by Sprint PCS customers traveling in or visiting our
territory.
Ability to purchase back office services from Sprint PCS. Our affiliation
with Sprint PCS provides us with the option to use Sprint PCS' established back
office services, including customer activation, billing and customer care.
Using this option, we can accelerate the launch of our commercial PCS
operations and reduce our capital expenditures and operating costs rather than
establishing and operating our own systems. Sprint PCS has indicated it intends
to provide these services to us at costs reflecting Sprint PCS' economies of
scale. We may elect to develop our own internal capabilities to handle these
functions or outsource them to a third party in the event that doing so proves
to be more cost effective.
Sprint PCS network design. Sprint PCS developed the initial build-out plan
for our PCS network. We have based our network build-out on this design and
have further enhanced it to better provide coverage for our territory.
30
<PAGE>
Economies of scale of a nationwide network. We will purchase our network and
subscriber equipment under Sprint PCS' vendor contracts that provide for volume
discounts. These discounts will reduce the overall capital required to build
our PCS network and will lower the cost of subscriber equipment.
Sprint PCS licenses and long-term commitment. Sprint PCS has funded the
purchase of the licenses covering our territory at a cost of $44.6 million and
incurred additional expenses for microwave clearing. As a Sprint PCS affiliate,
we did not have to fund the acquisition of the licenses thereby reducing our
start-up costs. Sprint PCS also has agreed to enter into a consent and
agreement with Lucent that will limit Sprint PCS' rights or remedies under its
agreements with us, including Sprint PCS' right to terminate the agreements and
withhold payments, until our financing from Lucent is satisfied in full
pursuant to the terms of the consent and agreement. See "The Sprint PCS
Agreements--Consent and Agreement for the Benefit of the Lucent Financing."
Other Competitive Strengths
In addition to the advantages provided by our strategic affiliation with
Sprint PCS, we have the following competitive strengths:
Attractive market footprint. Our territory has favorable demographic
characteristics for wireless communications services which we believe are
important to Sprint PCS' national footprint. The 21 contiguous markets in our
territory:
. include approximately 6.8 million residents;
. include key southeastern cities and vacation destinations such as Myrtle
Beach and Hilton Head Island, South Carolina; Savannah, Georgia; and the
Outer Banks of North Carolina;
. have strong population growth and attractive traffic patterns;
. connect important Sprint PCS markets which are already operational,
including Atlanta, Georgia; Charlotte and Raleigh, North Carolina;
Norfolk, Virginia; and Knoxville, Tennessee; and
. are serviced by Sprint local telephone companies that cover 30% of our
territory, which contribute to the market awareness of Sprint's
telecommunications services and provide us with an additional
distribution channel.
Experienced management team. We have attracted an experienced senior
management team with an average of more than 15 years of experience in building
and operating telecommunications networks in the southeastern United States.
. Thomas M. Dougherty, our president and chief executive officer, has more
than 16 years of telecommunications experience, and is a former senior
executive of Sprint PCS. As the president of a major Sprint PCS region,
Mr. Dougherty was responsible for Sprint PCS market launches in eighteen
major metropolitan areas with a resident population of approximately 75
million, including Chicago, Illinois; Houston, Texas; Atlanta, Georgia;
and Charlotte, North Carolina.
. Thomas D. Body III, our vice president of strategic planning, has over 20
years of telecommunications experience in the Southeast. Mr. Body co-
founded and operated several successful paging and cellular companies and
also served as chief executive officer of MFS-Atlanta, a major fiber-
optic systems provider.
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. W. Chris Blane, our vice president of new business development, has over
20 years of experience in telecommunications in the Southeast. Mr. Blane
co-founded and operated several successful paging and cellular companies
including serving as a chief operating officer of American Mobilphone
Paging and CellularOne of Birmingham and Montgomery, Alabama.
. Robert E. Gourlay, our vice president of marketing, has 22 years of
wireless telecommunications experience including 18 years with Motorola,
Inc. Mr. Gourlay served as the southeastern manager of sales and
operations for Motorola, Inc.'s Cellular Infrastructure Division for four
years.
. David C. Roberts, our vice president of engineering and network
operations, has 15 years of wireless telecommunications experience,
having served in various engineering and management positions with
Motorola, Inc. in the Southeast.
. Shelley L. Spencer, our vice president of law and secretary, has 12 years
of legal experience, six of which were spent in the private practice of
law specializing in telecommunications. Ms. Spencer joined AirGate in
1995.
. Alan B. Catherall, our chief financial officer, has served in senior
financial capacities in the telecommunications industry for approximately
17 years.
Fully financed plan. The net proceeds from our concurrent offerings of common
stock and senior subordinated discount notes, together with the Lucent
financing, are expected to total approximately $369.8 million. We believe this
capital will provide us with sufficient funds to complete our PCS network
build-out and to fund anticipated operating losses and working capital
requirements through 2002, at which point we expect to have achieved break-even
operating cash flow.
Business Strategy
Upon the completion of our 100% digital, 100% PCS network, we intend to
become a leading provider of wireless PCS services in the Southeast. We believe
that the following elements of our business strategy will enable us to rapidly
launch our network, distinguish our wireless service offerings from those of
our competitors and compete successfully in the wireless communications
marketplace.
Leverage our affiliation with Sprint PCS. The benefits of our affiliation
with Sprint PCS include:
. Sprint PCS brand awareness and national marketing programs;
. access to established Sprint PCS distribution channels and outlets;
. Sprint PCS nationwide coverage;
. use of Sprint PCS' back office services including customer activation,
billing and customer care;
. roaming revenue from Sprint PCS customers traveling onto our PCS network;
. availability of discount prices for network and subscriber equipment
under Sprint PCS' vendor contracts; and
. use of Sprint PCS' national network control center which is responsible
for continually monitoring the performance of our PCS network and
providing rapid response for systems maintenance needs.
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Execute optimal build-out plan. We are constructing a state-of-the-art, high
quality, all digital PCS network. Our radio frequency design has a high density
of cell sites. We believe that this cell density, together with the use of
digital technology, will allow our system to handle more customers with fewer
dropped calls and better clarity than our competitors. By leasing cell sites on
facilities shared with one or more other wireless providers, we will be able to
build our PCS network quickly. More than 85% of our leases for cell sites will
be collocation leases. Our strategy is to provide service to major urban and
suburban areas and the interstates and primary roads connecting these areas. We
plan to initiate service only in areas where we are capable of providing
population coverage comparable to or more extensive than that of our wireless
competitors.
Implement efficient operating structure. We intend to maximize operating
efficiency by minimizing staffing and reducing costs through the purchase and
use of Sprint PCS' existing back office services. For example, we will purchase
billing and customer care from Sprint PCS on a per subscriber basis thereby
avoiding the costly and time-consuming tasks of building our own systems. In
addition, we will limit marketing costs by using Sprint PCS' national marketing
concepts and programs. As the customer base in our territory grows, we may
elect to develop internal systems for certain back office functions such as
customer activation, billing and customer care, or outsource such functions
directly to third party vendors if it is more cost-effective.
Explore strategic opportunities to expand our territory in the future. Upon
the successful build-out of our current territory and subject to the
availability of financing, we may strategically expand our territory with a
focus on the southeastern United States.
Markets
Our territory covers almost the entire state of South Carolina including
Charleston, Columbia and Greenville-Spartanburg; portions of North Carolina
including Asheville, Wilmington and Hickory; and the eastern Georgia cities of
Augusta and Savannah. Sprint PCS has launched service in the major southeastern
cities of Atlanta, Georgia; Knoxville, Tennessee; Norfolk, Virginia; and
Charlotte and Raleigh, North Carolina. We will be the exclusive provider of
Sprint PCS products and services in the markets connecting these major cities.
The build-out of the network in our territory will bridge existing Sprint PCS
markets. We believe connecting existing Sprint PCS markets is important to
Sprint PCS' strategy to provide seamless, nationwide PCS service.
Our contiguous markets with a population of 6.8 million have attractive
demographic characteristics.
. According to the Charleston metropolitan area Chamber of Commerce, South
Carolina beaches are a major national tourism destination. Myrtle Beach,
Charleston, Savannah and Hilton Head Island have over 27 million visitors
annually. In addition, the Outer Banks of North Carolina is a popular
vacation spot for Virginia and Washington, D.C. residents.
. Our territory includes over 2,750 highway miles. Over 36 million vehicle
miles are traveled daily on the 1,320 interstate miles of highway.
. It is estimated that our markets will have a population growth rate 16%
higher than that of the United States as a whole over the 5 years ending
December 31, 2000.
. There are at least 27 colleges and universities located in our territory,
including the University of South Carolina and Clemson University.
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The following table lists the location and population of each of the markets
that comprise our territory under our agreements with Sprint PCS:
<TABLE>
<CAPTION>
Territory (BTAs)* State Population (1)
<S> <C> <C>
Greenville-Spartanburg South Carolina 853,000
Savannah Georgia 715,000
Charleston South Carolina 638,000
Columbia South Carolina 628,000
Augusta Georgia 568,000
Asheville-Hendersonville North Carolina 568,000
Anderson South Carolina 329,000
Hickory-Lenoir-Morganton North Carolina 320,000
Wilmington North Carolina 304,000
Florence South Carolina 257,000
Greenville-Washington North Carolina 241,000
Goldsboro-Kinston North Carolina 233,000
Rocky Mount-Wilson North Carolina 213,000
New Bern North Carolina 167,000
Myrtle Beach South Carolina 157,000
Sumter South Carolina 154,000
Jacksonville North Carolina 150,000
Orangeburg South Carolina 119,000
The Outer Banks(2) North Carolina 80,000
Roanoke Rapids North Carolina 80,000
Greenwood South Carolina 73,000
---------
Total 6,847,000
=========
</TABLE>
- ---------------------
* Basic Trading Areas
(1) Based on estimates compiled by Paul Kagan Associates, Inc. in 1997, except
with respect to the Outer Banks.
(2) The Outer Banks territory covered by our agreements with Sprint PCS does
not comprise a complete BTA. The population information related to the
Outer Banks territory is based on estimates by AirGate.
Network Build-Out Plan
We expect to commence commercial operations in the first quarter of 2000,
covering approximately 1.5 million people, or 22% of the population in our
territory. By the end of the fourth quarter of 2000, we expect to be capable of
providing service to more than 5.0 million residents, or 74% of the population
in our territory. Our strategy is to provide service to major urban and
suburban areas and to cover interstates and primary roads connecting these
areas. We plan to initiate service only in areas where we are capable of
providing population coverage comparable to or more extensive than that of our
wireless competitors.
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In order to complete our network build-out, we will need to acquire leasehold
interests in or purchase and construct approximately 566 cell sites. The table
below indicates the expected launch dates and network coverage that we expect
will be operational and the population covered by those cell sites through the
fourth quarter of 2000.
<TABLE>
<CAPTION>
Expected Covered Residents
Commercial Launch Cumulative as a Percentage of
Date by Quarter Markets Included Covered Residents Total Residents
<C> <S> <C> <C>
First quarter 2000 Anderson and Greenville- 1,535,986 22%
Spartanburg, South
Carolina; Asheville and
Hickory, North Carolina
Second and third quarters 2000 Augusta and Savannah, 4,363,458 63%
Georgia; Charleston,
Columbia, Myrtle Beach,
and Orangeburg, South
Carolina; Goldsboro,
Roanoke Rapids, Rocky
Mount and Wilmington,
North Carolina
Fourth quarter 2000 Florence, Greenwood and 5,003,320 74%
Sumter, South Carolina;
Greenville--Washington,
Jacksonville, New Bern,
and the Outer Banks,
North Carolina
</TABLE>
This build-out plan exceeds the network build-out requirements under our
management agreement with Sprint PCS. We believe that the above schedule is
achievable based on our management's prior experience in network build-outs,
the proven digital PCS technology we will use to build our PCS network and the
established standards of Sprint PCS. As of June 30, 1999, we had signed or
negotiated master or generic lease agreements covering over 400 sites in our
territory. We expect more than 85% of our cell sites to be collocated on
facilities shared with one or more wireless providers. For sites where
collocation leases are utilized, zoning, permitting and surveying approvals and
licenses have already been secured thereby minimizing our start-up costs and
accelerating access to the markets.
Sprint PCS developed the initial build-out plan for our PCS network. We have
based our network build-out on this design and have further enhanced it to
better provide coverage for our territory. We have completed the radio
frequency design for the entire build-out of our digital PCS network. This
process includes cell site design, frequency planning and network optimization
for our market. Radio frequency engineering also allocates voice channels and
assigns frequencies to cell sites taking into consideration both PCS and
microwave interference issues. Under the management agreement, Sprint PCS is
responsible for the microwave clearing efforts and costs in our territory. All
relevant microwave paths have been cleared by Sprint PCS to allow us to provide
service in our territory.
Lucent and Compass Telecom Services LLC will oversee the deployment of our
digital PCS network. Lucent will provide the installation and optimization
services for their equipment and Compass will provide project and construction
services and employ local construction firms to build the cell sites. We may
also hire firms to identify and obtain the required property for our PCS
network. These firms will secure all zoning, permitting and surveying approvals
and licenses.
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Sources and Uses
The following table highlights our projected sources and uses of capital from
July 1, 1999 through December 31, 2002.
<TABLE>
<CAPTION>
Amount
(In millions)
<S> <C>
Sources:
Gross proceeds from the common stock offering.................. $ 95.0
Gross proceeds from the senior subordinated discount notes
offering(1)................................................... 150.0
Lucent financing(2)............................................ 143.5
------
Total sources................................................ $388.5
======
Uses:
Capital expenditures........................................... $196.7
Working capital and operating losses........................... 93.2
Debt service(3)................................................ 38.4
Fees and expenses(4)........................................... 18.7
------
Total uses................................................... 347.0
Cash on hand at December 31, 2002............................ 41.5
------
Total uses and cash on hand at December 31, 2002............. $388.5
======
</TABLE>
- ---------------------
(1) The senior subordinated discount notes will be issued in an aggregate
principal amount and bear a rate of interest sufficient to generate gross
proceeds of approximately $150.0 million.
(2) Our financing from Lucent provides for up to $153.5 million of borrowings,
$10.0 million of which had been provided to us by June 30, 1999. We expect
total drawings of $143.5 million between July 1, 1999 and December 31, 2002
to fund approximately $110.0 million of equipment purchases to complete our
network build-out and $33.5 million for working capital and operating
losses.
(3) Debt service payments are composed of:
<TABLE>
<CAPTION>
Amount
(In millions)
<S> <C>
Cash interest payments...................................... $ 29.7
Repayment of third-party unsecured promissory note.......... 7.7
Repayment of bank credit facility........................... 1.0
------
Total..................................................... $ 38.4
======
</TABLE>
(4) Fees and expenses include estimated offering expenses and underwriting
discounts and commissions for both the common stock offering and senior
subordinated discount notes offering and origination and other fees related
to the Lucent financing.
Products and Services
We will offer established Sprint PCS products and services throughout our
territory. Our products and services are designed to mirror the service
offerings of Sprint PCS and to integrate seamlessly with the Sprint PCS
nationwide network. The wireless services that Sprint PCS currently offers in
over 286 metropolitan markets, including more than 4,000 cities and
communities, provide customers with affordable, reliable 100% digital, 100% PCS
services. The Sprint PCS service package we will offer includes the following:
100% digital wireless mobility. Our primary service is wireless mobility
coverage. Our PCS network will be part of the largest 100% digital, 100% PCS
network in the nation. We will offer customers in our territory enhanced voice
clarity, advanced features, and simple, affordable Sprint
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<PAGE>
PCS Free and Clear pricing plans. These plans include free long distance and
wireless airtime minutes for use throughout the Sprint PCS network at no
additional charge. Our basic wireless service includes voice mail, caller ID,
enhanced call waiting, three-way calling, call forwarding, distinctive ringing
and call blocking.
Nationwide service. Sprint PCS customers in our territory will be able to use
Sprint PCS services throughout our contiguous markets and seamlessly throughout
the Sprint PCS network. Dual-band/dual-mode handsets allow roaming on wireless
networks where Sprint PCS is not available and with which Sprint PCS has
roaming agreements.
Advanced handsets. CDMA handsets weighing approximately eight ounces will
offer two days of standby time and approximately four hours of talk time. We
will also offer dual-band/dual-mode handsets that allow customers to make and
receive calls on both PCS and cellular frequency bands and both digital or
analog technology. These handsets allow roaming on cellular networks where
Sprint PCS digital service is not available. All handsets will be equipped with
preprogrammed features such as speed dial and last number redial, and will be
sold under the Sprint and Sprint PCS brand names.
Extended battery life. CDMA handsets offer significantly extended battery
life relative to earlier technologies, providing two days of standby battery
life. Handsets operating on a digital system are capable of saving battery life
while turned on but not in use, improving efficiency and extending the
handset's use.
Improved voice quality. We believe the Sprint PCS CDMA technology offers
significantly improved voice quality, compared to existing analog and TDMA
networks, more powerful error correction, less susceptibility to call fading
and enhanced interference rejection, all of which result in fewer dropped
calls. See "--CDMA Technology" for a discussion of the reasons CDMA technology
offers improved voice quality.
Privacy and security. Sprint PCS provides secure voice transmissions encoded
into a digital format to prevent eavesdropping and unauthorized cloning of
subscriber identification numbers.
Easy activation. Customers can purchase a shrink-wrapped Sprint PCS handset
off the shelf at a retail location and activate their service by calling
customer service, which can program the handset over the air. We believe over-
the-air activation will reduce the training requirements for salespersons at
the retail locations.
Customer care. Sprint PCS will provide customer care services to customers in
our territory under our services agreement. Sprint PCS offers customer care 24
hours a day, seven days a week. Customers can call the Sprint PCS toll-free
customer care number from anywhere on the national Sprint PCS network. All
Sprint PCS phones are preprogrammed with a speed dial feature that allows
customers to easily reach customer care at any time.
In addition to these services, we may also offer wireless local loop services
in our territory. Wireless local loop is a wireless substitute for the
landline-based telephones in homes and businesses. We also believe that new
features and services will be developed on the Sprint PCS nationwide network to
take advantage of CDMA technology. As a leading wireless provider, Sprint PCS
conducts ongoing research and development to produce innovative services that
give Sprint PCS a competitive advantage. We intend to offer a portfolio of
products and services developed by Sprint PCS to accommodate the growth in, and
the unique requirements of, high speed data traffic and
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<PAGE>
demand for video services. We plan to provide, when available, a number of
applications for wireless data services including facsimile, Internet access,
wireless local area networks and point-of-sale terminal connections.
Marketing Strategy
Our marketing and sales strategy will use Sprint PCS' proven strategies and
developed national distribution channels that have helped generate the highest
incremental wireless penetration of any cellular or PCS provider in the United
States. In the fourth quarter of 1998, Sprint added approximately 830,000 net
new subscribers, the largest single quarter of customer growth ever reported by
a wireless provider in the United States. In the first quarter of 1999, Sprint
PCS added approximately 763,000 net new wireless subscribers, the second
largest quarter ever recorded by a wireless carrier in the United States. We
plan to enhance Sprint PCS' proven strategies with strategies tailored to our
specific territory.
Use Sprint PCS' brand equity and marketing. We will feature exclusively and
prominently the nationally recognized Sprint and Sprint PCS brand names in our
marketing effort. From the customers' point of view, they will use our PCS
network and the Sprint PCS national network seamlessly as a unified national
network. We will build on Sprint PCS' national distribution channels and
advertising programs.
Pricing. Our use of the Sprint PCS pricing strategy will offer customers in
our territory simple, easy-to-understand service plans. Sprint PCS' consumer
pricing plans are typically structured with competitive monthly recurring
charges, large local calling areas, service features such as voicemail,
enhanced caller ID, call waiting and three-way calling, and competitive per-
minute rates. Lower per-minute rates relative to analog cellular providers are
possible in part because the CDMA system that both we and Sprint PCS employ has
greater capacity than current analog cellular systems, enabling us to market
high usage customer plans at lower prices. All of Sprint PCS' current national
plans:
.include minutes in any Sprint PCS market with no roaming charges;
.are feature-rich and generally require no annual contracts or hidden
charges;
.offer a wide selection of phones to meet the needs of consumers and
businesses;
.provide a limited-time money back guarantee on Sprint PCS phones; and
.provide the first incoming minute free.
In addition, Sprint PCS' national Free and Clear plans, which offer simple,
affordable plans for every consumer and business customer, include free long
distance calling from anywhere on its nationwide network.
Local focus. Our local focus will enable us to supplement Sprint PCS'
marketing strategies with our own strategies tailored to each of our specific
markets. This will include attracting local businesses to enhance our
distribution and drawing on our management team's experience in the
southeastern United States. We will use local radio, television and newspaper
advertising to sell our products and services in each of our markets. We intend
to establish a large local sales force to execute our marketing strategy
through 12 company-owned Sprint PCS stores and to employ a direct sales force
targeted to business sales. In addition, Sprint PCS' existing agreements with
national retailers provide us with access to over 250 retail locations in our
territory. We expect that Sprint-owned local exchange carriers will provide
local telephone service to approximately 30% of the
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<PAGE>
population in our territory by the end of the year 2000 which will provide us
with an additional distribution channel through which we can market to an
established base of Sprint customers. Many of these local exchange carriers
have store fronts for Sprint customers to pay their bills, which we can use to
sell Sprint PCS products and services.
Advertising and promotions. Sprint PCS uses national as well as regional
television, radio, print, outdoor and other advertising campaigns to promote
its products. We benefit from this national advertising in our territory at no
additional cost to us. Sprint PCS also runs numerous promotional campaigns
which provide customers with benefits such as additional features at the same
rate or free minutes of use for limited time periods. We are able to purchase
promotional materials related to these programs from Sprint PCS at their cost.
Sponsorships. Sprint PCS is a sponsor of numerous selective, broad-based
national, regional and local events. These sponsorships provide Sprint PCS with
brand name and product recognition in high profile events, provide a forum for
sales and promotional events and enhance our promotional efforts in our
territory.
Bundling of services. We intend to take advantage of the complete array of
communications services offered by bundling Sprint PCS services with other
Sprint products, such as long distance and Internet access.
Sales and Distribution
Our sales and distribution plan mirrors Sprint PCS' proven multiple channel
sales and distribution plan. Key elements of our sales and distribution plan
consist of the following:
Sprint store within a RadioShack store. Sprint has an exclusive arrangement
with RadioShack to install a "store within a store," making Sprint PCS the
exclusive brand of PCS sold through RadioShack stores. RadioShack has 175
stores in our territory.
Other national third party retail stores. In addition to RadioShack, we will
benefit from the distribution agreements established by Sprint PCS with other
national retailers which currently include Best Buy, Circuit City, Office
Depot, The Good Guys, Dillards, The Sharper Image, Montgomery Ward, OfficeMax,
Ritz Camera and certain May Company department stores. These retailers provide
an additional 75 retail stores in our territory.
Sprint PCS stores. We intend to own and operate 12 Sprint PCS stores. These
stores will be located in major metropolitan markets within our territory,
providing us with the strong local presence and a high degree of visibility. We
will train our sales representatives to be informed and persuasive advocates
for Sprint PCS' services. Following the Sprint PCS model, these stores will be
designed to facilitate retail sales, bill collection and customer service.
National accounts and direct selling. We will participate in Sprint PCS'
national accounts program. Sprint PCS has a national accounts team which
focuses on the corporate headquarters of Fortune 500 companies. Once a
representative reaches an agreement with the corporate headquarters, we service
the offices of that corporation located in our territory. Our direct sales
force will target the employees of these corporations in our territory and
cultivate other local business clients.
Inbound telemarketing. Sprint PCS will provide inbound telemarketing sales
when customers call from our territory. As the exclusive provider of Sprint PCS
products and services in our market,
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<PAGE>
we will use the national Sprint 1-800-480-4PCS number campaigns that generate
call-in leads. These leads are then handled by Sprint PCS' inbound
telemarketing group.
Electronic commerce. Sprint PCS launched an Internet site in December 1998
which contains information on Sprint PCS products and services. A visitor to
Sprint PCS' Internet site can order and pay for a handset and select a rate
plan. Customers visiting the site can review the status of their account,
including the number of minutes used in the current billing cycle. Customers
in our territory who purchase products and services over the Sprint PCS
Internet site will be customers of our PCS network.
CDMA Technology
Sprint PCS' nationwide network and its affiliates' networks all use digital
CDMA technology. CDMA technology is fundamental to accomplishing our business
objective of providing high volume, high quality airtime at a low cost. We
believe that CDMA provides important system performance benefits.
Voice quality. CDMA systems offer more powerful error correction, less
susceptibility to fading and reduced interference than analog systems. Using
enhanced voice coding techniques, CDMA systems achieve voice quality that is
comparable to that of the typical wireline telephone. This CDMA vocoder
technology also employs adaptive equalization which filters out annoying
background noise more effectively than existing wireline, analog cellular or
other digital PCS phones.
Greater capacity. CDMA technology allows a greater number of calls within
one allocated frequency and reuses the entire frequency spectrum in each cell.
CDMA systems are expected to provide capacity gains of up to seven times over
the current analog system and up to three times greater than TDMA and GSM
systems. We believe that, by the end of 1999, a new voice coding technology
will be available for CDMA networks which is expected to increase the capacity
of the system by approximately 40%. This new voice coding standard, referred
to as Enhanced Variable Rate Coding, or EVRC, will allow the network to
support additional capacity while maintaining the high level of voice quality
associated with digital networks. We will utilize the EVRC technology
throughout our PCS network to gain the capacity increases. Additional capacity
improvements are expected for CDMA networks over the next two years as new
third generation standards are approved and implemented that will allow for
high-speed data and an even greater increase in the voice traffic capacity.
CDMA technology is designed to provide flexible or "soft" capacity that
permits a system operator to temporarily increase the number of telephone
calls that can be handled within a cell. When capacity limitations in analog,
TDMA and GSM systems are reached, additional callers in a given cell must be
given a busy signal. Using CDMA technology, the system operator can allow a
small degradation in voice quality to provide temporary increases in capacity.
This reduces blocked calls and increase the probability of a successful cell-
to-cell hand-off.
Soft hand-off. CDMA systems transfer calls throughout the network using a
technique referred to as a soft hand-off, which connects a mobile customer's
call with a new cell site while maintaining a connection with the cell site
currently in use. CDMA networks monitor the quality of the transmission
received by both cell sites simultaneously to select a better transmission
path and to ensure that the network does not disconnect the call in one cell
until it is clearly established in a new one. As a result, fewer calls are
dropped compared to analog, TDMA and GSM networks which use a "hard hand-off"
and disconnect the call from the current cell site as it connects with a new
one.
40
<PAGE>
Integrated services. CDMA systems permit us to offer advanced features,
including voice mail, caller ID, enhanced call waiting, three-way calling, call
forwarding and paging and text-messaging. These advanced features may also be
offered by companies utilizing competing technologies.
Privacy and security. One of the benefits of CDMA technology is that it
combines a constantly changing coding scheme with a low power signal to enhance
security and privacy. Vendors are currently developing additional encryption
capabilities which will further enhance overall network security.
Simplified frequency planning. Frequency planning is the process used to
analyze and test alternative patterns of frequency use within a wireless
network to minimize interference and maximize capacity. Currently, cellular
service providers spend considerable money and time on frequency planning.
Because TDMA and GSM based systems have frequency reuse constraints similar to
present analog systems, frequency reuse planning for TDMA and GSM based systems
is expected to be comparable to planning for the current analog systems. With
CDMA technology, however, the same subset of allocated frequencies can be
reused in every cell, substantially reducing the need for costly frequency
reuse patterning and constant frequency plan management.
Longer battery life. Due to their greater efficiency in power consumption,
CDMA handsets will provide two days of standby time and approximately four
hours of talk time availability. This generally exceeds the battery life of
handsets using alternative digital or analog technologies.
While CDMA has the inherent benefits discussed above, TDMA networks are
generally less expensive when overlaying existing analog systems since the TDMA
spectrum usage is more compatible with analog spectrum planning. In addition,
the GSM technology standard, unlike CDMA, supports a more robust
interoperability standard which allows multi-vendor equipment to be used in the
same network. This, along with the fact that the GSM technology is currently
more widely deployed throughout the world than CDMA, provides economies of
scale for handset and equipment purchases. A standards process is also underway
which will allow wireless handsets to support analog, TDMA and GSM technologies
in a single unit. Currently, there are no plans to have CDMA handsets that
support either the TDMA or GSM technologies.
Competition
We will compete in our territory with the incumbent cellular providers and
new PCS providers. The cellular providers in our territory serve different
geographic segments of our territory in our territory, with no cellular carrier
providing complete coverage throughout our territory. Of the PCS providers,
only two will provide service comparable to ours in our territory. These are
BellSouth Mobility DCS and Triton PCS. Bell South Mobility DCS has deployed a
PCS network that uses GSM technology. This competitor is dependent on its
roaming agreements with other wireless carriers to provide service beyond its
licensed areas. Triton PCS is deploying a PCS network that uses TDMA
technology. Triton PCS has reported that it will market its PCS under the
SunCom name and as a member of the AT&T wireless network. In addition, we
compete with wireless providers using ESMR technology such as Nextel and
Southern LINC, a subsidiary of The Southern Company. Our ability to compete
effectively with these other providers will depend on a number of factors,
including the continued success of CDMA technology in providing better call
quality and clarity as compared to analog and digital cellular systems, our
competitive pricing with various options suiting individual customer's calling
needs, and the continued expansion and improvement of the Sprint PCS nationwide
network, customer care system, and handset options.
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Most of our competitors are current cellular providers and joint ventures of
current and potential wireless communications service providers, many of which
have financial resources and customer bases greater than ours. Many of our
competitors have access to more licensed spectrum than the 10 MHz licensed to
Sprint PCS in our 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
competitors may be able to offer coverage in areas not served by our PCS
network, or, because of their calling volumes or their affiliations with, or
ownership of, wireless providers, may be able to offer roaming rates that are
lower than those we offer. PCS operators will likely compete with us in
providing some or all of the services available through the Sprint PCS network
and may provide services that we do not. Additionally, we expect that existing
cellular providers, some of whom have been operational for a number of years
and have significantly greater financial and technical resources and customer
bases than us, will continue to upgrade their systems to provide digital
wireless communication services competitive with Sprint PCS.
We also face competition from "resellers" which provide wireless service to
customers but do not hold FCC licenses or own facilities. Instead, the reseller
buys blocks of wireless telephone numbers and capacity from a licensed carrier
and resells service through its own distribution network to the public. Thus, a
reseller is both a customer of a wireless licensee's services and also a
competitor of that and other licensees. The FCC requires all cellular and PCS
licensees to permit resale of carrier service to a reseller.
In addition, we will compete with paging, dispatch and conventional mobile
telephone companies in our markets. Potential users of PCS systems may find
their communications needs satisfied by other current and developing
technologies. One or two-way paging or beeper services that feature voice
messaging and data display as well as tone-only service may be adequate for
potential customers who do not need to speak to the caller.
In the future, we expect to face increased competition from entities
providing similar services using other communications technologies, including
satellite-based telecommunications and wireless cable systems. While some of
these technologies and services are currently operational, others are being
developed or may be developed in the future.
Over the past several years the FCC has auctioned and will continue to
auction large amounts of wireless spectrum that could be used to compete with
PCS. Based upon increased competition, we anticipate that market prices for
two-way wireless services generally will decline in the future. We will compete
to attract and retain customers principally on the basis of services and
features, the size and location of our service areas, network coverage and
reliability, customer care and pricing. Our ability to compete successfully
will also depend, in part, on our ability to anticipate and respond to various
competitive factors affecting the industry, including new services that may be
introduced, changes in consumer preferences, demographic trends, economic
conditions and discount pricing strategies by competitors.
Intellectual Property
The Sprint diamond design logo is a service mark registered with the United
States Patent and Trademark Office. The service mark is owned by Sprint. We
expect, pursuant to the trademark and
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service mark license agreements, to use, royalty-free, the Sprint and Sprint
PCS brand names and the Sprint diamond design logo and certain other service
marks of Sprint in connection with marketing, offering and providing licensed
services to end-users and resellers, solely within our territory.
Except in certain instances, Sprint PCS has agreed not to grant to any other
person a right or license to provide or resell, or act as agent for any person
offering, licensed services under the licensed marks. In all other instances,
Sprint PCS reserves for itself and its affiliates the right to use the licensed
marks in providing its services, subject to its exclusivity obligations
described above, whether within or without our territory.
The trademark license agreements contain numerous restrictions with respect
to the use and modification of any of the licensed marks. See "The Sprint PCS
Agreements--The Trademark and Service Mark License Agreements."
Employees
As of June 30, 1999, we employed 12 full-time employees. None of our
employees are represented by a labor union. We believe that our relations with
our employees are good.
Properties
Our principal executive offices are located at Harris Tower, 233 Peachtree
Street, N.E., Suite 1700, Atlanta, Georgia 30303. We believe our property is in
good operating condition and is currently suitable and adequate for our
business operations.
Legal Proceedings
We are not aware of any pending legal proceedings against us which,
individually or in the aggregate, if adversely determined, would have a
material adverse effect on our financial condition or results of operations.
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THE SPRINT PCS AGREEMENTS
The following is a summary of the material terms and provisions of the Sprint
PCS agreements and the consent and agreement modifying the Sprint PCS
management agreement. We have filed the Sprint PCS agreements and will file a
consent and agreement as exhibits to the registration statement of which this
prospectus is a part and urge you to review them carefully.
Overview of Sprint PCS Relationship and Agreements
Under long-term agreements with Sprint PCS, we will exclusively market PCS
services under the Sprint and Sprint PCS brand names in our territory. The
agreements with Sprint PCS require us to interface with the Sprint PCS wireless
network by building our PCS network to operate on the 10 MHz of PCS frequencies
licensed to Sprint PCS in the 1900 MHz range. The Sprint PCS agreements also
give us access to Sprint PCS' equipment discounts, roaming revenue from Sprint
PCS customers traveling into our territory, and various other back office
services. Our relationship and agreements with Sprint PCS provide strategic
advantages, including avoiding the need to fund up-front spectrum acquisition
costs and the costs of establishing billing and other customer services
infrastructure. The management agreement has an initial term of 20 years with
three 10-year renewals which will lengthen the contract to a total term of 50
years. The agreements will automatically renew for the first 10-year renewal
period unless we are in material default on our obligations under the
agreements. The agreements will automatically renew for two additional 10-year
terms unless we or Sprint PCS provide the other with two years' prior written
notice to terminate the agreements.
We have four major agreements with Sprint and Sprint PCS (collectively the
"Sprint PCS Agreements"):
. the management agreement;
. the services agreement;
. the trademark and service mark license agreement with Sprint; and
. the trademark and service mark license agreement with Sprint PCS.
In addition, Sprint PCS has agreed to enter into a consent and agreement that
modifies our management agreement for the benefit of Lucent and the holders of
any refinancing of the Lucent facility.
The Management Agreement
Under our management agreement with Sprint PCS, we have agreed to:
. construct and manage a network in our territory in compliance with Sprint
PCS' PCS licenses and the terms of the management agreement;
. distribute during the term of the management agreement, Sprint PCS
products and services;
. use Sprint PCS' and our own distribution channels in our territory;
. conduct advertising and promotion activities in our territory; and
. manage that portion of Sprint PCS' customer base assigned to our
territory.
Sprint PCS will supervise our PCS network operations and has the right to
unconditional access to our PCS network.
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Exclusivity. We are designated as the only person or entity that can manage
or operate a PCS network for Sprint PCS in our territory. Sprint PCS is
prohibited from owning, operating, building or managing another wireless
mobility communications network in our territory while our management agreement
is in place and no event has occurred that would permit the agreement to
terminate. Sprint PCS is permitted under our agreement to make national sales
to companies in our territory and, as required by the FCC, to permit resale of
the Sprint PCS products and services in our territory. If Sprint PCS decides to
expand the geographic size of our build-out, Sprint PCS must provide us with
written notice of the proposed expansion. We have 90 days to determine whether
we will build out the proposed area. If we do not exercise this right, Sprint
PCS can build out the territory or permit another third party to do so.
Network build-out. The management agreement specifies the terms of the Sprint
PCS affiliation, including the required network build-out plan. We have agreed
to cover a specified percentage of the population at coverage levels ranging
from 39% to 86% within each of the 21 markets which make up our territory by
specified dates beginning by March 31, 2000 and ending on December 31, 2000.
The aggregate coverage will result in network coverage of approximately 65% of
the population in our territory of 6.8 million by December 31, 2000. We have
agreed to operate our PCS network, if technically feasible and commercially
reasonable, to provide for a seamless handoff of a call initiated in our
territory to a neighboring Sprint PCS network.
Products and services. The management agreement identifies the products and
services that we can offer in our territory. These services include, but are
not limited to, Sprint PCS consumer and business products and services
available as of the date of the agreement, or as modified by Sprint PCS. We are
allowed to sell wireless products and services that are not Sprint PCS products
and services if those additional products and services do not cause
distribution channel conflicts or, in Sprint PCS' sole determination, consumer
confusion with Sprint PCS' products and services. We may cross-sell services
such as Internet access, handsets, and prepaid phone cards with Sprint, Sprint
PCS and other Sprint PCS affiliates. If we decide to use third parties to
provide these services, we must give Sprint PCS an opportunity to provide the
services on the same terms and conditions. We cannot offer wireless local loop
services specifically designed for the competitive local exchange market in
areas where Sprint owns the local exchange carrier unless we name the Sprint-
owned local exchange carrier as the exclusive distributor or Sprint PCS
approves the terms and conditions.
We will participate in the Sprint PCS sales programs for national sales to
customers, and will pay the expenses and receive the compensation from national
accounts located in our territory. We must use Sprint's long distance service
which we can buy at the best prices offered to comparably situated Sprint
customers.
Service pricing, roaming and fees. We must offer Sprint PCS subscriber
pricing plans designated for regional or national offerings, including Sprint
PCS' Free and Clear plans. We are permitted to establish our own local price
plans for Sprint PCS' products and services only offered in our territory,
subject to Sprint PCS' approval. Sprint PCS will retain 8% of collected
revenues received by Sprint PCS for Sprint PCS products and services from
customers in our territory. This amount excludes roaming revenues, sales of
handsets and accessories, proceeds from sales not in the ordinary course of
business and amounts collected with respect to taxes. Except in the case of
taxes, we will retain 100% of these revenues. Although many Sprint PCS
subscribers will purchase a bundled pricing plan that allows roaming anywhere
on the Sprint PCS and affiliates' network without incremental roaming charges,
we will earn roaming revenues from every minute that a "foreign" subscriber's
call is carried on our PCS network. We will earn revenues from Sprint PCS based
on an
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established per minute rate for Sprint PCS' or its affiliates' subscribers
roaming in our territory. Similarly, we will pay for every minute our own
subscribers use the Sprint PCS nationwide network outside our territory. The
analog roaming rate onto a non-Sprint PCS provider's network is set under
Sprint PCS' third party roaming agreements.
Advertising and promotions. Sprint PCS is responsible for all national
advertising and promotion of the Sprint PCS products and services. We are
responsible for advertising and promotion in our territory. Sprint PCS' service
area includes the urban markets around our territory. Sprint PCS will pay for
advertising in these markets. Given the proximity of those markets to ours, we
expect considerable spill-over from Sprint PCS' advertising in surrounding
urban markets.
Program requirements. We will comply with Sprint PCS' program requirements
for technical standards, customer service standards, national and regional
distribution and national accounts programs. Sprint PCS can adjust the program
requirements from time to time. We have the right to appeal to Sprint PCS'
management adjustments which could cause an unreasonable increase in cost to us
if the adjustment: (1) causes us to incur a cost exceeding 5% of the sum of our
equity plus our outstanding long term debt, or (2) causes our operating
expenses to increase by more than 10% on a net present value basis. If Sprint
PCS denies our appeal, then we have 10 days after the denial to submit the
matter to arbitration. If we do not submit the matter to arbitration within the
10-day period or comply with the program adjustment, Sprint PCS has the
termination rights described below.
Non-competition. We may not offer Sprint PCS products and services outside
our territory without the prior written approval of Sprint PCS. Within our
territory we may offer, market or promote telecommunications products and
services only under the Sprint PCS brands, our own brand, brands of related
parties of ours or other products and services approved under the management
agreement, except that no brand of a significant competitor of Sprint PCS or
its related parties may be used for those products and services. To the extent
we have or obtain licenses to provide PCS services outside our territory, we
may not use the spectrum to offer Sprint PCS products and services without
prior written consent from Sprint PCS.
Inability to use non-Sprint PCS brand. We may not market, promote, advertise,
distribute, lease or sell any of the Sprint PCS products and services on a non-
branded, "private label" basis or under any brand, trademark or trade name
other than the Sprint PCS brand, except for sales to resellers or as otherwise
permitted under the trademark and service mark license agreements.
Rights of first refusal. Sprint PCS has certain rights of first refusal to
buy our assets upon a proposed sale of all or substantially all of our assets.
Termination of management agreement. The management agreement can be
terminated as a result of:
. termination of Sprint PCS' PCS licenses;
. an uncured breach under the management agreement;
. bankruptcy of a party to the management agreement;
. the management agreement not complying with any applicable law in any
material respect;
. the termination of either of the trademark and service mark license
agreements;
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. our failure to obtain the financing necessary for the build-out of our
PCS network and for our working capital needs; provided, however, that
Sprint PCS has agreed that the Lucent financing, the issuance of the
senior subordinated discount notes and the offering of common stock will
meet the financing requirements of the management agreement; or
. the unauthorized transfer or assignment of ownership interest by certain
individuals identified in the management agreement for a period of five
years from the date of the management agreement, if we do not initiate
immediate legal action to prevent the transfer.
The termination or non-renewal of the management agreement triggers certain
of our rights and those of Sprint PCS. The right of either party to require the
other to purchase or sell the operating assets, as discussed below, may not be
exercised, except in limited circumstances in the case of Sprint PCS, until
July 22, 2000.
If we have the right to terminate the management agreement because of an
event of termination caused by Sprint PCS, generally we may:
. require Sprint PCS to purchase all of our operating assets used in
connection with our PCS network for an amount equal to at least 80% of
our Entire Business Value as defined below;
. if Sprint PCS is the licensee for 20 MHz or more of the spectrum on the
date we terminate the management agreement, require Sprint PCS to assign
to us, subject to governmental approval, up to 10MHz of licensed spectrum
for an amount equal to the greater of (1) the original cost to Sprint PCS
of the license plus any microwave relocation costs paid by Sprint PCS or
(2) 9% of our Entire Business Value; or
. sue Sprint PCS for damages or submit the matter to arbitration and
thereby not terminate the management agreement.
If Sprint PCS has the right to terminate the management agreement because of
an event of termination caused by us, generally Sprint PCS may:
. require us to sell our operating assets to Sprint PCS for an amount equal
to 72% of our Entire Business Value;
. require us to purchase, subject to governmental approval, the licensed
spectrum for an amount equal to the greater of (1) the original cost to
Sprint PCS of the license plus any microwave relocation costs paid by
Sprint or (2) 10% of our Entire Business Value;
. take any action as Sprint PCS deems necessary to cure our breach of the
management agreement, including assuming responsibility for, and
operating, our PCS network; or
. sue us for damages or submit the matter to arbitration and thereby not
terminate the management agreement.
Non-renewal. If Sprint PCS gives us timely notice that it does not intend to
renew the management agreement, we may:
. require Sprint PCS to purchase all of our operating assets used in
connection with our PCS network for an amount equal to 80% of our Entire
Business Value; or
. if Sprint PCS is the licensee for 20MHz or more of the spectrum on the
date we terminate the management agreement, require Sprint PCS to assign
to us, subject to governmental approval, up to 10MHz of licensed spectrum
for an amount equal to the greater of (1) the original cost
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to Sprint PCS of the license plus any microwave relocation costs paid by
Sprint PCS or (2) 10% of our Entire Business Value.
If we give Sprint PCS timely notice of non-renewal, or we both give notice of
non-renewal, or the management agreement can be terminated for failure to
comply with legal requirements or regulatory considerations, Sprint PCS may:
. purchase all of our operating assets for an amount equal to 80% of our
Entire Business Value; or
. require us to purchase, subject to governmental approval, the licensed
spectrum for an amount equal to the greater of (1) the original cost to
Sprint PCS of the license plus any microwave relocation costs paid by
Sprint PCS or (2) 10% of our Entire Business Value.
Determination of Entire Business Value. If the Entire Business Value is to be
determined, we and Sprint PCS will each select one independent appraiser and
the two appraisers will select a third appraiser. The three appraisers will
determine the Entire Business Value on a going concern basis using the
following guidelines:
. the Entire Business Value is based on the price a willing buyer would
pay a willing seller for the entire on-going business;
. then-current customary means of valuing a wireless telecommunications
business will be used;
. the business is conducted under the Sprint and Sprint PCS brands and the
Sprint PCS agreements;
. that we own the spectrum and frequencies presently owned by Sprint PCS
and subject to the Sprint PCS Agreements; and
. the valuation will not include any value for businesses not directly
related to the Sprint PCS products and services, and such businesses
will not be included in the sale.
The rights and remedies of Sprint PCS outlined in the management agreement
resulting from an event of termination of the management agreement have been
materially amended by the consent and agreement as discussed below. However, at
such time that there is no outstanding debt covered under the consent and
agreement, such amendments to the rights and remedies of Sprint PCS reflected
in the consent and agreement will not be in effect.
Insurance. We are required to obtain and maintain with financially reputable
insurers who are licensed to do business in all jurisdictions where any work is
performed under the management agreement and who are reasonably acceptable to
Sprint PCS, workers' compensation insurance, commercial general liability
insurance, business automobile insurance, umbrella excess liability insurance
and "all risk" property insurance.
Indemnification. We have agreed to indemnify Sprint PCS and its directors,
employees and agents and related parties of Sprint PCS and their directors,
employees and agents against any and all claims against any of the foregoing
arising from our violation of any law, a breach by us of any representation,
warranty or covenant contained in the management agreement or any other
agreement between us and Sprint PCS, our ownership of the operating assets or
the actions or the failure to act of anyone employed or hired by us in the
performance of any work under this agreement, except we will not indemnify
Sprint PCS for any claims arising solely from the negligence or willful
misconduct of Sprint PCS. Sprint PCS has agreed to indemnify us and our
directors, employees and agents against all claims against any of the foregoing
arising from Sprint PCS' violation of any law
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and from Sprint PCS' breach of any representation, warranty or covenant
contained in this agreement or any other agreement between Sprint PCS and us,
except Sprint PCS will not indemnify us for any claims arising solely from our
negligence or willful misconduct.
The Services Agreement
The services agreement outlines various back office services provided by
Sprint PCS and available to us at established rates. Sprint PCS can change any
or all of the service rates one time in each 12 month period. Some of the
available services include: billing, customer care, activation, credit checks,
handset logistics, home locator record, voice mail, prepaid services, directory
assistance, operator services, roaming fees, roaming clearinghouse fees,
interconnect fees and inter-service area fees. Sprint PCS offers three packages
of available services. Each package identifies which services must be purchased
from Sprint PCS and which may be purchased from a vendor or provided in-house.
Essentially, services such as billing, activation and customer care must all be
purchased from Sprint PCS or none may be purchased from Sprint PCS. We have
chosen to initially buy these services from Sprint PCS but may develop an
independent capability with respect to these services over time. Sprint PCS may
contract with third parties to provide expertise and services identical or
similar to those to be made available or provided to us. We have agreed not to
use the services received under the services agreement in connection with any
other business or outside our territory. We may discontinue use of any service
upon three months' prior written notice. Sprint PCS has agreed that the
services presently offered will be available until at least December 31, 2001.
Sprint PCS may discontinue a service after December 31, 2001 provided that
Sprint PCS provides us with nine months' prior notice.
We have agreed with Sprint PCS to indemnify each other as well as officers,
directors, employees and certain other related parties and their officers,
directors and employees for violations of law or the services agreement except
for any liabilities resulting from the indemnitee's negligence or willful
misconduct. The services agreement also provides that no party to the agreement
will be liable to the other party for special, indirect, incidental, exemplary,
consequential or punitive damages, or loss of profits arising from the
relationship of the parties or the conduct of business under, or breach of, the
services agreement except as may otherwise be required by the indemnification
provisions. The services agreement automatically terminates upon termination of
the management agreement and neither party may terminate the services agreement
for any reason other than the termination of the management agreement.
The Trademark and Service Mark License Agreements
We have non-transferable, royalty-free licenses to use the Sprint and Sprint
PCS brand names and "diamond" symbol, and several other U.S. trademarks and
service marks such as "The Clear Alternative to Cellular" and "Clear Across the
Nation" on Sprint PCS products and services. We believe that the Sprint and
Sprint PCS brand names and symbols enjoy a very high degree of awareness,
providing us an immediate benefit in the market place. Our use of the licensed
marks is subject to our adherence to quality standards determined by Sprint and
Sprint PCS and use of the licensed marks in a manner which would not reflect
adversely on the image of quality symbolized by the licensed marks. We have
agreed to promptly notify Sprint and Sprint PCS of any infringement of any of
the licensed marks within our territory of which we become aware and to provide
assistance to Sprint and Sprint PCS in connection with Sprint's and Sprint PCS'
enforcement of their respective rights. We have agreed with Sprint and Sprint
PCS to indemnify each other for losses incurred in connection with a material
breach of the trademark license agreements. In addition, we have agreed
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to indemnify Sprint and Sprint PCS from any loss suffered by reason of our use
of the licensed marks or marketing, promotion, advertisement, distribution,
lease or sale of any Sprint or Sprint PCS products and services other than
losses arising solely out of our use of the licensed marks in compliance with
certain guidelines.
Sprint and Sprint PCS can terminate the trademark and service mark license
agreements if we file for bankruptcy, materially breach the agreement or our
management agreement is terminated. We can terminate the trademark and service
mark license agreements upon Sprint's or Sprint PCS' abandonment of the
licensed marks or if Sprint or Sprint PCS files for bankruptcy, or the
management agreement is terminated.
Consent and Agreement for the Benefit of the Lucent Financing
Sprint PCS intends to enter into a consent and agreement with Lucent, which
will be acknowledged by AirGate, that modifies Sprint PCS' rights and remedies
under our management agreement for the benefit of Lucent and any refinancing
thereof (the "Lucent Consent"). The description of the Lucent Consent below
reflects our current expectations of the material terms of the Lucent Consent
based upon discussions between representatives of Sprint PCS and Lucent to
date. Accordingly, although the description of the Lucent Consent is written as
though it was complete, the provisions remain subject to change upon further
negotiation of the parties to the Lucent Consent.
The Lucent Consent generally provides, among other things, the following:
. Sprint PCS' consent to the pledge of our subsidiary stock and grant of a
security interest in all our assets including the Sprint PCS Agreements;
. that the Sprint PCS Agreements may not be terminated by Sprint PCS until
the financing from Lucent is satisfied in full pursuant to the terms of
the Lucent Consent, unless our stock or assets are sold to a purchaser
who does not continue to operate the business as a Sprint PCS network,
which sale requires the approval of the Administrative Agent;
. a prohibition on competing Sprint PCS networks in our territory;
. for Sprint PCS to maintain 10 MHz of PCS spectrum in all our markets;
. for redirection of payments from Sprint PCS to the Administrative Agent
under specified circumstances;
. for Sprint PCS and the Administrative Agent to provide to each other
notices of default;
. the ability to appoint an interim replacement, including Sprint PCS, to
operate our PCS network under the Sprint PCS Agreements after an
acceleration of our financing from Lucent or an event of termination
under the Sprint PCS Agreements;
. the ability of the Administrative Agent or Sprint PCS to assign the
Sprint PCS Agreements and sell our assets or stock to a qualified
purchaser other than a major competitor of Sprint PCS or Sprint;
. the ability to purchase spectrum from Sprint PCS and sell our assets or
stock to any qualified purchaser; and
. the ability of Sprint PCS to purchase our assets or our debt.
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Consent to security interest and pledge of stock. Sprint PCS has consented to
the grant of the following:
. a first priority security interest in all our assets including the
Sprint PCS Agreements;
. a lien upon all of our assets and property including our rights under
the Sprint PCS Agreements; and
. a first priority security interest in the capital stock and equity
interests of our subsidiary and future subsidiaries.
Sprint PCS has agreed to acknowledge the grant of these security interests
and to waive its right to challenge or contest the validity of the interests.
Agreement not to terminate Sprint PCS Agreements until the obligations under
the Lucent financing are repaid. Sprint PCS has agreed not to exercise its
rights or remedies under the Sprint PCS Agreements, except its right to cure
some defaults, including its right to terminate the Sprint PCS Agreements and
withhold payments, other than rights of setoff, until the Lucent financing is
satisfied in full pursuant to the terms of the Lucent Consent. Sprint PCS has
agreed that until the Lucent financing is satisfied in full pursuant to the
terms of the Lucent Consent, the failure of a party related to us to pay any
amount under any agreement with Sprint PCS, other than the Sprint PCS
Agreements, or its related parties will not constitute a breach of the Sprint
PCS Agreements.
No competition until obligations under the Lucent financing are
repaid. Sprint PCS has agreed that it will not permit any person other than
AirGate or a successor manager to be a manager or operator for Sprint PCS in
our territory until the Lucent financing is satisfied in full pursuant to the
terms of the Lucent Consent. Consistent with our management agreement, while
the Lucent financing is outstanding, Sprint PCS can sell PCS services through
its national accounts, permit resellers and build new geographical areas within
our territory for which we have chosen not to exercise our rights of first
refusal. Similarly, Sprint PCS has agreed that it will not own, operate, build
or manage another wireless mobility communications network in our territory
unless it is permitted under the management agreement or the management
agreement is terminated in accordance with the Lucent Consent, and, in each
case, our senior debt is satisfied in full pursuant to the terms of the Lucent
Consent.
Maintain 10 MHz of spectrum. Sprint PCS has agreed to own at least 10 MHz of
PCS spectrum in our territory until the first of the following events occurs:
. the obligations under the Lucent financing are satisfied in full
pursuant to the terms of the Lucent Consent;
. the sale of spectrum is completed under the Lucent Consent, as discussed
below; or
. the sale of operating assets is completed under the Lucent Consent, as
discussed below.
Restrictions on assignment and change of control do not apply to lenders and
the Administrative Agent. Sprint PCS has agreed not to apply the restrictions
on assignment of the Sprint PCS Agreements and changes in control of our
ownership to the lenders of the Lucent financing or the Administrative Agent.
The assignment and change of control provisions in the Sprint PCS Agreements
will apply if the assignment or change of control is to someone other than the
Administrative Agent or a lender of the Lucent financing, or is not permitted
under the Lucent Consent.
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Redirection of payments from Sprint PCS to the Administrative Agent. Sprint
PCS has agreed to make all payments due from Sprint PCS to us under the Sprint
PCS Agreements directly to the Administrative Agent if the Administrative Agent
provides Sprint PCS with notice that an event of default has occurred and is
continuing under the Lucent financing. Payments to the Administrative Agent
would cease upon the cure of the event of default.
Notice of defaults. Sprint PCS has agreed to provide to the Administrative
Agent a copy of any written notice it sends us regarding an event of
termination or an event that if not cured, or if notice is provided, would be
an event of termination under the Sprint PCS Agreements. Sprint PCS also has
acknowledged that notice of an event of termination under the Sprint PCS
Agreements constitutes an event of default under the Lucent financing. The
Administrative Agent is, or will be, required to provide Sprint PCS a copy of
any written notice sent to us regarding an event of default or default under
the Lucent financing instruments.
Right to cure. Sprint PCS and the Administrative Agent have the right, but
not the obligation, to cure a default under the Sprint PCS Agreements. During
the first six months as interim manager Sprint PCS' right to reimbursement of
any expenses incurred in connection with the cure are subordinated to the
satisfaction in full, pursuant to the terms of the Lucent Consent of the
obligations under the Lucent financing.
Modification of termination rights. The Lucent Consent modifies the rights
and remedies under the management agreement provided in an event of termination
and grants the provider of the Lucent financing certain rights in the event of
a default under the instruments governing the senior debt. The rights and
remedies of Lucent vary based on whether we have:
. defaulted under our debt obligations but no event of termination has
occurred under the management agreement; or
. breached the management agreement.
The Lucent Consent generally permits the appointment of a person to run our
business under the Sprint PCS Agreements on an interim basis and establishes a
process for sale of the business. The person designated to operate our business
on an interim basis is permitted to collect a reasonable management fee. If
Sprint PCS or a related party is the interim operator, the amount of the fee
shall not exceed the amount of direct expenses of its employees to operate the
business plus out-of-pocket expenses. Sprint PCS shall collect its fee by
setoff against the amounts owed to us under the Sprint PCS Agreements with
them. In the event of an acceleration of obligations under the Lucent financing
and for up to two years thereafter, Sprint PCS shall retain only one-half of
the 8% of collected revenues that it would otherwise be entitled to retain.
Sprint PCS may retain the full 8% after the second anniversary of the date of
acceleration if Sprint PCS has not been appointed to run our business on an
interim basis or earlier if our business is sold to a third party. We or the
Administrative Agent, as the case may be, shall be entitled to receive the
remaining one-half of the collected revenues that Sprint PCS would otherwise
have retained. The amount advanced to us or the Administrative Agent shall be
evidenced by an interest-bearing promissory note. The promissory note shall
mature on the earlier of (1) the date a successor manager is qualified and
assumes our rights and obligations under the Sprint PCS Agreements or (2) the
date on which our operating assets or equity are purchased by a third party.
Default under the Lucent financing without a management agreement breach. If
we default on our obligations under the Lucent financing and there is no
default under our management agreement
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with Sprint PCS, Sprint PCS has agreed to permit the Administrative Agent to
elect to take any of the following actions:
. allow us to continue to operate the business under the Sprint PCS
Agreements;
. appoint Sprint PCS to operate the business on an interim basis; or
. appoint a person other than Sprint PCS to operate the business on an
interim basis.
Appointment of Sprint PCS or third party designee by Administrative Agent to
operate business. If the Administrative Agent appoints Sprint PCS to operate
the business, Sprint PCS must accept the appointment within 14 days or
designate to operate the business another person who also is an affiliate of
Sprint PCS or is acceptable to the Administrative Agent. Sprint PCS or its
designated person must agree to operate the business for up to six months. At
the end of the six months, the period may be extended by the Administrative
Agent for an additional six months or an additional 12 months if the aggregate
population served by all of Sprint PCS' affiliates is less than 40 million. If
the term is extended beyond the initial six month period, the Administrative
Agent will be required to reimburse Sprint PCS or its designated person for
amounts previously expended and to be incurred as interim manager to cure a
default up to an aggregate amount that is equal to 5% of the sum of our
stockholders' equity value plus the outstanding amount of our long term debt.
Sprint PCS or its designated person is not required to incur expenses beyond
this 5% limit. At the end of the initial six-month interim term, the
Administrative Agent has the right to appoint a successor to AirGate subject to
the requirements set forth below.
Appointment of third party by Administrative Agent to operate business. If
the Administrative Agent appoints a person other than Sprint PCS to operate the
business on an interim basis the third party must:
. agree to serve for six months unless terminated by Sprint PCS or the
Administrative Agent for cause;
. meet the requirements for a successor to an affiliate and not be
challenged by Sprint PCS for failing to meet these requirements within
20 days after the Administrative Agent provides Sprint PCS with
information on the third party; and
. agree to comply with the terms of the Sprint PCS Agreements.
The third party is required to operate the Sprint PCS network in our
territory but is not required to assume our existing liabilities. If the third
party materially breaches the Sprint PCS Agreements, this breach will be
treated as an event of default under the management agreement with Sprint PCS.
Management agreement breach. If we breach the Sprint PCS Agreements and this
breach causes a default under the Lucent financing, Sprint PCS has the right to
designate who will operate our business on an interim basis. Sprint PCS has the
right to:
. allow us to continue to operate the PCS business under the Sprint PCS
Agreements if approved by the Administrative Agent;
. operate our PCS business on an interim basis; or
. appoint a person other than Sprint PCS that is acceptable to the
Administrative Agent, which acceptance can not be unreasonably withheld
and must be given for another Sprint PCS affiliate, to operate our PCS
business on an interim basis.
When a debt default is caused by a breach of our management agreement with
Sprint PCS, the Administrative Agent only has a right to designate who will
operate our business on an interim basis
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if Sprint PCS elects not to operate the business or designate a third party to
operate the business on an interim basis.
Election of Sprint PCS to serve as interim manager or designate a third party
to operate business. If Sprint PCS elects to operate the business on an interim
basis or designate a third party to operate the business on an interim basis,
Sprint PCS or the third party may operate the business for up to six months at
the discretion of Sprint PCS. At the end of the six months, the period may be
extended for an additional six months or an additional 12 months if the
aggregate population served by us and all other affiliates of Sprint PCS is
less than 40 million. If the term is extended beyond the initial six month
period, the Administrative Agent will be required to reimburse Sprint PCS or
its third party designee for amounts previously expended and to be incurred as
interim manager to cure a default up to an aggregate amount that is equal to 5%
of the sum of our shareholder's equity value plus the outstanding amount of our
long term debt. Sprint PCS or its third party designee is not required to incur
expenses beyond this 5% limit. At the end of the initial six-month interim
term, Sprint PCS, subject to the approval of the Administrative Agent has the
right to appoint a successor interim manager to operate our business.
Appointment of third party by Administrative Agent to operate business. If
Sprint PCS gives the Administrative Agent notice of a breach of the management
agreement, the debt repayment is accelerated, and Sprint PCS does not agree to
operate the business or is unable to find a designee, the Administrative Agent
may designate a third party to operate the business. The Administrative Agent
has this same right if Sprint PCS or the third party designated by Sprint PCS
resigns and is not replaced within 30 days. The third party selected by the
Administrative Agent must:
. agree to serve for six months unless terminated by Sprint PCS for cause
by the Administrative Agent;
. meet the requirements for a successor to an affiliate and not be
challenged by Sprint PCS for failing to meet the requirements within 20
days after the Administrative Agent provides Sprint PCS with information
on the third party; and
. agree to comply with the terms of the Sprint PCS Agreements.
The third party may continue to operate the business after the six month
period at the Administrative Agent's discretion, so long as the third party
continues to satisfy the requirements to be a successor to an affiliate. The
third party is required to operate the Sprint PCS network in our territory, but
is not required to assume our existing liabilities.
Purchase and sale of operating assets. The Lucent Consent establishes a
process for the sale of our operating assets in the event of a default and
acceleration under the Lucent financing. Our stockholder has approved the sale
of our operating assets pursuant to the terms of the Lucent Consent.
Sprint PCS' right to purchase on acceleration of amounts outstanding under
the Lucent financing. Subject to the requirements of applicable law, so long as
our equipment financing with Lucent or any refinancing thereof, remains
outstanding, Sprint PCS has the right to purchase our operating assets or
capital stock, upon notice of an acceleration of the Lucent financing under the
following terms:
. in addition to the purchase price requirements of the management
agreement, the purchase price must include the payment or assumption in
full, pursuant to the terms of the Lucent Consent, of the Lucent
financing;
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. Sprint PCS must notify the Administrative Agent of its intention to
exercise the purchase right within 60 days of receipt of the notice of
acceleration;
. the Administrative Agent is prohibited for a specified period after the
acceleration or until Sprint PCS rescinds its intention to purchase from
enforcing its security interest if Sprint PCS has given notice of its
intention to exercise the purchase right;
. if we receive a written offer that is acceptable to us to purchase our
operating assets or capital stock within a specified period after the
acceleration, Sprint PCS has the right to purchase our operating assets
or our stock on terms and conditions at least as favorable to us as the
offer we receive. Sprint PCS must agree to purchase the operating assets
or capital stock within 14 business days of its receipt of the offer, on
acceptable conditions, and in an amount of time acceptable to us; and
. upon completion of the sale to Sprint PCS, the Administrative Agent must
release the security interests upon satisfaction in full pursuant to the
terms of the Lucent Consent of the obligations under the Lucent
financing.
If the Administrative Agent acquires our operating assets or capital stock,
Sprint PCS has the right for 60 days to notify the Administrative Agent that it
wants to purchase the operating assets or capital stock for an amount not less
than the sum of the aggregate amount paid by the lenders under the Lucent
financing for the operating assets plus an aggregate amount sufficient to
satisfy in full the obligations under the Lucent financing pursuant to the
terms of the Lucent Consent. If Sprint PCS purchases the operating assets or
capital stock under these provisions, the Administrative Agent must release the
security interests.
If the Administrative Agent receives an offer to purchase the operating
assets or our capital stock, Sprint PCS has the right to purchase the operating
assets or stock on terms and conditions at least as favorable as the terms and
conditions in the proposed offer within 14 days of Sprint PCS' receipt of
notice of the offer, and so long as the conditions of Sprint PCS' offer and the
amount of time to complete the purchase is acceptable to the Administrative
Agent.
Sale of operating assets or capital stock to third parties. If Sprint PCS
does not purchase the operating assets or capital stock, following an
acceleration of the obligations under the Lucent financing, the Administrative
Agent may sell the operating assets or stock. Subject to the requirements of
applicable law, the Administrative Agent has two options:
. to sell the assets or stock to an entity that meets the requirements to
be our successor under the Sprint PCS Agreements; or
. to sell the assets or stock to any third party, subject to specified
conditions.
Sale of assets or capital stock to qualified successor. Subject to the
requirements of applicable law, the Administrative Agent may sell the operating
assets or capital stock and assign the agreements to entities that meet the
following requirements to succeed us:
. the person has not materially breached a material agreement with Sprint
PCS or its related parties that has resulted in the exercise of a
termination right or in the initiation of judicial or arbitration
proceedings during the past three years;
. the person is not named by Sprint PCS as a prohibited successor;
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. the person has reasonably demonstrated its credit worthiness and can
demonstrate the ability to service the indebtedness and meet the
requirements in the build-out plan; and
. the person agrees to be bound by the Sprint PCS Agreements.
The Administrative Agent is required to provide Sprint PCS with information
necessary to determine if a buyer meets the requirements to succeed us. Sprint
PCS has 20 days after its receipt of this information to object to the
qualifications of the buyer to succeed us. If Sprint PCS does not object to the
buyer's qualifications, subject to the requirements of applicable law, the
buyer can purchase the assets and assume our rights and responsibilities under
the Sprint PCS Agreements. The Lucent Consent will remain in full force and
effect for the benefit of the buyer and its lenders. The buyer also has a
period to cure any defaults under our Sprint PCS Agreements.
Sale of assets or capital stock to non-successor. Subject to the requirements
of applicable law, the Administrative Agent may sell our assets or stock to a
party that does not meet the requirements to succeed AirGate. If such a sale is
made:
.Sprint PCS may terminate the Sprint PCS Agreements;
. the buyer may purchase from Sprint PCS 5, 7.5 or 10 MHz of the PCS
spectrum licensed to Sprint PCS in our territory under specified terms;
. if the buyer controls, is controlled by or is under common control with
an entity that owns a license to provide wireless service to at least 50%
of the population in a basic trading area where the buyer proposes to
purchase the spectrum from Sprint PCS, the buyer may only buy 5 MHz of
spectrum;
. the price to purchase the spectrum is equal to the sum of the original
cost of the license to Sprint PCS pro rated on a population and a
spectrum basis, plus the cost paid by Sprint PCS for microwave clearing
in the spectrum ultimately acquired by the buyer of our assets and the
amount of carrying costs attributable to the license and microwave
clearing costs from the date of the Lucent Consent until the closing of
the sale, based on a rate of 12% per annum;
. the buyer will receive from Sprint PCS the customers with the MIN
assigned to the market area covered by the purchased spectrum except for
customers of national accounts and resellers;
. with limited exceptions, Sprint PCS will not solicit for six months the
customers transferred to the buyer with the MIN assigned to the market
area;
. the buyer and Sprint PCS will enter into a mutual roaming agreement with
prices equal to the lesser of the most favored pricing provided by buyer
to third parties roaming in the geographic area and the national average
paid by Sprint PCS to third parties; and
. Sprint PCS will have the right to resell buyer's wireless services at
most favored nations pricing.
Right to purchase debt obligations. Following an acceleration under the
Lucent financing and until the 60-day anniversary of the filing of a petition
of bankruptcy, Sprint PCS has the right to purchase our obligations under the
Lucent financing at a purchase price equal to the amount of the obligations
other than interest accrued and fees and expenses that are deemed to be
unreasonable.
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Modification and amendment of Lucent Consent. If Sprint PCS modifies or
amends the form of consent and agreement it enters into with another lender,
then Sprint PCS agrees to give the Administrative Agent written notice of the
amendments and to amend the Lucent Consent in the same manner at the
Administrative Agent's request. Sprint PCS is not required to amend the Lucent
Consent to:
. incorporate changes made for the benefit of a lender because of
circumstances related to a Sprint PCS affiliate other than AirGate;
. incorporate selected changes designated by the Administrative Agent
unless Sprint PCS consents to the making only the selected changes; and
. reflect amendments made to consent and agreements executed in connection
with loans to Sprint PCS affiliates other than AirGate that are
syndicated or intended to be syndicated to at least three financial
institutions or investment funds.
In addition, after five consent and agreements are executed for syndicated
loans with Sprint PCS affiliates, Sprint PCS is not required to amend the
Lucent Consent, unless the consent and agreement for the syndicated loan is for
a Sprint PCS affiliate serving an aggregate population of more than 5 million.
Subject to the preceding sentence, the following circumstances are not
considered unique to a Sprint PCS affiliate and could amend the Lucent Consent:
. any form of recourse to Sprint PCS or similar form of credit
enhancement;
. any change in Sprint PCS's right to purchase our operating assets or
capital stock under the management agreement or Sprint PCS's right to
purchase the obligations under the Lucent financing;
. any change to our right or the right of the Administrative Agent or our
lenders under the Lucent financing to sell the collateral or purchase
spectrum from Sprint PCS;
. any change in the ownership status, terms of usage or the amount of
spectrum that may be purchased by us from Sprint PCS;
. any material change in the flow of certain revenues between Sprint PCS
and us;
. any changes to the obligations required to be assumed by, or
qualifications for, or appointment of, anyone other than AirGate who can
be appointed to operate our business on an interim basis under the
management agreement or purchase the business and continue to operate
under the management agreement;
. any changes to the consent and agreements terms on confidentiality, non-
compete or eligible buyers of the business;
. any clarifications of FCC compliance issues;
. any issuance of legal opinions; and
. any changes to the requirements of this section.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
The Lucent Financing
We have entered into a commitment letter with Lucent Technologies Inc.
pursuant to which Lucent has agreed to provide a credit facility in the amount
of up to $153.5 million. We are currently negotiating the terms of a definitive
agreement which we expect will be executed either prior to or concurrently with
the closing of the offering. Lucent has already provided to us $10.0 million of
financing as of June 30, 1999. The $10.0 million borrowed from Lucent will be
incorporated into the $153.5 million Lucent financing. This offering is
contingent on our securing the financing from Lucent. The Lucent financing will
be used to purchase equipment from Lucent and to provide for working capital
and general corporate purposes. This facility, and all additional financing
provided to us by Lucent or other lenders under this facility, will be senior
debt which will rank senior in right of payment to the senior subordinated
discount notes and will be secured by a first priority security interest in
substantially all of our assets. The Lucent financing will be guaranteed by our
subsidiary and future subsidiaries.
The Lucent financing provides for (1) a $13.5 million senior secured credit
facility ("Tranche 1"), which is available to be drawn from time to time upon
closing of the Lucent financing until June 30, 2000 and which matures June 6,
2007 and (2) a $140.0 million senior secured credit facility ("Tranche 2"),
which is available to be drawn from time to time for three years commencing on
October 1, 2000 and which matures September 30, 2008.
The principal amount of each tranche will amortize in 19 quarterly
installments according to a graduated schedule. Amortization of Tranche 1 will
begin in September 2002, with final maturity occurring June 6, 2007.
Amortization of Tranche 2 will begin in December 2003, and final maturity will
occur September 30, 2008.
The availability of funding under Tranche 1 is subject to several conditions,
including the following:
. the execution of the loan documents and the guarantee and pledges;
. the receipt by Lucent of a purchase order for base stations and a switch;
. no material adverse changes in our business;
. the absence of a default under the loan documents;
. our compliance in all material respects with the supply agreement with
Lucent and the Sprint PCS Agreements;
. the execution of a cooperation agreement with Lucent obligating us to
cooperate in the marketing and syndication of the credit facility;
. the absence of any suit or proceeding that might result in a material
adverse change in our business or that would affect the enforceability of
the loan documents;
. the payment of all fees due related to the Lucent financing;
. the execution of the Lucent Consent;
. the payment of all insurance premiums due;
. the incorporation of the $10.0 million note due to Lucent into the $153.5
million Lucent financing;
. the effectiveness of Sprint PCS' licenses that are subject to our
management agreement.
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The availability of funding under Tranche 2 is subject to the same conditions
as Tranche 1 as well as the following conditions:
. the payment of all fees then due;
. the approval by the administrative agent under the Lucent credit
agreement of our most recent business and financing plan;
. the execution of all necessary interconnection collocation and
interexchange agreements to operate our PCS network;
. the successful completion of the concurrent common stock and senior
subordinated discount notes offerings;
. the execution of the indenture for the senior subordinated discount
notes;
. the execution of an intercreditor agreement;
. the representations and warranties in the loan documents continuing to be
true and correct; and
. our compliance with and the continued effectiveness of our agreements
with Sprint PCS.
Each draw under both Tranche 1 and Tranche 2 is subject to the conditions
that the representations and warranties continue to be true and correct, and
that there is no event of default under the loan documents.
The Lucent financing currently is, and will be, secured by the following:
. a perfected first priority lien on our assets and the assets of our
present and future subsidiaries;
. collateral assignment of the Sprint PCS Agreements; and
. a pledge of all of the capital stock of our subsidiary and future
subsidiaries.
We may select the rate at which interest accrues on all loans under the
Lucent financing. We may choose a "Eurodollar Loan," which accrues at LIBOR,
adjusted for applicable reserves, only so long as no Event of Default exists,
plus 3.75%. Alternatively, we may choose an "ABR Loan," which accrues at the
higher of either The Chase Manhattan Bank's prime rate, or, if the
administrative agent is a commercial bank, the administrative agent's prime
rate, or the Federal Funds Effective Rate, as defined in the credit agreement,
plus 0.50%, plus, in each case, 2.75%. Interest on any overdue amounts will
accrue at a rate per annum equal to, in the case of overdue principal, 2.50%
plus the rate otherwise applicable, or, in the case of all other amounts
overdue, 2.50% plus the rate then applicable to ABR Loans.
The terms of the Lucent financing require us to pay quarterly commitment
fees, which accrue as follows:
. at the rate of 1.50% per annum on the average daily undrawn amount of the
Tranche 1 commitments during the period from and including June 6, 1999
to, but excluding, June 30, 2000;
. at the rate of 3.75% per annum, or 1.50% per annum after 30% of the
Tranche 2 commitments has been borrowed, on the average daily undrawn
amount of the Tranche 2 commitments from the closing date of the Lucent
financing to, but excluding, January 1, 2001; and
. at the rate of 4.50% per annum, or 1.50% per annum after 30% of the
Tranche 2 commitments have been borrowed, on the average daily undrawn
amount of the Tranche 2 commitment from January 1, 2001 to September 30,
2003.
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The commitment fees with respect to the Tranche 1 loans and the Tranche 2 loans
are payable quarterly in arrears, and a separate agent's fee is payable to the
administrative agent.
The Tranche 1 and Tranche 2 loans will be prepaid, and the outstanding
commitments will be reduced, in an aggregate amount equal to:
. 60% of the excess cash flow (or 50% of excess cash flow if we meet
certain specified financial tests) of each fiscal year commencing with
the fiscal year ending December 31, 2002;
. 100% of the net proceeds of asset sales outside of the ordinary course of
business (with certain exceptions) or insurance proceeds, to the extent
not reinvested in property or assets with a certain period of time; and
. upon prepayment of any indebtedness incurred under a vendor financing
arrangement or other bank or credit facility, other than those facilities
outstanding at the date of the closing of the Lucent financing facility,
the product of the aggregate principal amount of loans outstanding under
the Lucent financing facility and a fraction, the numerator of which is
the amount of indebtedness prepaid and the denominator of which is the
aggregate principal amount of indebtedness outstanding under all such
financing arrangements with Lucent or other bank or credit facilities,
excluding the Lucent financing (and certain other exceptions).
The Lucent financing contains various covenants that restrict the ability of
us and our subsidiaries to, among other things:
. incur additional indebtedness except for the senior subordinated discount
notes and certain other limited indebtedness;
. grant liens;
. make guarantees;
. enter into hedging agreements;
. engage in mergers, acquisitions, investments, consolidations,
liquidations, dissolutions and asset sales;
. pay dividends and redeem equity; and
. prepay certain indebtedness, including the senior subordinated discount
notes.
The Lucent financing is expected to contain certain financing and operating
covenants including, among other things:
. ratio of total debt to total capitalization;
. ratio of total debt to annualized earnings before interest, taxes,
depreciation and amortization, referred to as EBITDA;
. ratio of senior secured debt to total capitalization;
. ratio of senior secured debt to annualized EBITDA;
. ratio of annualized EBITDA to cash interest expense;
. ratio of annualized EBITDA to fixed charges;
. minimum population coverage by our PCS network in order to incur
additional indebtedness;
. minimum subscribers in order to incur additional indebtedness;
. minimum revenue; and
. maximum capital expenditures.
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We would default on the Lucent financing if among other things:
. we fail to make the payments due under the Lucent financing;
. we fail to comply with a covenant under the Lucent financing;
. we default on the Sprint PCS Agreements or certain of our rights under
the Sprint PCS Agreements are terminated or materially impaired;
. our supply agreement with Lucent or our loan documents shall cease to be,
or are asserted by us not to be, in full force and effect;
. any representation or warranty under the Lucent financing is determined
to be materially incorrect when made;
. an involuntary proceeding is commenced or an involuntary petition is
filed under bankruptcy or similar laws;
. we voluntarily commence a proceeding or file a petition under bankruptcy
or similar laws;
. we become unable, admit in writing our inability or fail generally to pay
a certain amount of our debts as they become due;
. one or more judgments for the payment of money in an aggregate amount of
a certain amount rendered against us or any subsidiary and shall remain
undischarged for a certain period of time;
. we become liable under ERISA in an aggregate amount exceeding $5.0
million in any year or $10.0 million for all periods;
. any lien on a material portion of collateral created under the loan
documents ceases to be a valid and perfected lien on that collateral;
. there is any termination or other condition that causes the loan
documents to not be in full force and effect;
. we fail to perform any material term under the guaranty of our Lucent
financing;
. we default on certain other indebtedness;
. we change control of our ownership; or
. prior to the completion of this offering any entity other than Lucent
that manufactures equipment or provides services subject to our supply
agreement with Lucent owns more than 3% of our capital stock.
Lucent will receive customary fees and reimbursement of expenses.
Senior Subordinated Discount Notes
Concurrently with this offering of our common stock, we are offering $
million aggregate principal amount at maturity of % senior subordinated
discount notes maturing in 2009. No cash interest payments will be made on the
senior subordinated discount notes prior to , 2005. The aggregate accreted
value of the senior subordinated discount notes will increase from $150.0
million at issuance at a rate of % per annum to a final accreted value equal
to their aggregate principal amount of $ million on , 2004. Accretion
will be computed on a basis of a 360-day year of twelve 30 day months,
compounded semi-annually. Commencing , 2005, cash interest will be payable
to holders of the senior subordinated discount notes at a rate of % per
annum, semi-annually in arrears on each and . The cash interest,
computed
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on a basis of a 360-day year of twelve 30-day months, will accrue from the most
recent interest payment date or, if no interest has been paid or duly provided
for, from , 2005. The senior subordinated discount notes are not subject to
any sinking fund.
The senior subordinated discount notes will be guaranteed by our existing
subsidiary, AGW Leasing Company, Inc., and may be guaranteed by additional
subsidiaries of ours in the future. In addition, pursuant to a pledge
agreement, the senior subordinated discount notes will be secured by a
subordinated pledge of all of the capital stock of our future, directly owned
subsidiaries.
Holders of the senior subordinated discount notes will have the right to
require us to repurchase all or part of the senior subordinated discount notes
at a premium upon the occurrence of events constituting a change in control of
AirGate. Any such repurchases would be for cash at an aggregate price of 101%
of the accreted value of the senior subordinated discount notes to be
repurchased, if the repurchase were prior to , 2004 or, if the repurchase
were on or after , 2004, at an aggregate price of 101% of the aggregate
principal amount thereof plus accrued and unpaid interest thereon. Under the
indenture governing the senior subordinated discount notes, a change of control
includes:
. sale or other disposition of substantially all of our and our
subsidiaries' assets;
. our adoption of a plan of liquidation or dissolution;
. consummation of a transaction in which a person becomes the beneficial
owner of more than 50% of our voting stock;
. continuing directors ceasing to comprise a majority of our board of
directors; and
. a merger or consolidation of AirGate in which our voting stock is
converted into or exchanged for cash, securities or other property,
unless our voting stock is converted into or exchanged for a majority of
the outstanding shares of one of the other parties to the merger or
consolidation.
We will have the right to redeem all or part of the senior subordinated
discount notes on or after , 2004 at redemption prices beginning at % in
2004 and decreasing gradually to 100% in 2007 and thereafter, in each case
together with accrued and unpaid interest, if any. During the first 36 months
after the senior subordinated discount note offering, we may use the net
proceeds from an equity offering to redeem up to 35% of the accreted value of
the senior subordinated discount notes originally issued at a redemption price
of % of the accreted value, provided that at least 65% of the accreted value
of the senior subordinated discount notes originally issued remains outstanding
immediately after the redemption.
The indenture governing the senior subordinated discount notes will contain
covenants that, among other things, will limit our ability and the ability of
our subsidiary and future subsidiaries to:
. pay dividends, redeem capital stock or make other restricted payments or
investments;
. incur additional indebtedness or issue preferred stock;
. create liens on assets;
. merge, consolidate or dispose of assets;
. dispose of less than all of the equity in a wholly owned subsidiary;
. engage in any business other than PCS telecommunications and related or
ancillary businesses;
. enter into certain transactions with affiliates; and
. enter into sale and leaseback transactions.
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Events of default under the senior subordinated discount notes include:
. default for 30 days in the payment when due of interest on the senior
subordinated discount notes;
. default in payment when due of the principal of or premium, if any, on
the senior subordinated discount notes;
. our failure, or the failure of any of our subsidiaries, to comply with
provisions of the senior subordinated discount notes indenture relating
to change of control and with limitations on asset sales;
. our failure, or the failure of any of our subsidiaries, to comply with
any other provisions of the indenture or the pledge agreement relating to
the senior subordinated discount notes;
. our default, or default by any of our subsidiaries, with respect to other
debt of $5.0 million or more, which default either is caused by failure
to pay the principal or premium thereof or results in acceleration of the
other debt;
. our failure, or failure of any of our subsidiaries, to pay within 60 days
a final judgment exceeding $5.0 million;
. breach by us of any material representation or warranty or agreement in
the pledge agreement, repudiation by us of our obligations under the
pledge agreement or the unenforceability of the pledge agreement against
us for any reason;
. a judicial determination rendering any of the guarantees unenforceable or
a guarantor's denial or disaffirmance of its obligations under the
guarantee;
. bankruptcy or insolvency of AirGate or any of our subsidiaries; and
. the occurrence of any event that causes, subject to any applicable grace
period, an event of termination under the Sprint PCS Agreements.
In the case of an event of default arising from certain events of bankruptcy
or insolvency, all outstanding senior subordinated discount notes would become
due and payable immediately. If any other event of default occurs and is
continuing, the trustee for the senior subordinated discount note holders or
the holders of at least 25% in principal amount of the then outstanding senior
subordinated discount notes may declare the notes to be due and payable
immediately.
Long-Term Debt
In July 1998, AirGate Wireless, LLC issued an unsecured promissory note to a
third party to purchase certain site acquisition and engineering costs. At June
30, 1999, the principal amount of this unsecured promissory note was $7.7
million. The note bears interest at 14% and originally provided for quarterly
payments of principal and interest beginning on March 1, 1999 and ending on
December 1, 2000. In May 1999, the note was amended to provide for quarterly
payments of principal and interest beginning on August 31, 1999 or the first
day following the close of the first fiscal quarter of the closing of our
concurrent offerings of common stock and senior subordinated discount notes in
an amount equal to or greater than $130.0 million with the final payment due on
August 31, 2001. It is our intention to repay this promissory note with the
proceeds from our concurrent offerings of common stock and senior subordinated
discount notes.
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<PAGE>
MANAGEMENT
Directors and Executive Officers
The following table presents information with respect to our directors and
executive officers.
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Thomas M. Dougherty............. 55 Director, President and Chief Executive
Officer
W. Chris Blane.................. 46 Director and Vice President of New Business
Development
Thomas D. Body III.............. 61 Director and Vice President of Strategic
Planning
Robert E. Gourlay............... 45 Vice President of Marketing
David C. Roberts................ 36 Vice President of Engineering and Network
Operations
Shelley L. Spencer.............. 36 Vice President of Law and Secretary
Alan B. Catherall............... 45 Chief Financial Officer
Gill Cogan...................... 46 Director
Barry Schiffman................. 53 Chairman of the Board and Director
</TABLE>
Thomas M. Dougherty joined AirGate in April 1999. Mr. Dougherty, our
president and chief executive officer, has more than 16 years of experience in
the telecommunications industry, and is a former senior executive of Sprint
PCS. As the president of a major region for Sprint PCS, Mr. Dougherty was
responsible for Sprint PCS market launches in eighteen major metropolitan areas
covering approximately 75 million people, including Chicago, Illinois; Houston,
Texas; Atlanta, Georgia; and Charlotte, North Carolina. Mr. Dougherty served as
Executive Vice President and Chief Operating Officer of Chase
Telecommunications, a personal communications services carrier, from 1996 to
1997. Mr. Dougherty served as President and Chief Operating Officer of Cook
Inlet BellSouth PCS, L.P., a start-up wireless communications company, from
1995 to 1996. Prior to October 1995, Mr. Dougherty was Vice President and Chief
Operating Officer of BellSouth Mobility DCS Corporation. Before entering the
telecommunications industry, Mr. Dougherty held various senior marketing and
operational positions with Coca-Cola. Mr. Dougherty holds a B.S. and MBA from
Georgia State University.
W. Chris Blane has more than twenty years of wireless telecommunications
experience in the Southeast. In 1978, he founded and developed American
Mobilphone Paging, Inc. In 1981, Mr. Blane was named president of Maxicom,
Inc., a cellular licensee in Atlanta, Memphis, Tampa, Birmingham and Mobile.
From 1984 to 1988, he served as president of Cellular One in Birmingham
directing operation of the company's cellular network in the Birmingham and
Montgomery MSAs. In 1989, Mr. Blane was appointed President of Metrex
Corporation which constructed the first fiber optic competitive access network
in Atlanta and ultimately merged with MFS Communications Co., now WorldCom. In
1995, Mr. Blane joined AirGate's affiliate, AirLink II, as it prepared for the
C block PCS auction. Mr. Blane holds a B.S. degree in Architecture from Georgia
Institute of Technology.
Thomas D. Body III has over twenty years of wireless telecommunications
experience in the Southeast. From 1979 to 1981, he served as chief executive
officer of American Mobilphone Paging, Inc. and from 1981 to 1988, as an
officer and director for Maxicom, Inc., the non-wireline cellular licensee for
the Atlanta, Birmingham, Memphis, Tampa and Mobile markets. As a founder and
partner of CellularOne in Birmingham and Montgomery, Alabama, Mr. Body was
instrumental in the design, construction, development and success of the
company's cellular networks. In 1989, he was appointed chairman of Metrex
Corporation where he oversaw development of the first fiber optic competitive
access network in the Atlanta market, which subsequently merged with MFS
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<PAGE>
Communications Co., now WorldCom. Mr. Body then served as chairman and CEO of
MFS-Atlanta as the company built the first large area sonet network in the
country. After leaving MFS-Atlanta, he then served as a consultant to MFS until
1994. Mr. Body joined AirGate's affiliate, AirLink II, as it prepared for the C
block PCS auction. Mr. Body holds a B.B.A. degree in Real Estate/Risk
Management from the University of Georgia.
Robert E. Gourlay has twenty-two years of wireless communications experience
in the Southeast dating to his service with Motorola in 1976. From 1976 to
1989, Mr. Gourlay served as area sales manager of Motorola's Communications
division for the State of Georgia. From 1989 to 1993, Mr. Gourlay served as the
southeastern manager of sales and operations for Motorola Inc.'s Cellular
Infrastructure Division bearing responsibility for product sales, engineering,
deployment and implementation of cellular infrastructure equipment throughout
the Southeast. Mr. Gourlay was also directly involved in Motorola Inc.'s
evaluation and deployment of wireless technologies including CDMA, TDMA, NAMPS,
IS-41 and analog. In 1993 Mr. Gourlay co-founded Encompass, Inc. where he
served as senior vice president and co-authored the company's business plan to
enter the PCS industry via the auction process. Mr. Gourlay was instrumental in
raising the initial venture capital to fund AirGate. In 1995, Mr. Gourlay
joined AirGate's affiliate, AirLink II. Mr. Gourlay holds a B.S. Degree in
Management Science from the University of South Carolina and an MBA from
Georgia State University.
David C. Roberts is a fifteen-year veteran of the wireless telecommunications
industry having served in various engineering and management positions for
Motorola, Inc. From 1990 to 1993, Mr. Roberts served as engineering manager for
Motorola Cellular Infrastructure. In that capacity, he worked out of Motorola
Inc.'s Atlanta regional office where he had overall responsibility for wireless
engineering in the Southeast. In 1993 Mr. Roberts co-founded Encompass, Inc.
where he served in an engineering management capacity and was instrumental in
developing the company's business plan and strategy for entering the PCS
industry. In 1995, Mr. Roberts joined AirGate's affiliate, AirLink II, in
preparation for the C block PCS auction. Mr. Roberts holds a B.S. degree in
Electrical Engineering Technology from the Southern College of Technology.
Shelley L. Spencer has twelve years of legal experience, six of which were
spent in private practice with the telecommunications practice of Swidler &
Berlin, Chtd. From 1989 to 1995, while at Swidler & Berlin, Ms. Spencer
specialized in representing wireless telecommunications companies before the
FCC, Congress and in corporate structuring and commercial transactions. In
1995, Ms. Spencer joined AirGate's affiliate, AirLink II, as it prepared for
the C block PCS auction. Ms. Spencer holds a B.A. from Baldwin-Wallace College
and a J.D. from Georgetown University Law Center.
Alan B. Catherall became AirGate's Chief Financial Officer in March 1998
under a contract between AirGate and Tatum CFO Partners. As a partner in Tatum
CFO Partners since 1996, Mr. Catherall has served as chief financial officer or
provided consulting services for a variety of clients. Before joining Tatum CFO
Partners, Mr. Catherall was chief financial officer of Syncordia Services, a
joint venture of MCI and British Telecom, from 1994 to 1996. Syncordia, founded
in 1991, provided telecommunications outsourcing services to enterprises in
support of their global communications. From 1989 to 1994, Mr. Catherall served
as vice president of finance and administration for MCI's Business Markets
Unit. In this position, Mr. Catherall had overall responsibility for all
financial, real estate, procurement and administration activities. From 1988 to
1989, Mr. Catherall was vice president of finance for Lex Computer Systems, a
company providing computer solutions to medium sized companies. Mr. Catherall
has a B.S. in Economics from the
65
<PAGE>
University of Manchester and an MBA from Loyola College in Baltimore. He is a
member of AICPA and the Institute of Chartered Accountants in the U.K.
Gill Cogan is managing partner of Weiss, Peck & Greer Venture Partners. He is
a director of Electronics for Imaging, Inc., and several privately held
companies. Mr. Cogan holds a BS degree in theoretical physics and an MBA from
UCLA.
Barry Schiffman is president, chief investment officer and member of the
board of JAFCO America Ventures, Inc. Mr. Schiffman has more than 14 years of
industry experience in investing in high-growth information technology
companies. Prior to JAFCO, he was a general partner at Weiss, Peck & Greer
Venture Partners. Mr. Schiffman holds a bachelor's degree in industrial and
systems engineering from Georgia Institute of Technology and an MBA from
Stanford University, Graduate School of Business.
Board of Directors
The seven directors comprising the board of directors are divided into three
classes. Barry Schiffman and Gill Cogan constitute Class I and will stand for
election at the annual meeting of stockholders to be held in 2000. The two
directors who will fill the current vacancies on the board will constitute
Class II and will stand for election at the annual meeting of stockholders to
be held in 2001. Thomas M. Dougherty, Thomas D. Body, III and W. Chris Blane
constitute Class III and will stand for election at the annual meeting of
stockholders to be held in 2002. After the initial term following the offering,
directors in each class will serve for a term of three years, or until his or
her successor has been elected and qualified and will be compensated at the
discretion of the board of directors. Executive officers are ordinarily elected
annually and serve at the discretion of the board of directors.
Currently there are two vacancies on the board. Immediately after the closing
of this offering, we expect to fill one of the vacancies in Class II. In
addition, we anticipate that the remaining vacancy will be filled shortly
thereafter. We expect the outside directors to be experienced leaders in the
telecommunications and business communities with direct experience managing and
advising public companies.
The audit committee consists of Gill Cogan, Barry Schiffman and Thomas M.
Dougherty. The compensation committee consists of Gill Cogan, Barry Schiffman
and Thomas D. Body III.
The audit committee is responsible for recommending to the board of directors
the engagement of our independent auditors and reviewing with the independent
auditors the scope and results of the audits, our internal accounting controls,
audit practices and the professional services furnished by the independent
auditors.
The compensation committee is responsible for reviewing and approving all
compensation arrangements for our officers, and is also responsible for
administering the stock option plan.
Compensation Committee Interlocks and Insider Participation
The compensation committee during the year ended December 31, 1998, consisted
of the board of directors. None of the executive officers served as a director
or member of the compensation committee or other board committee performing
equivalent functions of another corporation, one of whose executive officers
served on our board of directors.
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<PAGE>
Limitation on Liability and Indemnification
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Our certificate of incorporation
provides that we shall indemnify our directors and executive officers and may
indemnify our other officers and employees and agents and other agents to the
fullest extent permitted by law. Our certificate of incorporation also permits
us to secure insurance on behalf of any officer, director, employee or other
agent for any liability arising out of his or her actions in such capacity,
regardless or whether the certificate of incorporation would permit
indemnification.
We have entered into agreements to indemnify our directors and officers in
addition to indemnification provided for in our certificate of incorporation.
These agreements, among other things, indemnify our directors and officers for
certain expenses, including attorneys' fees, judgments, fines and settlement
amounts incurred by any such person in any action or proceeding, including any
action by us or in our right, arising out of such person's services as a
director or officer of ours, any subsidiary of ours, or any other company or
enterprise to which the person provides services at our request. In addition,
we intend to obtain directors' and officers' insurance providing
indemnification for certain of our directors, officers and employees for
certain liabilities. We believe that these provisions, agreements and insurance
are necessary to attract and retain qualified directors and officers.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of ours where indemnification will be
required or permitted. We are not aware of any threatened litigation or
proceeding that might result in a claim for such indemnification.
Executive Compensation
The following table presents summary information with respect to the
compensation paid to our Chief Executive Officer and each of our other
executive officers whose salary and bonus exceeded $100,000 during the year
ended December 31, 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
---------------------
Name and Principal Position Year Salary
<S> <C> <C>
Thomas D. Body III....................................... 1998 $ 120,000
Chief Executive Officer(1)
W. Chris Blane........................................... 1998 120,000
Vice President of New Business Development
Robert E. Gourlay........................................ 1998 120,000
Vice President of Marketing
Shelley L. Spencer....................................... 1998 120,000
Vice President of Law and Secretary
Jack R. Kimzey........................................... 1998 68,000
Chief Executive Officer(2)
Edward C. Horner......................................... 1998 159,000
Chief Operating Officer(3)
</TABLE>
- ---------------------
(1) Mr. Body served as acting Chief Executive Officer from January 1998 to
October 1998.
(2) Mr. Kimzey served as Chief Executive Officer from October 1998 to February
1999. Mr. Kimzey resigned in February 1999.
(3) Mr. Horner served as Chief Operating Officer from January 1998 to December
15, 1998. Mr. Horner resigned in December 1998.
67
<PAGE>
Compensation of Directors
Currently, we do not compensate our directors. We do reimburse directors for
their expenses of attendance at board meetings.
Employment Agreements
We entered into an employment agreement with Thomas M. Dougherty, the Chief
Executive Officer. Mr. Dougherty's employment agreement is for a five-year term
and provides for an annual base salary of $180,000, with a minimum guaranteed
annual increase of $20,000 over the next four years, until April 15, 2004. In
addition to his base salary, Mr. Dougherty is eligible to receive an annual
bonus up to 50% of his base salary. Under the employment agreement, Mr.
Dougherty is entitled to an award of stock options equal to 2% of the number of
fully diluted shares of common stock outstanding following this offering,
subject to possible upward adjustment by the board of directors if the number
of shares of the common stock authorized for issuance to employees is more than
10% of fully diluted shares of common stock. Under the agreement, Mr. Dougherty
would vest in 25% of the awarded stock options on April 15, 1999, with the
remaining 75% of the options vesting in 15 equal quarterly installments
beginning June 30, 2000. If Mr. Dougherty voluntarily terminates his employment
prior to April 15, 2000, he will not be entitled to any of the shares
underlying the stock options. The exercise price of the stock options granted
to Mr. Dougherty is $14.00 per share. In addition, Mr. Dougherty is eligible to
participate in all employee benefit plans and policies.
The employment agreement provides that Mr. Dougherty's employment may be
terminated with or without cause, as defined in the agreement, at any time. If
Mr. Dougherty is terminated without cause, he is entitled to receive (1) six
months base salary, plus one month's salary for each year employed, (2) all
stock options vested on the date of termination and (3) six months of health
and dental benefits. Mr. Dougherty is not entitled to any compensation or
benefits upon voluntary termination or termination for cause. Under the
employment agreement, Mr. Dougherty agreed to a restriction on his present and
future employment. Mr. Dougherty agreed not to compete in the business of
wireless telecommunications either directly or indirectly in our territory
during his employment and for a period of 18 months after his employment is
terminated.
Pursuant to a requirement set forth in our management agreement with Sprint
PCS, we intend to enter into employment agreements with W. Chris Blane, Thomas
D. Body III, Robert E. Gourlay, David C. Roberts and Shelley L. Spencer prior
to or concurrently with the completion of the offering. Each of these employees
may be terminated with or without cause at any time. The agreements are
expected to provide that each employee, upon termination will not compete in
the business of wireless telecommunications in our territory or have another
primary business for a period of five years from the date of the execution of
our management agreement with Sprint PCS on July 22, 1998. These employment
restrictions on having another primary business will not apply when at least
one-third of the corporate officers of Sprint and/or Sprint PCS terminate their
employment for any reason within one year following a change of control, as
defined in the management agreement. In the event that an employee is
terminated without cause, we will continue to pay the employee salary for the
remaining term of the agreement or until the non-compete provision expires or
is waived by Sprint PCS. In addition to these agreements, we will also enter
into an employment agreement with Alan B. Catherall. Under his agreement, Mr.
Catherall will agree not to compete in the business of wireless
telecommunications either directly or indirectly in our territory during his
employment and for a period of 18 months after his employment is terminated.
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<PAGE>
1999 Stock Option Plan
The 1999 Stock Option Plan has been adopted by our board of directors and
stockholders. The option plan permits the granting of both incentive stock
options and nonqualified stock options to employees. The aggregate number of
shares of common stock that may be issued pursuant to options granted under the
option plan shall be 2,000,000, including the options granted to Mr. Dougherty
pursuant to his employment agreement, subject to adjustment in the event of
certain changes in the outstanding shares of common stock. On July 28, 1999, we
granted options to purchase 1,075,000 shares of common stock with an exercise
price of $14.00 per share to directors, officers and employees. The following
table presents information with respect to the options granted to directors and
executive officers.
<TABLE>
<CAPTION>
Number of Securities
Underlying % of Total Exercise Expiration Value at
Name Options Options Granted Price Date Date of Grant(1)
<S> <C> <C> <C> <C> <C>
Thomas M. Dougherty..... 300,000 27.9% $14.00 04/2009 $300,000
W. Chris Blane.......... 75,000 7.0 14.00 07/2009 75,000
Thomas D. Body III...... 75,000 7.0 14.00 07/2009 75,000
Robert E. Gourlay....... 75,000 7.0 14.00 07/2009 75,000
David C. Roberts........ 75,000 7.0 14.00 07/2009 75,000
Shelley L. Spencer...... 115,000 10.7 14.00 07/2009 115,000
Alan B. Catherall....... 90,000 8.4 14.00 07/2009 90,000
</TABLE>
- ---------------------
(1) Value at date of grant is based on the product of the public offering price
of $15.00 per share, the midpoint of the range set forth on the cover page
of the common stock prospectus, minus the exercise price, multiplied by the
number of securities underlying the options granted.
The option plan will be administered by our board of directors or by a
compensation committee appointed by our board of directors, which will be
authorized, subject to the provisions of the option plan, to grant awards and
establish rules and regulations as it deems necessary for the proper
administration of the option plan and to make whatever determinations and
interpretations it deems necessary or advisable.
An incentive option may not have an exercise price less than the fair market
value of the common stock on the date of grant or an exercise period that
exceeds ten years from the date of grant and is subject to certain other
limitations which allow the option holder to qualify for favorable tax
treatment. Nonqualified options may have an exercise price of less than, equal
to or greater than the fair market value of the underlying common stock on the
date of grant but, like incentive options, are limited to an exercise period of
no longer than ten years.
Options granted under the option plan will become exercisable according to a
schedule. Employees who have worked for us for 12 months prior to the date
their options were granted will be able to exercise 25% of their options
beginning on July 22, 2000. This percentage will increase in 6.25 percent
increments up to 100% at 60 months of employment. Employees who have not worked
for us for 12 months prior to the date their options were granted, other than
Mr. Dougherty, will be able to exercise 25% of their options 12 months after
the date of grant. This percentage will increase in five percent increments up
to 100% at 57 months of employment.
The exercise price of an option may be paid in cash or by check.
An option will not be not transferable except by will or by the laws of
descent or distribution or unless determined otherwise by our board of
directors.
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<PAGE>
Unless previously exercised, a vested option granted under the option plan
will terminate automatically:
. 12 months after the employee's termination of employment or by reason of
disability;
. six months after the employee's death; and
. three months after an employee's voluntary termination of employment.
A vested option will also terminate automatically upon termination of
employment for cause.
In the event of a change in control of AirGate where the acquiror does not
assume the options or provide for substitute options, the board of directors
may provide the employee with the right to exercise options, including those
not exercisable at the time of the change in control. Only one-half of the
options not yet vested may, however, be exercised in the event of a change in
control. In the case of the liquidation or dissolution of AirGate, the board of
directors may similarly provide the employee with the right to exercise all
options.
Noncompetition Agreement
In connection with the granting of options under the option plan, each
employee granted options must enter into a noncompetition agreement. These
agreements provide that for so long as the employee works for us, and for a
period of two years after the employee's termination for any reason, the
employee may not disclose in any way any confidential information. The
agreements also provide that for so long as the employee works for us and for a
period of 18 months after the employee's termination for any reason, the
employee is prohibited from:
. engaging in the same business or in a similar capacity in our territory;
. soliciting business in competition with us; and
. hiring any of our employees or directly or indirectly causing any of our
employees to leave their employment to work for another employer.
For so long as the shares underlying the options are not registered with the
Securities and Exchange Commission, in the event of a breach of the
noncompetition agreement by an employee, we have the option to repurchase any
and all shares held by the employee at the employee's exercise price. We may,
at any time, pursue any other remedies provided by law or in equity.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The Amended and Restated Limited Liability Company Agreement of AirGate, LLC,
the parent company of AirGate, provides that the shares of common stock of
AirGate shall be distributed to the members of AirGate, LLC in proportion to
each member's membership interest immediately prior to completion of AirGate's
initial public offering.
The following table presents certain information regarding the beneficial
ownership of common stock, as of July 28, 1999 and assumes that the number of
shares of AirGate common stock held by AirGate, LLC has been distributed to the
members of AirGate, LLC in accordance with its limited liability company
agreement, with respect to:
. each person who, to our knowledge, is the beneficial owner of 5% or more
of the outstanding common stock;
. each of the directors;
. each of the executive officers; and
. all executive officers and directors as a group.
<TABLE>
<CAPTION>
Number of Percentage of Percentage of
Shares Beneficially Ownership Ownership
Name and Address(1) Owned(2) Prior to Offering After Offering(3)
<S> <C> <C> <C>
Maxicom PCS L.L.C.(4)... 1,703,557 43.7% 15.2%
Weiss, Peck & Greer
Venture Partners
affiliated funds....... 1,504,744 38.6 18.8(5)
555 California Street,
Suite 3130
San Francisco,
California 94104
JAFCO America Ventures,
Inc. affiliated funds.. -- -- 5.1
505 Hamilton Ave, Suite
310
Palo Alto, California
94301
Robert E. Gourlay &
Associates, LP......... 222,203 5.7 2.0
8734 Oakthorpe Drive
Charlotte, North
Carolina 28277
Thomas M. Dougherty..... -- -- --
W. Chris Blane(4)....... 1,703,557 43.7 15.2
Robert E. Gourlay(6).... 222,203 5.7 2.0
Barry Schiffman(7)...... -- -- 5.1
Gill Cogan(8)........... 1,504,744 38.6 18.8(9)
Shelley L. Spencer...... 101,356 2.6 *
Thomas D. Body III(4)... 1,703,557 43.7 15.2
David C. Roberts........ 140,339 3.6 1.3
Alan B. Catherall....... -- -- --
All executive officers
and directors as a
group (9 persons)...... 3,672,199 94.2 43.3
</TABLE>
- ---------------------
(Footnotes on following page)
71
<PAGE>
* Less than one percent.
(1) Except as otherwise indicated below, the address for Maxicom PCS L.L.C. and
each executive officer and director is Harris Tower 233 Peachtree Street,
N.E., Suite 1700, Atlanta, Georgia 30303.
(2) Beneficial ownership is determined in accordance with Rule 13d-3 of the
Securities Exchange Act. A person is deemed to be the beneficial owner of
any shares of common stock if such person has or shares voting power or
investment power with respect to such common stock, or has the right to
acquire beneficial ownership at any time within 60 days of the date of the
table. As used herein, "voting power" is the power to vote or direct the
voting of shares and "investment power" is the power to dispose or direct
the disposition of shares.
(3) Includes 985,641 shares reflecting conversion of the promissory notes
issued to the Weiss, Peck & Greer Venture Partners affiliated funds and the
JAFCO America Ventures, Inc. affiliated funds.
(4) Maxicom PCS L.L.C. is controlled by Messrs. W. Chris Blane and Thomas D.
Body III. Therefore, Messrs. Blane and Body may be deemed to beneficially
own the shares held by Maxicom PCS L.L.C.
(5) Includes 243,001 shares of common stock underlying the warrants issued to
the Weiss, Peck & Greer Venture Partners affiliated funds.
(6) Includes 222,203 shares that Mr. Gourlay is deemed to beneficially own as a
general partner of Robert E. Gourlay & Associates, LP.
(7) Includes shares Mr. Schiffman is deemed to beneficially own as president,
chief investment officer and member of the board of JAFCO America Ventures,
Inc. Mr. Schiffman's address is 505 Hamilton Avenue, Suite 310, Palo Alto,
California 94301.
(8) Includes 1,504,744 that Mr. Cogan is deemed to beneficially own as managing
partner of Weiss, Peck & Greer Venture Partners. Mr. Cogan disclaims
beneficial ownership of such shares except to the extent of his pecuniary
interest in Weiss, Peck & Greer Venture Partners affiliated funds. Mr.
Cogan's address is 555 California Street, Suite 3130, San Francisco,
California 94104.
(9) Includes 243,001 shares underlying the warrants issued to the Weiss, Peck &
Greer Venture Partners affiliated funds which Mr. Cogan is deemed to own as
managing partner of Weiss, Peck & Greer Venture Partners. Mr. Cogan
disclaims beneficial ownership of such shares except to the extent of his
pecuniary interest in Weiss, Peck & Greer Venture Partners affiliated
funds.
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<PAGE>
CERTAIN TRANSACTIONS
From our inception through May 1999, we received financing from affiliates of
Weiss, Peck & Greer Venture Partners and affiliates of JAFCO America Ventures,
Inc. Mr. Cogan, one of our directors, is managing partner of Weiss, Peck &
Greer Venture Partners. Another director, Mr. Schiffman, is President, chief
investment officer and a member of the board of JAFCO America Ventures, Inc. In
August 1998, we issued $1.8 million of subordinated promissory notes to the
Weiss, Peck & Greer Venture Partners affiliated funds. In September 1998, we
issued $3.0 million of subordinated promissory notes to the JAFCO America
Ventures, Inc. affiliated funds. All of these notes provided for the conversion
of the notes into preferred or common stock upon the satisfaction of certain
conditions or repayment of the notes one year after their issuance. Repayment
of the notes was subordinated to senior secured debt we received in November
1998 from Lucent. We also issued warrants to purchase the preferred stock to
the Weiss, Peck & Greer Venture Partners affiliated funds and to the JAFCO
America Ventures, Inc. related funds in consideration for their financing. The
warrants were to be exercised on the earlier of five years from the date of
issuance or an initial public offering. In March, April and May 1999, we
received an additional $1.25 million of financing from the Weiss, Peck & Greer
Venture Partners affiliated funds and $1.25 million of additional financing
from the JAFCO America Ventures, Inc. affiliated funds pursuant to subordinated
notes. In May 1999, we consolidated the promissory notes issued to the Weiss,
Peck & Greer Venture Partners affiliated funds in 1998 and 1999 for a total of
$3.167 million into two subordinated promissory notes that will be converted
into shares of our common stock concurrently with completion of this offering
at a price 48% less than the price of a share of the common stock sold in this
offering. The warrants held by the Weiss, Peck & Greer Venture Partners
affiliated funds were terminated. In May 1999, we issued warrants to the Weiss,
Peck & Greer Venture Partners affiliated funds to purchase shares of common
stock for an aggregate price of up to $2.73 million exercisable at a 25%
discount to the price of a share of common stock sold in the common stock
offering. The warrants may be exercised after an initial public offering for
two years from the date of grant. In May 1999, we consolidated the promissory
notes issued to the JAFCO America Ventures, Inc. affiliated funds for a total
of $4.394 million into subordinated promissory notes that will be converted
into shares of our common stock concurrent with the completion of this offering
at a price 48% less than the price of a share of common stock sold in this
offering. The warrants held by the JAFCO America Ventures, Inc. affiliated
funds were terminated. In connection with the issuance of these convertible
notes, the warrants and Weiss, Peck & Greer Venture Partners affiliated funds'
existing ownership interest, we intend to enter into registration rights
agreements with the Weiss, Peck and Greer Venture Partners affiliated funds and
the JAFCO America Ventures, Inc. affiliated funds.
The affiliated funds of Weiss, Peck & Greer Venture Partners also have
guaranteed repayment of loans made to AirGate Wireless, LLC in principal
amounts of $1.0 million and $1.8 million by NationsBank and Silicon Valley
Bank, respectively. The combined principal amount of these two loans is $2.8
million. The loan from NationsBank for $1.0 million has been assigned to us.
The $1.8 million loan from Silicon Valley will remain at AirGate Wireless, LLC.
During the year ended December 31, 1998, we made $60,000 in lease payments to
an affiliate of two of our directors, W. Chris Blane and Thomas D. Body III.
The lease related to the office space of our previous corporate headquarters
and was terminated as of June 30, 1999. We believe that the terms of that lease
arrangement were comparable to terms that we could have obtained with an
unrelated party.
In addition, as of June 30, 1999, Robert E. Gourlay, an executive officer,
held a note payable issued by us in the amount of $65,000. The note bears
interest at the annual rate of 8% and is payable at the option of Mr. Gourlay
upon consummation of an equity offering or September 11, 1999.
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REGULATION OF THE WIRELESS TELECOMMUNICATIONS INDUSTRY
The FCC regulates the licensing, construction, operation, acquisition and
interconnection arrangements of wireless telecommunications systems in the
United States.
The FCC has promulgated, and is in the process of promulgating, a series of
rules, regulations and policies to, among other things:
. grant or deny licenses for PCS frequencies;
. grant or deny PCS license renewals;
. rule on assignments and/or transfers of control of PCS licenses;
. govern the interconnection of PCS networks with other wireless and
wireline carriers;
. establish access and universal service funding provisions;
. impose fines and forfeitures for violations of any of the FCC's rules;
and
. regulate the technical standards of PCS networks.
The FCC currently prohibits a single entity from having a combined
attributable interest, of 20% or greater interest in any license, in broadband
PCS, cellular and SMR licenses totaling more than 45 MHz in any geographic
area.
Transfers and Assignments of PCS Licenses
The FCC must give prior approval to the assignment of, or transfers
involving, substantial changes in ownership or control of a PCS license. Non-
controlling interests in an entity that holds a PCS license or operates PCS
networks generally may be bought or sold without prior FCC approval. In
addition, a recent FCC order requires only post-consummation notification of
certain pro forma assignments or transfers of control.
Conditions of PCS Licenses
All PCS licenses are granted for 10-year terms conditioned upon timely
compliance with the FCC's build-out requirements. Pursuant to the FCC's build-
out requirements, all 30 MHz broadband PCS licensees must construct facilities
that offer coverage to one-third of the population within 5 years and to two-
thirds of the population within 10 years, and all 10 MHz broadband PCS
licensees must construct facilities that offer coverage to at least one-quarter
of the population within 5 years or make a showing of "substantial service"
within that 5 year period. Rule violations could result in license revocations.
The FCC also requires licensees to maintain a certain degree of control over
their licenses. The Sprint PCS agreements reflect an alliance that the parties
believe meets the FCC requirements for licensee control of licensed spectrum.
If the FCC were to determine that our agreements with Sprint PCS need to be
modified to increase the level of licensee control, the Sprint PCS agreements
may be modified to cure any purported deficiency regarding licensee control of
the licensed spectrum.
PCS License Renewal
PCS licensees can renew their licenses for additional 10 year terms. PCS
renewal applications are not subject to auctions. However, under the FCC's
rules, third parties may oppose renewal applications and/or file competing
applications. If one or more competing applications are filed, a renewal
application will be subject to a comparative renewal hearing. The FCC's rules
afford PCS renewal applicants involved in comparative renewal hearings with a
"renewal expectancy." The
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renewal expectancy is the most important comparative factor in a comparative
renewal hearing and is applicable if the PCS renewal applicant has: (1)
provided "substantial service" during its license term; and (2) substantially
complied with all applicable laws and FCC rules and policies. The FCC's rules
define "substantial service" in this context as service that is sound,
favorable and substantially above the level of mediocre service that might
minimally warrant renewal.
Interconnection
The FCC has the authority to order interconnection between CMRS providers and
any other common carrier. The FCC has ordered local exchange carriers to
provide reciprocal compensation to CMRS providers for the termination of
traffic. Using these new rules, we will negotiate interconnection agreements
for the Sprint PCS network in our market area with all of the major regional
Bell operating companies, GTE and several smaller independent local exchange
carriers. Interconnection agreements are negotiated on a state-wide basis. If
an agreement cannot be reached, parties to interconnection negotiations can
submit outstanding disputes to state authorities for arbitration. Negotiated
interconnection agreements are subject to state approval.
Other FCC Requirements
In June 1996, the FCC adopted rules that prohibit broadband PCS providers
from unreasonably restricting or disallowing resale of their services or
unreasonably discriminating against resellers. Resale obligations will
automatically expire on November 24, 2002. The FCC is also considering whether
wireless providers should be required to offer unbundled communications
capacity to resellers who intend to operate their own switching facilities.
The FCC also adopted rules in June 1996 that require local exchange and most
CMRS carriers, to program their networks to allow customers to change service
providers without changing telephone numbers, which is referred to as service
provider number portability. The FCC requires most CMRS carriers to implement
wireless service provider number portability where requested in the top 100
metropolitan areas by November 24, 2002. Most CMRS carriers are required to
implement nationwide roaming by November 24, 2002 as well. The FCC currently
requires most CMRS providers to be able to deliver calls from their networks to
ported numbers anywhere in the country, and to contribute to the Local Number
Portability Fund.
The FCC has adopted rules permitting broadband PCS and other CMRS providers
to provide wireless local loop and other fixed services that would directly
compete with the wireline services of LECs. In June 1996, the FCC adopted rules
requiring broadband PCS and other CMRS providers to implement enhanced
emergency 911 capabilities within 18 months after the effective date of the
FCC's rules. In December 1997, the FCC revised these rules to extend the
compliance deadline for phase 1 until October 1, 1998 and for phase II until
October 1, 2001 for digital CMRS carriers to ensure access for customers using
devices for the hearing-impaired. The FCC recently extended the phase 1
compliance deadline to January 1, 1999. Further waivers of the enhanced
emergency 911 capability requirements may be obtained by individual carriers by
filing a waiver request.
On June 10, 1999, the FCC initiated a regulatory proceeding seeking comment
from the public on a number of issues related to competitive access to
multiple-tenant buildings, including the following:
. the FCC's tentative conclusion that the Communications Act of 1934, as
amended, requires utilities to permit telecommunications carriers access
to rooftop and other rights-of-way in
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multiple tenant buildings under just, reasonable and nondiscriminatory
rates, terms and conditions; and
. whether building owners that make access available to a
telecommunications carrier should be required to make access available to
all other telecommunications carriers on a nondiscriminatory basis, and
whether the FCC has the authority to impose such a requirement.
This proceeding could affect the availability and pricing of sites for our
antennae and those of our competitors.
Communications Assistance for Law Enforcement Act
The Communications Assistance for Law Enforcement Act, enacted in 1994 to
preserve electronic surveillance capabilities authorized by Federal and state
law, requires telecommunications carriers to meet certain "assistance
capability requirements" by October 25, 1998. However, the FCC recently granted
a blanket extension of that deadline until June 30, 2000, because CALEA
compliant equipment is not yet available. CALEA provides that a
telecommunications carrier meeting industry CALEA standards shall have safe
harbor for purposes of compliance with CALEA. Toward the end of 1997
telecommunications industry standard-setting organizations agreed to a joint
standard to implement CALEA's capability requirements, known as J-STD-025.
Although we will be able to offer traditional electronic surveillance
capabilities to law enforcement, it, as well as the other participants in the
wireless industry, may not meet the requirements of J-STD-025 by June 30, 2000,
given hardware changes that are yet to be developed and implemented by switch
manufacturers.
In addition, the FCC is considering petitions from numerous parties to
establish and implement technical compliance standards pursuant to CALEA
requirements.
Other Federal Regulations
Wireless systems must comply with certain FCC and FAA regulations regarding
the siting, lighting and construction of transmitter towers and antennas. In
addition, certain FCC environmental regulations may cause certain cell site
locations to become subject to regulation under the National Environmental
Policy Act. The FCC is required to implement the Act by requiring carriers to
meet certain land use and radio frequency standards.
Review of Universal Service Requirements
The FCC and the states are required to establish a "universal service"
program to ensure that affordable, quality telecommunications services are
available to all Americans. Sprint PCS is required to contribute to the federal
universal service program as well as existing state programs. The FCC has
determined that the Sprint PCS' "contribution" to the federal universal service
program is a variable percentage of "end-user telecommunications revenues."
Although many states are likely to adopt a similar assessment methodology, the
states are free to calculate telecommunications service provider contributions
in any manner they choose as long as the process is not inconsistent with the
FCC's rules. At the present time it is not possible to predict the extent of
the Sprint PCS total federal and state universal service assessments or its
ability to recover from the universal service fund.
Partitioning; Disaggregation
The FCC has modified its rules to allow broadband PCS licensees to partition
their market areas and/or to disaggregate their assigned spectrum and to
transfer partial market areas or spectrum assignments to eligible third
parties.
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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.
Equal Access
Wireless providers are not required to provide equal access to common
carriers for toll services. However, the FCC is authorized to require unblocked
access to toll carriers subject to certain conditions.
State Regulation of Wireless Service
Section 332 of the Communications Act preempts states from regulating the
rates and entry of commercial mobile radio service providers. However, states
may petition the FCC to regulate such providers and the FCC may grant such
petition if the state demonstrates that (1) market conditions fail to protect
subscribers from unjust and unreasonable rates or rates that are unjustly or
unreasonably discriminatory, or (2) when commercial mobile radio service is a
replacement for landline telephone service within the state. To date, the FCC
has granted no such petition. To the extent we provide fixed wireless service,
we may be subject to additional state regulation.
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DESCRIPTION OF CAPITAL STOCK
General
The following summarizes all of the material terms and provisions of our
capital stock. We have 30,000,000 shares of authorized capital stock, including
25,000,000 shares of common stock, par value $0.01 per share and 5,000,000
shares of preferred stock, par value $0.01 per share. As of July 28, 1999,
there were 3,898,270 shares of common stock and no shares of preferred stock
issued and outstanding.
Common Stock
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders and do not have any
cumulative rights. Subject to the rights of the holders of any series of
preferred stock, holders of common stock are entitled to receive ratably such
dividends as may be declared by the board of directors out of funds legally
available therefor. Holders of shares of common stock have no preemptive,
conversion, redemption, subscription or similar rights. If we liquidate,
dissolve or wind up, the holders of shares of common stock are entitled to
share ratably in the assets which are legally available for distribution, if
any, remaining after the payment or provision for the payment of all debts and
other liabilities and the payment and setting aside for payment of any
preferential amount due to the holders of shares of any series of preferred
stock.
Preferred Stock
Under our certificate of incorporation, the board of directors is authorized,
subject to certain limitations prescribed by law, without further stockholder
approval, from time to time to issue up to an aggregate of 5,000,000 shares of
preferred stock. The preferred stock may be issued in one or more series. Each
series may have different rights, preferences and designations and
qualifications, limitations and restrictions that may be established by our
board of directors without approval from the stockholders. These rights,
designations and preferences include:
. number of shares to be issued;
. dividend rights;
. dividend rates;
. right to convert the preferred shares into a different type of security;
. voting rights attributable to the preferred shares;
. right to set aside a certain amount of assets for payment relating to the
preferred shares; and
. prices to be paid upon redemption of the preferred shares or a bankruptcy
type event.
If our board of directors decides to issue any preferred stock, it could have
the effect of delaying or preventing another party from taking control of
AirGate. This is because the terms of the preferred stock would be designed to
make it prohibitively expensive for any unwanted third party to make a bid for
our shares. We have no present plans to issue any shares of preferred stock.
Delaware Law and Certain Charter and By-Law Provisions
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law (the "DGCL"). Subject to certain exceptions, Section 203
prohibits a publicly held Delaware corporation
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from engaging in a "business combination" with an "interested stockholder" for
a certain period of time. That period is three years after the date of the
transaction in which the person became an interested stockholder, unless the
interested stockholder attained that status with the approval of the board of
directors or unless the business combination is approved in a prescribed
manner. A "business combination" includes certain mergers, asset sales and
other transactions resulting in a financial benefit to the interested
stockholder. Subject to certain exceptions, an "interested stockholder" is a
person who, together with his or her affiliates and associates, owns, or owned
within three years prior, 15% or more of the corporation's voting stock.
Our certificate of incorporation and by-laws provide for the division of the
board of directors into three classes, as nearly equal in size as possible,
with each class beginning its three year term in a different year. See
"Management--Board of Directors." A director may be removed only for cause by
the affirmative vote of the holders of at least 80% of the voting power of all
of the then-outstanding shares of capital stock entitled to vote generally for
the election of directors voting together as a single class.
Our by-laws will also require a stockholder who intends to nominate a
candidate for election to the board of directors, or to raise new business at a
stockholder meeting to give at least 90 days advance notice to the Secretary.
The notice provision will require a stockholder who desires to raise new
business to provide us certain information concerning the nature of the new
business, the stockholder and the stockholder's interest in the business
matter. Similarly, a stockholder wishing to nominate any person for election as
a director will need to provide us with certain information concerning the
nominee and the proposing stockholder.
Our certificate of incorporation empowers our board of directors, when
considering a tender offer or merger or acquisition proposal, to take into
account factors in addition to potential economic benefits to stockholders.
These factors may include:
. comparison of the proposed consideration to be received by stockholders
in relation to the then current market price of AirGate's capital stock,
the estimated current value of AirGate in a freely negotiated transaction
and the estimated future value of AirGate as an independent entity; and
. the impact of a transaction on our employees, suppliers and clients and
its effect on the communities in which we operate.
The provisions described above could make it more difficult for a third party
to acquire control of AirGate and, furthermore, could discourage a third party
from making any attempt to acquire control of AirGate.
Our certificate of incorporation provides that any action required or
permitted to be taken by the stockholders of AirGate may be taken only at a
duly called annual or special meeting of the stockholders, and that special
meetings may be called only by resolution adopted by a majority of the board of
directors, or as otherwise provided in the bylaws. These provisions could have
the effect of delaying until the next annual stockholders meeting stockholder
actions that are favored by the holders of a majority of the outstanding voting
securities. These provisions may also discourage another person or entity from
making an offer to stockholders for the common stock. This is because the
person or entity making the offer, even if it acquired a majority of the
outstanding voting securities of AirGate, would be unable to call a special
meeting of the stockholders and would further be unable to obtain unanimous
written consent of the stockholders. As a result, any meeting
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as to matters they endorse, including the election of new directors or the
approval of a merger, would have to wait for the next duly called stockholders
meeting.
The DGCL provides that the affirmative vote of a majority of the shares
entitled to vote on any matter is required to amend a corporation's certificate
of incorporation or by-laws, unless the corporation's certificate of
incorporation or by-laws, as the case may be, requires a greater percentage.
Our certificate of incorporation requires the affirmative vote of the holders
of at least 80% of the outstanding voting stock to amend or repeal any of the
provisions of the certificate of incorporation described above. The 80% vote is
also required to amend or repeal any of our by-law provisions described above.
The by-laws may also be amended or repealed by the board of directors. The 80%
stockholder vote would be in addition to any separate vote that each class of
preferred stock is entitled to that might in the future be required in
accordance with the terms of any preferred stock that might be outstanding at
the time any amendments are submitted to stockholders.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is American Stock
Transfer & Trust Company.
Listing
Application has been made to list the shares of common stock on the Nasdaq
National Market under the symbol "PCSA."
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the common stock. Future
sales of substantial amounts of common stock in the public market could
adversely affect market prices of the common stock prevailing from time to
time. Furthermore, because only a limited number of shares will be available
for sale shortly after the consummation of this offering due to certain
contractual and legal restrictions on resale, as described below, sales of
substantial amounts of common stock in the public market after the restrictions
lapse could adversely affect the prevailing market price of the common stock
and our ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding an aggregate of
11,217,244 shares of common stock, assuming no exercise of the underwriters'
over-allotment option and based upon the number of shares outstanding as of
July 28, 1999. Of these shares, all of the shares sold in this offering will be
freely tradeable without restriction or further registration under the
Securities Act, except that any shares purchased by our affiliates may
generally only be sold in compliance with the limitations of Rule 144 described
below.
Sales of Restricted Shares; Options
All of the shares of common stock sold in this offering will be freely
tradeable under the Securities Act, unless purchased by our "affiliates," as
the Securities Act defines that term. In general, under Rule 144 as currently
in effect, a person or persons whose shares are aggregated, including an
affiliate, who has beneficially owned restricted stock for at least one year is
entitled to sell, within any three-month period, a number of such shares that
does not exceed the greater of:
.one percent of the then outstanding shares of common stock, or
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. the average weekly trading volume in the common stock during the four
calendar weeks preceding the date on which notice of such sale is filed.
In addition, under Rule 144(k), a person who is not an affiliate and has not
been an affiliate for at least three months prior to the sale and who has
beneficially owned shares of restricted stock for at least two years may resell
such shares without compliance with the foregoing requirements. In meeting the
one and two year holding periods described above, a holder of restricted stock
can include the holding periods of a prior owner who was not an affiliate.
Additional shares of common stock are available for future grants under our
stock option plan. See "Management--1999 Stock Option Plan." We intend to file
one or more registration statements on Form S-8 under the Securities Act to
register all shares of common stock subject to outstanding stock options and
common stock issuable pursuant to our stock option plans that do not qualify
for an exemption under Rule 701 from the registration requirements of the
Securities Act. We expect to file these registration statements as soon as
practicable following the closing of this offering, and such registration
statements are expected to become effective upon filing. Shares covered by
these registration statements will thereupon be eligible for sale in the public
markets subject to the lock-up agreements, to the extent applicable.
Lock-up Agreements
We and all of our current stockholders, members of senior management and
directors have agreed, pursuant to the lock-up agreements that, during the
period beginning from the date of this prospectus and continuing and including
the date 180 days after the date of this prospectus, they will not, directly or
indirectly offer, pledge, sell, contract to sell, grant any option, right or
warrant to purchase, or otherwise dispose of any shares of common stock,
including but not limited to any common stock or securities convertible into or
exercisable or exchangeable for common stock which may be deemed to be
beneficially owned in accordance with the rules and regulations of the
Securities and Exchange Commission or enter into any swap or other agreement
that transfers, in whole or in part, the economic consequence of ownership of
common stock, or make any demand for, or exercise and right with respect to,
the registration of common stock or any securities convertible into or
exercisable or exchangeable for common stock, without the prior written consent
of Donaldson, Lufkin & Jenrette Securities Corporation.
Following the lock-up period, 2,490,385 shares of common stock will become
eligible for sale, subject to compliance with Rule 144 of the Securities Act as
described above.
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UNDERWRITING
We and the underwriters named below have entered into an underwriting
agreement covering the common stock to be offered in this offering. Donaldson,
Lufkin & Jenrette Securities Corporation, Credit Suisse First Boston
Corporation and The Robinson-Humphrey Company, LLC are acting as
representatives of the underwriters. Each underwriter has agreed to purchase
the number of shares of common stock set forth opposite its name in the
following table.
<TABLE>
<CAPTION>
Underwriters: Number of Shares
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation........
Credit Suisse First Boston Corporation.....................
The Robinson-Humphrey Company, LLC.........................
---------
Total.................................................... 6,333,333
=========
</TABLE>
The underwriting agreement provides that if the underwriters take any of the
shares set forth in the table above, then they must take all of these shares.
No underwriter is obligated to take any shares allocated to a defaulting
underwriter except under limited circumstances.
The underwriters are offering the shares of common stock, subject to the
prior sale of such shares, and when, as and if such shares are delivered to and
accepted by them. The underwriters will initially offer to sell shares to the
public at the initial public offering price set forth on the cover page of this
prospectus. The underwriters may also sell shares to securities dealers at a
discount of up to $ per share from the initial public offering price. Any
such securities dealers may resell shares to certain other brokers or dealers
at a further discount of up to $ per share. After the initial public
offering, the underwriters may change the public offering price and other
selling terms. The underwriters do not intend to confirm sales to any accounts
over which they exercise discretionary authority.
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have the option to buy up to an additional
949,999 shares of common stock from AirGate to cover such sales. They may
exercise this option during the 30-day period from the date of this prospectus.
If any shares are purchased with this option, the underwriters will purchase
shares in approximately the same proportion as set forth in the table above.
The following table shows the per share and total underwriting discounts and
commissions that AirGate will pay to the underwriters. These amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares.
<TABLE>
<CAPTION>
Paid by AirGate
-------------------------
No exercise Full exercise
<S> <C> <C>
Per share......................................... $ $
---- ----
Total........................................... $ $
==== ====
</TABLE>
We estimate that the total expenses of this offering, excluding underwriting
discounts and commissions, will be $1.0 million.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933.
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At our request, the underwriters have reserved shares of common stock for
sale at the initial public offering price to directors, officers, employees and
retirees of AirGate who have expressed an interest in participating in the
offering. We expect these persons to purchase no more than 5% of the common
stock offered in the offering. The number of shares available for sale to the
general public will be reduced to the extent such persons purchase such
reserved shares. The underwriters will offer unpurchased reserved shares to the
general public on the same basis as the other offered shares.
We and all of our current stockholders, members of senior management and
directors have agreed that, for a period of 180 days from the date of this
prospectus, we will not, without the prior written consent of Donaldson, Lufkin
& Jenrette Securities Corporation, do either of the following:
. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock; or
. enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of any common
stock.
In addition, during such period, except for the registration of shares
underlying options in our stock option plan, we have also agreed not to file
any registration statement with respect to, and each of our executive officers
and directors and several of our stockholders have agreed not to make any
demand for, or exercise any right with respect to, the registration of any
shares of common stock or any securities convertible into or exercisable or
exchangeable for common stock without the prior written consent of Donaldson,
Lufkin & Jenrette Securities Corporation.
Either of the foregoing transaction restrictions will apply regardless of
whether a covered transaction is to be settled by the delivery of common stock
or such other securities, in cash or otherwise.
Application has been made to list the common stock on the Nasdaq National
Market under the symbol "PCSA." In order to meet the requirements for listing
the common stock on the Nasdaq National Market, the underwriters have
undertaken to sell lots of 100 to a minimum of 400 beneficial owners.
Other than in the United States, no action has been taken by AirGate or the
underwriters that would permit a public offering of the shares of common stock
included in this offering in any jurisdiction where action for that purpose is
required. The shares included in this offering may not be offered or sold,
directly or indirectly, nor may this prospectus or any other offering material
or advertisement in connection with the offer and sale of any such shares be
distributed or published in any jurisdiction, except under circumstances that
will result in compliance with the applicable rules and regulations of such
jurisdiction. This prospectus is not an offer to sell or a solicitation of an
offer to buy any shares of common stock included in this offering in any
jurisdiction where that would not be permitted or legal.
We expect that delivery of the shares will be made to investors on or about
, 1999.
The underwriters may purchase and sell shares of common stock in the open
market in connection with this offering. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering.
Stabilizing transactions
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consist of certain bids or purchases made for the purpose of preventing or
slowing a decline in the market price of the common stock while the offering is
in progress. The underwriters may also impose a penalty bid, which means that
an underwriter must repay to the other underwriters a portion of the
underwriting discount received by it. An underwriter may be subject to a
penalty bid if the representatives of the underwriters, while engaging in
stabilizing or short covering transactions, repurchase shares sold by or for
the account of that underwriter. These activities may stabilize, maintain or
otherwise affect the market price of the common stock. As a result, the price
of the common stock may be higher than the price that otherwise might exist in
the open market. If the underwriters commence these activities, they may
discontinue them at any time. The underwriters may carry out these transactions
on the Nasdaq National Market, in the over-the-counter market or otherwise.
Donaldson, Lufkin & Jenrette Securities Corporation is also acting as
underwriter under our concurrent offering of senior subordinated discount
notes, for which they will receive fees customary for performing such services.
In addition, we have engaged Donaldson, Lufkin & Jenrette Securities
Corporation to serve as our financial advisor in the negotiation of our
financing with Lucent, for which Donaldson, Lufkin & Jenrette Securities
Corporation is entitled to receive fees customary for performing such services.
Pricing of this Offering
Prior to this offering, there has been no public market for our common stock.
Consequently, the initial public offering price for our common stock was
determined by negotiation among us and the representatives of the underwriters.
Among the factors considered in determining the public offering price were:
. prevailing market conditions;
. our results of operations in recent periods;
. the present stage of our development;
. the market capitalization and stages of development of other companies
which the representatives of the underwriters believe to be comparable to
us; and
. estimates of our business potential.
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LEGAL MATTERS
Certain legal matters in connection with the sale of the shares of common
stock offered hereby will be passed upon for AirGate by Patton Boggs LLP,
Washington D.C. and for the underwriters by Skadden, Arps, Slate, Meagher &
Flom (Illinois), Chicago, Illinois.
EXPERTS
The consolidated financial statements of AirGate PCS, Inc. and subsidiaries
and predecessors as of December 31, 1998 and 1997, and for each of the years in
the three-year period ended December 31, 1998 and for the period from
inception, June 15, 1995, to December 31, 1998, have been included herein and
in the registration statement in reliance upon the report of KPMG LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing. The report of
KPMG LLP contains an explanatory paragraph that states that AirGate has
incurred recurring losses from operations and has a working capital and an
accumulated deficit that raise substantial doubt about its ability to continue
as a going concern. The consolidated financial statements do not include any
adjustments that might result from the outcome of that uncertainty.
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 with respect to our concurrent offerings of common stock
and senior subordinated discount notes. This prospectus does not contain all of
the information set forth in the registration statement. For further
information about us and our securities, see the registration statement and its
exhibits. This prospectus contains a description of the material terms and
features of all material contracts, reports or exhibits to the registration
statement required to be disclosed. However, as the descriptions are summaries
of the contracts, reports or exhibits, we urge you to refer to the copy of each
material contract, report and exhibit attached to the registration statement.
Copies of the registration statement, including exhibits, may be examined
without charge in the Public Reference Section of the Securities and Exchange
Commission, 450 Fifth Street, N.W. Room 1024, Washington, DC 20549, and the
Securities and Exchange Commission's Regional Offices located at 500 West
Madison Street, Suite 1400, Chicago, IL 60601, and 7 World Trade Center, 13th
Floor, New York, NY 10048 or on the Internet at http://www.sec.gov. You can get
information about the operation of the Public Reference Room by calling the
Securities and Exchange Commission at 1-800-SEC-0300. Copies of all or a
portion of the registration statement can be obtained from the Public Reference
Section of the Securities and Exchange Commission upon payment of prescribed
fees.
As a result of this offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act of 1934 and will be
required to file periodic reports, proxy statements and other information with
the Securities and Exchange Commission.
85
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AIRGATE PCS, INC. AND SUBSIDIARIES AND PREDECESSORS
(A Development Stage Enterprise)
<TABLE>
<S> <C>
Independent Auditors' Report............................................. F-2
Consolidated Balance Sheets as of December 31, 1998 and 1997............. F-3
Consolidated Statements of Operations for the years ended December 31,
1998, 1997 and 1996 and for the period from inception, June 15, 1995, to
December 31, 1998....................................................... F-4
Consolidated Statements of Stockholder's Deficit for the years ended
December 31, 1998, 1997 and 1996 and for the period from inception, June
15, 1995, to December 31, 1998.......................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996 and for the period from inception, June 15, 1995, to
December 31, 1998....................................................... F-6
Notes to Consolidated Financial Statements............................... F-7
Unaudited Consolidated Balance Sheet as of June 30, 1999................. F-21
Unaudited Consolidated Statements of Operations for the six-month periods
ended June 30, 1999 and 1998............................................ F-22
Unaudited Consolidated Statements of Cash Flows for the six-month periods
ended June 30, 1999 and 1998............................................ F-23
Notes to Unaudited Consolidated Financial Statements..................... F-24
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
AirGate PCS, Inc.:
We have audited the accompanying consolidated balance sheets of AirGate PCS,
Inc. and subsidiaries and predecessors (a development stage enterprise) as of
December 31, 1998 and 1997, and the related consolidated statements of
operations, stockholder's deficit, and cash flows for each of the years in the
three-year period ended December 31, 1998 and for the period from inception,
June 15, 1995, to December 31, 1998. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of AirGate
PCS, Inc. and subsidiaries and predecessors (a development stage enterprise) as
of December 31, 1998 and 1997, and the results of their operations and their
cash flows for each of the years in the three-year period ended December 31,
1998 and for the period from inception, June 15, 1995, to December 31, 1998 in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that AirGate PCS, Inc. and subsidiaries and predecessors (a
development stage enterprise) will continue as a going concern. As discussed in
note 2 to the consolidated financial statements, AirGate PCS, Inc. and
subsidiaries and predecessors have incurred recurring losses from operations
and have a working capital and an accumulated deficit that raise substantial
doubt about their ability to continue as a going concern. Management's plans in
regard to these matters are also described in note 2. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
KPMG LLP
April 28, 1999, except for notes 12(g) and 12(h) which are as of July 9 and
July 28, 1999, respectively
Atlanta, Georgia
F-2
<PAGE>
AIRGATE PCS, INC. AND SUBSIDIARIES AND PREDECESSORS
(a Development Stage Enterprise)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As of December 31,
-------------------------
1998 1997
------------ -----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents......................... $ 2,295,614 $ 146,939
Due from AirGate Wireless, LLC (note 6)........... 378,260 --
Prepaid expenses.................................. 100,333 4,713
------------ -----------
Total current assets............................ 2,774,207 151,652
FCC licenses, net (note 5).......................... -- 13,702,577
Property and equipment, net (note 4)................ 12,545,365 16,967
Other assets........................................ 130,915 --
------------ -----------
$ 15,450,487 $13,871,196
============ ===========
Liabilities and Stockholder's Deficit
Current liabilities:
Accounts payable.................................. $ 1,449,255 $ 37,883
Accrued interest.................................. 686,707 573,746
Notes payable (note 7(a))......................... 6,000,000 2,800,000
Notes payable to affiliates (note 7(b))........... 4,965,000 465,000
Current maturities of long-term debt (note 7(c)).. 3,380,523 --
------------ -----------
Total current liabilities....................... 16,481,485 3,876,629
Long-term debt, excluding current maturities (note
7(c)).............................................. 4,319,477 11,745,066
------------ -----------
Total liabilities............................... 20,800,962 15,621,695
------------ -----------
Stockholder's deficit (notes 8, 9 and 12):
Preferred stock, par value $.01 per share;
5,000,000 shares authorized; no shares issued and
outstanding...................................... -- --
Common stock, par value $.01 per share; 25,000,000
shares authorized; 3,898,270 shares issued and
outstanding at December 31, 1998 ................ 38,983 --
Additional paid-in capital........................ 6,264,962 4,711,429
Deficit accumulated during the development stage.. (11,654,420) (6,461,928)
------------ -----------
Total stockholder's deficit..................... (5,350,475) (1,750,499)
------------ -----------
Commitments and contingencies (notes 7, 8, 11 and
12)
Total liabilities and stockholder's deficit..... $ 15,450,487 $13,871,196
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
AIRGATE PCS, INC. AND SUBSIDIARIES AND PREDECESSORS
(a Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from
Inception,
Years Ended December 31, June 15, 1995,
------------------------------------- to December 31,
1998 1997 1996 1998
----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
Operating expenses:
General and
administrative
expenses.............. $(2,596,534) $(1,101,054) $(1,252,027) $ (6,407,615)
Depreciation and
amortization.......... (1,203,945) (997,761) (18,965) (2,238,671)
----------- ----------- ----------- ------------
Operating loss...... (3,800,479) (2,098,815) (1,270,992) (8,646,286)
Interest expense........ (1,392,013) (817,164) (582,349) (3,008,134)
----------- ----------- ----------- ------------
Net loss............ $(5,192,492) $(2,915,979) $(1,853,341) $(11,654,420)
=========== =========== =========== ============
Basic net loss per share
of common stock........ $ (1.33) $ (0.75) $ (0.48)
=========== =========== ===========
Diluted net loss per
share of common stock.. $ (1.00) $ (0.58) $ (0.37)
=========== =========== ===========
Pro forma net loss per
share of common stock.. $ (4.93)
===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
AIRGATE PCS, INC. AND SUBSIDIARIES AND PREDECESSORS
(a Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIT
<TABLE>
<CAPTION>
Years ended December 31, 1998, 1997, and 1996 and the period
from inception,
June 15, 1995, to December 31, 1998
-----------------------------------------------------------------
Deficit
accumulated
Common stock Additional during the Total
----------------------- paid-in development stockholder's
Shares Amount capital stage deficit
---------- ---------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at June 15, 1995
(inception)............ -- $ -- $ -- $ -- $ --
Loan conversions (note
9(b)).................. -- -- 420,119 -- 420,119
Net loss................ -- -- -- (1,692,608) (1,692,608)
---------- ---------- ---------- ------------ -----------
Balance at December 31,
1995................... -- -- 420,119 (1,692,608) (1,272,489)
Loan conversions (note
9(b)).................. -- -- 100,710 -- 100,710
Net loss................ -- -- -- (1,853,341) (1,853,341)
---------- ---------- ---------- ------------ -----------
Balance at December 31,
1996................... -- -- 520,829 (3,545,949) (3,025,120)
Loan conversions (note
9(b)).................. -- -- 4,683,544 -- 4,683,544
Cash distribution (note
9(c)).................. -- -- (492,944) -- (492,944)
Net loss................ -- -- -- (2,915,979) (2,915,979)
---------- ---------- ---------- ------------ -----------
Balance at December 31,
1997................... -- -- 4,711,429 (6,461,928) (1,750,499)
Formation of AirGate
PCS, Inc. (note 1(a)).. 3,898,270 38,983 (38,983) -- --
Distribution of AirGate
Wireless, LLC (note
9(a)).................. -- -- 1,592,516 -- 1,592,516
Net loss................ -- -- -- (5,192,492) (5,192,492)
---------- ---------- ---------- ------------ -----------
Balance at December 31,
1998................... 3,898,270 $ 38,983 $6,264,962 $(11,654,420) $(5,350,475)
========== ========== ========== ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
AIRGATE PCS, INC. AND SUBSIDIARIES AND PREDECESSORS
(a Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
Years ended December 31, Inception,
--------------------------------------- June 15, 1995,
1998 1997 1996 to December 31, 1998
------------ ----------- ------------ --------------------
<S> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss................ $ (5,192,492) $(2,915,979) $ (1,853,341) $(11,654,420)
Adjustments to reconcile
net loss to net cash
(used in) provided by
operating activities:
Depreciation and
amortization......... 1,203,945 997,761 18,965 2,238,671
(Increase) decrease
in:
Due from AirGate
Wireless, LLC...... (378,260) -- -- (378,260)
FCC deposit......... -- -- 20,000,000 --
Prepaid expenses.... (95,620) (4,713) -- (100,333)
Other assets........ (130,915) 2,086,869 1,039,752 2,216,461
Increase (decrease)
in:
Accounts payable.... 1,411,372 18,495 (95,596) 1,436,445
Accrued interest.... 1,006,577 587,449 640,636 2,443,779
------------ ----------- ------------ ------------
Net cash (used in)
provided by
operating
activities....... (2,175,393) 769,882 19,750,416 (3,797,657)
------------ ----------- ------------ ------------
Cash flows from
investing activities:
Capital expenditures.. (5,175,932) -- -- (5,237,399)
Purchase of FCC
licenses............. -- (2,936,267) -- (2,936,267)
------------ ----------- ------------ ------------
Net cash used in
investing
activities....... (5,175,932) (2,936,267) -- (8,173,666)
------------ ----------- ------------ ------------
Cash flows from
financing activities:
Proceeds from notes
payable.............. 5,000,000 2,800,000 -- 7,800,000
Proceeds from notes
payable to
affiliates........... 5,200,000 -- -- 25,620,119
Payments on notes
payable to
affiliates........... (700,000) -- (20,000,000) (20,700,000)
Cash distribution..... -- (492,944) -- (492,944)
------------ ----------- ------------ ------------
Net cash provided
by (used in)
financing
activities....... 9,500,000 2,307,056 (20,000,000) 12,227,175
------------ ----------- ------------ ------------
Net increase
(decrease) in
cash and cash
equivalents...... 2,148,675 140,671 (249,584) 255,852
Cash and cash
equivalents at
beginning of period.... 146,939 6,268 255,852 --
------------ ----------- ------------ ------------
Cash and cash
equivalents at end of
period................. $ 2,295,614 $ 146,939 $ 6,268 $ 255,852
============ =========== ============ ============
Supplemental disclosure
of cash flow
information--cash paid
for interest........... $ 1,279,052 $ 930,125 $ -- $ --
============ =========== ============ ============
Supplemental disclosure
of noncash investing
and financing
activities:
Assets acquired through
assumption of debt:
FCC licenses.......... $ -- $11,745,066 $ -- $ --
Site acquisition and
engineering costs.... 7,700,000 -- -- --
Notes payable and
accrued interest
converted to equity.. -- (4,683,544) (100,710) (420,119)
============ =========== ============ ============
Distribution of AirGate
Wireless, LLC:
Accrued interest...... $ (893,616) $ -- $ -- $ --
Long-term debt........ (11,745,066) -- -- --
FCC licenses, net..... 12,846,166 -- -- --
Line of credit........ (1,800,000) -- -- --
============ =========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
AIRGATE PCS, INC. AND SUBSIDIARIES AND PREDECESSORS
(a Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
(1) Business, Basis of Presentation and Summary of Significant Accounting
Policies
(a) Business and Basis of Presentation
AirGate PCS, Inc. and subsidiaries and predecessors (collectively, the
"Company") were formed for the purpose of becoming a leading provider of
wireless Personal Communication Services (PCS). AirGate PCS, Inc. was formed in
August 1998 to become a provider of PCS services exclusively licensed to use
the Sprint PCS brand name in 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 (AirGate
Wireless, Inc. and AGW Leasing Company, Inc.) from their formation in August
1998 and their predecessor entities (AirGate, LLC, AirGate Wireless, LLC, and
AirLink II, LLC) for all periods presented, except that AirGate Wireless, LLC
has been excluded effective August 4, 1998 as described below. The financial
position and results of operations of these predecessor entities have been
included because of common ownership and management. All significant
intercompany accounts and transactions have been eliminated in consolidation.
From inception through August 1998, the predecessor entities' operating
activities focused on developing a PCS business in the southeastern United
States. These activities included the purchase of four Federal Communications
Commission ("FCC") PCS licenses. In July 1998, the Company decided to pursue a
different PCS business opportunity and signed a series of agreements with
SprintCom, Inc. (the "Sprint Agreements") to build, construct and manage a PCS
network that will support the offering of Sprint PCS services. To date, the
Company has not paid any consideration for the use of the Sprint PCS licenses.
As a result of this change in business strategy, AirGate Wireless, LLC, which
consists solely of the FCC licenses and related liabilities, was not
transferred to its successor entity, AirGate PCS, Inc. because its asset and
liabilities will not be included in the continuing operations of the Company.
The PCS market is characterized by significant risks as a result of rapid
changes in technology, increasing competition and the cost associated with the
build-out of a PCS network. The Company's continuing operations are dependent
upon Sprint's ability to perform is obligations under the Sprint Agreements and
the ability of the Company to raise sufficient capital to fund operating
losses, to meet debt service requirements, and to complete the build-out of the
PCS network. Additionally, the Company's ability to attract and maintain a
sufficient customer base is critical to achieving breakeven cash flow. Changes
in technology, increased competition, or the inability to obtain required
financing, among other factors, could have an adverse effect on the Company's
financial position and results of operations.
(b) Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly
liquid investments with original maturities of three months or less to be cash
equivalents. Cash and cash equivalents includes amounts on deposit with
commercial banks including a money market account.
(c) FCC Licenses
FCC licenses are stated at cost less accumulated amortization. Amortization
is provided using the straight-line method over the estimated useful lives of
ten years.
F-7
<PAGE>
AIRGATE PCS, INC. AND SUBSIDIARIES AND PREDECESSORS
(a Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
(d) Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation is provided using the straight-line method over the
estimated useful lives of the assets. Capitalized interest on construction
activity during 1998 was not material. Asset lives are as follows:
<TABLE>
<CAPTION>
Asset Useful life
----- -----------
<S> <C>
Site acquisition and engineering costs........................ 10 years
Computer equipment............................................ 3 years
Furniture, fixtures, and office equipment..................... 5 years
</TABLE>
(e) Income Taxes
Prior to the formation of AirGate PCS, Inc. in August 1998, the predecessors
of AirGate PCS, Inc. were operated as limited liability companies. As a result,
income taxes were passed through to and were the responsibility of the
stockholders of the predecessors.
The Company uses the asset and liability method of accounting for income
taxes. Deferred income tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis and net operating loss and tax credit carryforwards. Deferred income tax
assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred income tax assets
and liabilities of a change in tax rates is recognized in the statement of
operations in the period that includes the enactment date.
The Company has not provided any pro forma income tax information for periods
prior to August 1998 because such information would not be significant to the
accompanying consolidated financial statements.
(f) Net Loss Per Share
Basic net loss per share of common stock is computed by dividing net loss by
the weighted average number of common shares outstanding. Diluted net loss per
share of common stock reflects the conversion of notes payable and the dilutive
effect of outstanding stock options and warrants.
The Company has used the assumed initial public offering price of $15.00 per
common share for purposes of computing diluted net loss per common share.
Pursuant to the rules of the Securities and Exchange Commission, the Company
has included the effect of stock options, stock warrants, and convertible debt
issued in the previous 12 months in the computation of dilutive potential
common shares as if they were outstanding for the entire period, including
periods where the impact of the incremental shares is antidilutive.
F-8
<PAGE>
AIRGATE PCS, INC. AND SUBSIDIARIES AND PREDECESSORS
(a Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
The following table summarizes information relating to the computation of
basic and diluted net loss per share of common stock for the years ended
December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net loss............................ $(5,192,492) $(2,915,979) $(1,853,341)
Assumed conversion of notes
payable--interest expense.......... 188,472 25,200 7,800
----------- ----------- -----------
Adjusted net loss................... $(5,004,020) $(2,890,779) $(1,845,541)
=========== =========== ===========
Weighted average common shares
outstanding........................ 3,898,270 3,898,270 3,898,270
Assumed conversion of notes
payable............................ 985,641 985,641 985,641
Dilutive effect of outstanding stock
options............................ 71,667 71,667 71,667
Dilutive effect of outstanding stock
warrants........................... 60,750 60,750 60,750
----------- ----------- -----------
Adjusted common shares outstanding.. 5,016,328 5,016,328 5,016,328
=========== =========== ===========
Basic net loss per share of common
stock.............................. $ (1.33) $ (0.75) $ (0.48)
=========== =========== ===========
Diluted net loss per share of common
stock.............................. $ (1.00) $ (0.58) $ (0.37)
=========== =========== ===========
</TABLE>
The Company has also presented pro forma net loss per share of common stock
for the latest fiscal year. This presentation gives effect to the additional
interest expense to be incurred from the senior subordinated discount notes
offering.
The following table summarizes information relating to the computation of pro
forma net loss per share of common stock for the year ended December 31, 1998:
<TABLE>
<S> <C>
Net loss.................................................... $ (5,192,492)
Assumed conversion of notes payable--interest expense....... 188,472
Assumed debt offering--interest expense..................... (19,734,609)
------------
Adjusted net loss........................................... $(24,738,629)
============
Weighted average common shares outstanding.................. 3,898,270
Assumed conversion of notes payable......................... 985,641
Dilutive effect of outstanding stock options................ 71,667
Dilutive effect of outstanding stock warrants............... 60,750
------------
Adjusted common shares outstanding.......................... 5,016,328
============
Pro forma net loss per share of common stock................ $ (4.93)
============
</TABLE>
(g) Revenue Recognition
The Company will recognize revenue as services are performed. An affiliation
fee of 8% will be withheld by Sprint on collected service revenues and recorded
as an operating expense. Revenues generated from the sale of handsets and
accessories and from roaming services provided to customers traveling onto our
PCS network are not subject to the 8% affiliation fee.
F-9
<PAGE>
AIRGATE PCS, INC. AND SUBSIDIARIES AND PREDECESSORS
(a Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
(h) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company accounts for long-lived assets in accordance with the provisions
of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of. This Statement requires that long-lived
assets and certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are considered to
be impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount or fair
value less costs to sell.
(i) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent liabilities at the dates of the consolidated balance sheets and
expenses during the reporting periods to prepare these consolidated financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
(j) Start-Up Activities
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on the
Costs of Start-Up Activities." This statement became effective January 1, 1999
and requires that costs of start-up activities and organization costs be
expensed as incurred. The Company has expensed all costs of start-up activities
and organization costs. The adoption of this statement will not have an effect
on the Company's financial position or results of operations.
(2) Liquidity
Since inception, the Company has been engaged in preparing business plans,
raising capital and planning and designing the build-out of its PCS network. As
a result, the Company has not generated any revenues and losses from inception
through December 31, 1998 have amounted to $11,654,420.
Despite these negative cash flows, the Company has been able to secure
financing from a variety of sources to support its development to date. These
sources have included both equity and debt financing.
Significant amounts of additional financing will be required to build-out the
PCS network and commence commercial operations. Based on the Company's current
business plan, it is estimated that more than $347 million will be required to
fund capital expenditures, principal payments on short and long-term debt, and
losses from operations until the Company reaches breakeven cash flow.
While there is no assurance that funding will be available to execute these
plans, the Company is actively seeking financing and is exploring a number of
alternatives in this regard.
F-10
<PAGE>
AIRGATE PCS, INC. AND SUBSIDIARIES AND PREDECESSORS
(a Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
(3) Development Stage Enterprise
AirGate, LLC, the first predecessor entity of the Company, was established on
June 15, 1995 (inception). The Company has devoted most of its efforts to date
to activities such as preparing business plans, raising capital, and planning
the build-out of its PCS network. From inception through December 31, 1998, the
Company has not generated any revenues and has incurred expenses of
$11,654,420, resulting in an accumulated deficit during the development stage
of $11,654,420 as of December 31, 1998.
(4) Property and Equipment
Property and equipment consists of the following at December 31, 1998 and
1997:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Site acquisition and engineering costs............ $12,838,340 $ --
Computer equipment................................ 74,487 48,404
Furniture, fixtures, and office equipment......... 24,572 13,063
----------- -----------
Total property and equipment.................... 12,937,399 61,467
Less accumulated depreciation and amortization.... 392,034 44,500
----------- -----------
Property and equipment, net..................... $12,545,365 $ 16,967
=========== ===========
</TABLE>
Site acquisition and engineering costs consists of construction costs, switch
site improvements, RF engineering services, and site acquisitions and
engineering costs incurred related to the network design and build-out.
(5) FCC Licenses, Net
In April 1997, the Company participated in the FCC's auction of certain PCS
licenses. In connection with this auction, AirGate Wireless, LLC, a predecessor
to AirGate PCS, Inc., acquired four F Block PCS licenses for $14,681,333
consisting of $2,936,267 in cash and installment plan notes payable to the FCC
of $11,745,066. These FCC licenses are being amortized using the straight-line
method over an estimated useful life of 10 years. In July 1998, the Company
decided to pursue a different PCS business opportunity. As a result, upon
formation of AirGate PCS, Inc. in August 1998, AirGate Wireless, LLC, which
consists solely of the FCC licenses and related liabilities has been removed
from the consolidated financial statements because its assets and liabilities
were not transferred to AirGate PCS, Inc. and will not be included in the
continuing operations of the Company. FCC licenses consist of the following at
December 31, 1997:
<TABLE>
<CAPTION>
1997
-----------
<S> <C>
FCC licenses.................................................. $14,681,333
Less accumulated amortization................................. 978,756
-----------
FCC licenses, net........................................... $13,702,577
===========
</TABLE>
F-11
<PAGE>
AIRGATE PCS, INC. AND SUBSIDIARIES AND PREDECESSORS
(a Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
(6) Due From AirGate Wireless, LLC
AirGate Wireless, LLC, a predecessor entity, which consists solely of the FCC
Licenses and related liabilities, was not transferred to AirGate PCS, Inc., its
successor entity, because its assets and liabilities will not be included in
the continuing operations of the Company. The Company made interest payments
totaling $378,260 during 1998 related to these liabilities on behalf of AirGate
Wireless, LLC. The Company has established an amount due from AirGate Wireless,
LLC which is expected to be paid with proceeds from the sale of the FCC
licenses by AirGate Wireless, LLC.
(7) Notes Payable and Long-Term Debt
(a) Notes Payable consist of the following at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Note payable to bank under revolving line of
credit facility; interest at prime plus 1% due
monthly (10.25% at December 31, 1997); matures on
May 1, 1999; guaranteed by affiliates (note
9(a))............................................ $ -- $ 1,800,000
Note payable to bank; interest at prime plus .5%
due monthly (8.25% and 9.75% at December 31, 1998
and 1997, respectively); principal due in a
single payment on May 9, 1999; guaranteed by
affiliates (see note 12(f))...................... 1,000,000 1,000,000
Secured promissory note, dated November 25, 1998,
interest at 9.5%; interest and principal due at
the earlier of: (1) the first drawdown on the
vendor equipment financing or (2) June 30, 1999.. 5,000,000 --
----------- -----------
$ 6,000,000 $ 2,800,000
=========== ===========
</TABLE>
In November 1998, an equipment vendor loaned $5 million to the Company under
a secured promissory note. The proceeds of the loan are intended to finance the
purchase of products and services from the vendor and to satisfy short-term
working capital needs of the Company, approved by the vendor consisting of
engineering, network construction, switch site improvements, network equipment
and collocation expenses. The $5 million secured promissory note payable to the
vendor is secured by all assets of the Company.
Additionally, the Company entered into a secured equipment loan note for $10
million with the equipment vendor which may be used solely to finance the
purchase of its products and services. At December 31, 1998, no amounts were
outstanding related to the equipment loan note.
F-12
<PAGE>
AIRGATE PCS, INC. AND SUBSIDIARIES AND PREDECESSORS
(a Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
(b) Notes Payable to Affiliates consist of the following at December 31, 1998
and 1997:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Notes payable to affiliates dated June 11, 1996;
interest at 8%; payable based upon the occurrence
of an equity financing or June 11, 1999 (see note
12(h)) .......................................... $ 150,000 $ 150,000
Notes payable to affiliates dated June 11, 1996;
interest at 8%; due and payable at maturity;
matures in conjunction with a merger or sale of
the Company or June 11, 1999..................... -- 135,000
Note payable to an affiliate dated September 27,
1996; interest at 8%; due and payable at
maturity; payable or convertible on August 8,
1998............................................. -- 180,000
Convertible promissory notes payable to affiliates
dated August 8, 1998; interest at 8%; principal
and interest due on September 18, 1999 (see notes
9(d) and 12(d)).................................. 4,815,000 --
----------- -----------
$ 4,965,000 $ 465,000
=========== ===========
</TABLE>
The convertible promissory notes payable to affiliates have a face value of
$4,815,000 at December 31, 1998 and mature at September 18, 1999, unless
converted earlier. The notes are convertible into preferred or common stock at
any time at the option of the holder and automatically convert upon the closing
of the first equity financing in which AirGate PCS, Inc. sells shares of its
equity securities for an aggregate consideration of at least $70,000,000 and at
a premoney valuation of AirGate PCS, Inc. of at least $50,000,000 (see note
12(d)).
In March and April 1999, the Company received an additional $1.5 million of
short-term financing in the form of convertible notes from affiliates. All
notes bear interest at 8%, are payable upon demand and automatically convert
into shares of common stock at a 48% discount upon the Initial Public Offering
of AirGate PCS, Inc.
(c) Long-Term Debt consists of the following at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
FCC installment plan notes dated April 28, 1997;
interest payments at 6.25% due in eight equal
quarterly payments beginning July 31, 1998 and
ending April 30, 2000; principal and interest
payments of $469,207 are due quarterly beginning
July 28, 1999 until January 28, 2007............ $ -- $11,745,066
Unsecured promissory note dated July 22, 1998;
interest at 14%; principal and interest payments
of $1,120,170 due quarterly commencing March 1,
1999 and ending December 1, 2000 (see note
12(e)).......................................... 7,700,000 --
----------- -----------
Total long-term debt........................... 7,700,000 11,745,066
Less current maturities.......................... 3,380,523 --
----------- -----------
Long-term debt, excluding current maturities... $ 4,319,477 $11,745,066
=========== ===========
</TABLE>
F-13
<PAGE>
AIRGATE PCS, INC. AND SUBSIDIARIES AND PREDECESSORS
(a Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
As of December 31, 1998, management believes the Company is in compliance
with all outstanding debt covenants. Failure of the Company to obtain
additional financing during 1999 on a timely basis could result in the
inability of the Company to meet its future debt service requirements.
Aggregate minimum annual principal payments due on long-term debt for the
next two years at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Years ending
December 31,
------------
<S> <C>
1999........................................................... $3,380,523
2000........................................................... 4,319,477
----------
Total long-term debt......................................... $7,700,000
==========
</TABLE>
(8) Commitments
(a) Lease Commitments
The Company is obligated under noncancelable operating lease agreements for
office space and cell sites. Future minimum annual lease payments under these
noncancelable operating lease agreements for the next five years and in the
aggregate are as follows:
<TABLE>
<CAPTION>
Year ending
December 31,
------------
<S> <C>
1999.......................................................... $ 594,736
2000.......................................................... 641,622
2001.......................................................... 612,217
2002.......................................................... 465,345
2003.......................................................... 365,422
Thereafter.................................................... 548,346
----------
Total future minimum annual lease payments.................. $3,227,688
==========
</TABLE>
The Company made lease payments to a related party for office space. A
written lease agreement does not exist; however, the payments are $6,000 per
month and $60,000 was paid to this related party for the year ended December
31, 1998. The Company believes that the terms of this related party lease
arrangement are comparable to terms that the Company could have obtained with
an unrelated third party.
Rental expense for all operating leases was $292,842, $44,134, and $24,291
for the years ended December 31, 1998, 1997, and 1996, respectively.
The Company has entered into a Master Site Lease Agreement with BellSouth
Personal Communications, Inc. whereby the Company has the right to lease tower
space for the Company's communications and network equipment. The Company paid
$100,000 in August 1998 to BellSouth for reimbursement of preparation and
processing of the tower sites. In addition, the Company has
F-14
<PAGE>
AIRGATE PCS, INC. AND SUBSIDIARIES AND PREDECESSORS
(a Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
paid $80,000 through December 31, 1998 in prepaid rent in order to exercise its
right of first refusal to lease four tower sites. Future minimum annual lease
payments under this arrangement, excluding one-time site cost reimbursements
not to exceed $10,000 per site, as of December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999............................................................. $ 80,000
2000............................................................. 80,000
2001............................................................. 80,000
2002............................................................. 80,000
2003............................................................. 80,000
Thereafter....................................................... 480,000
--------
Total future minimum annual lease payments..................... $880,000
========
</TABLE>
(b) Employment Commitment
On April 9, 1999, the Company entered into an employment agreement with
Thomas Dougherty, the Company's new president and chief executive officer. This
agreement included a stock option grant, which allows Mr. Dougherty the option
to purchase a total number of shares equal to approximately 2.0% of the fully
diluted common shares of AirGate PCS, Inc. Additionally, if the Company
successfully completes an Initial Public Offering or private placement offering
in which at least $50,000,000 in new equity funds are raised before April 15,
2000, the Company agrees to award an additional option to Mr. Dougherty so
that, after such financing he will continue to hold stock options equal to 2%
of the number of shares outstanding. See note 12(h).
(9) Stockholder's Deficit
(a) Distribution of AirGate Wireless, LLC
In July 1998, the Company decided to pursue a different PCS business
opportunity. As a result, upon formation of AirGate PCS, Inc. on August 4,
1998, AirGate Wireless, LLC, which consists solely of the FCC licenses and
related liabilities, has been removed from the consolidated financial
statements because its assets and liabilities were not transferred to AirGate
PCS, Inc. and will not be included in the continuing operations of the Company.
These assets and liabilities included the FCC licenses, net, FCC installment
plan notes payable, a revolving line of credit with a commercial bank, and
related accrued interest with carrying values of $12,846,166, $11,745,066,
$1,800,000, and $893,616 at August 4, 1998, respectively.
(b) Loan Conversions
During the years ended December 31, 1997, 1996 and the period from inception,
June 15, 1995, to December 31, 1995, $4,683,544, $110,710 and $420,119,
respectively, of notes payable to affiliates including accrued interest were
converted to additional paid-in capital in accordance with the respective terms
of the note agreements.
F-15
<PAGE>
AIRGATE PCS, INC. AND SUBSIDIARIES AND PREDECESSORS
(a Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
(c) Cash Distribution
During the years ended December 31, 1997 and 1996 and the period from
inception, June 15, 1995, to December 31, 1995, the affiliates agreed to
convert outstanding notes to additional paid-in capital as described under loan
conversions above. During the year ended December 31, 1997, in connection with
the purchase of FCC licenses, the Company received a refund of $492,944 from
the FCC which the Company paid to the affiliates in the form of a cash
distribution.
(d) Stock Purchase Warrants
In August 1998, the Company issued stock purchase warrants to affiliates in
consideration for: (1) loans made by the affiliates to the Company which have
been converted to additional paid-in capital, (2) guarantees of certain bank
loans provided by the affiliates, and (3) in connection with the $4,815,000 in
convertible debt financing provided by the affiliates. The warrants enabled the
holders to purchase either preferred stock or common stock. The number of
shares available for purchase under the terms of the warrants are based upon a
predetermined formula which is contingent on the amount of financing provided
or guaranteed and the price per share received by the Company in the next
financing round. The exercise price under the terms of the warrants would equal
the price per share received by the Company in the next financing round and the
warrants were exercisable for five years. All of these warrants were cancelled
in connection with the debt consolidation described in note 12(d).
The Company has not reflected the fair value of the warrants as a charge to
interest expense because such amount was not significant.
(e) Preferred Stock
The Company's articles of incorporation authorize the Company's Board of
Directors to issue up to 5 million shares of preferred stock without
shareholder approval. The Company has no present plans to issue any preferred
stock.
(10) Income Taxes
Prior to the formation of AirGate PCS, Inc. in August 1998, the predecessors
of the Company were operated as limited liability companies. As a result,
income taxes were passed through to and were the responsibility of the
stockholders of the predecessors.
The Company has not provided any pro forma income tax information for periods
prior to August 1998 because such information would not be significant to the
accompanying consolidated financial statements.
The provision for income taxes includes income taxes currently payable and
those deferred because of temporary differences between the financial statement
and tax bases of assets and liabilities that will result in taxable or
deductible amounts in the future and any increase or decrease in the valuation
allowance for deferred income tax assets.
F-16
<PAGE>
AIRGATE PCS, INC. AND SUBSIDIARIES AND PREDECESSORS
(a Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
Income tax expense (benefit) for the year ended December 31, 1998 differed
from the amount computed by applying the statutory U.S. Federal income tax rate
of 34% to loss before income taxes as a result of the following:
<TABLE>
<CAPTION>
1998
-----------
<S> <C>
Computed "expected" tax expense............................. $(1,765,447)
Expense related to LLC predecessors......................... 568,939
State and local income taxes, net of Federal income tax
effect..................................................... (187,416)
Increase in valuation allowance............................. 1,893,093
Benefit derived from contribution of tax assets............. (414,993)
Other, net.................................................. (94,176)
-----------
Total income tax expense (benefit)........................ $ --
===========
</TABLE>
The income tax effects of temporary differences that give rise to the
Company's deferred income tax assets as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
1998
-----------
<S> <C>
Deferred income tax assets:
Net operating loss carryforwards.......................... $ 302,085
Capitalized start-up costs................................ 1,381,634
Accrued expenses.......................................... 28,702
Property and equipment due to differences in depreciation
and amortization......................................... 180,672
-----------
Gross deferred income tax asset......................... 1,893,093
Less valuation allowance.................................. (1,893,093)
-----------
Net deferred income tax asset........................... $ --
===========
</TABLE>
In assessing the realizability of deferred income tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred income tax assets will not be realized. The ultimate realization of
deferred income tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become
deductible. Management considers the projected future taxable income and tax
planning strategies in making this assessment.
The increase in deferred income tax assets and the increase in the valuation
allowance for the net deferred income tax assets for the year ended December
31, 1998 was $1,893,093. Deferred income tax assets and liabilities are
recognized for differences between the financial statement carrying amounts and
the tax basis of assets and liabilities which result in future deductible or
taxable amounts and for net operating loss and tax credit carryforwards. A
valuation allowance has been provided because the realization of deferred
income tax assets is uncertain.
As of December 31, 1998, the Company has net operating loss carryforwards of
approximately $750,000, which will expire in the year 2018.
F-17
<PAGE>
AIRGATE PCS, INC. AND SUBSIDIARIES AND PREDECESSORS
(a Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
(11) Year 2000
The year 2000 issue arises as the result of computer programs having been
written, and systems having been designed, using two digits rather than four to
define the applicable year. Consequently, such software has the potential to
recognize a date using the "00" as the year 1900, rather than the year 2000.
This could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
The Company believes that its own computer systems and software are year 2000
compliant. To the extent that the Company implements its own computer systems
and software in the future, the Company will assess year 2000 compliance prior
to their implementation. The Company has not incurred any costs relating to the
year 2000 compliance. In the process of designing and constructing its PCS
network, the Company has entered into material agreements with several third-
party vendors. The Company relies on these vendors for all important operating,
computer and non-information technology systems. Therefore, the Company is
highly dependent on Sprint PCS and other vendors for remediation of their
network elements, computer systems, software applications and other business
systems. The Company will purchase critical back office services from Sprint
PCS such as billing, customer care, home location registration, intelligent
network capabilities and directory and operator assistance. The Company's
network infrastructure equipment will be contractually provided by a third-
party vendor with whom the Company has a material relationship. If either
Sprint PCS or this third-party vendor fail to become year 2000 compliant, the
Company's ability to commence operations may be materially delayed. The Company
has contacted its third-party vendors and believe that they will be year 2000
compliant. However, the Company has no contractual or other right to compel
compliance by them.
The Company does not expect to commence operations until the first quarter of
2000. Because of its reliance on third-party vendors, the Company believes that
the impact of issues relating to year 2000 compliance, if any, would result in
a delay in launching commercial PCS operations and not a disruption in service.
Therefore, the Company has not developed a contingency plan and does not expect
to do so.
(12) Subsequent Events (Unaudited)
(a) On May 14, 1999, the Board of Directors amended the Articles of
Incorporation to increase the number of authorized shares of common stock from
20,000 to 20,000,000 shares and the number of authorized shares of preferred
stock from 5,000 to 5,000,000 shares.
(b) In May 1999, the Company received an additional $1.0 million of short-
term financing in the form of convertible notes from affiliates. All notes bear
interest at 8%, are payable upon demand, and automatically convert into shares
of common stock at a 48% discount upon the Initial Public Offering of AirGate
PCS, Inc.
F-18
<PAGE>
AIRGATE PCS, INC. AND SUBSIDIARIES AND PREDECESSORS
(a Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
(c) The Company filed a registration statement for an equity and debt
financing in May 1999. The Company selected Donaldson, Lufkin & Jenrette
Securities Corporation to lead an initial public offering to raise $95 million
in equity financing and $150 million in gross proceeds from the issuance of
senior subordinated discount notes due 2009. The Company plans to utilize the
proceeds from the aforementioned offerings to build-out its PCS network, to
fund the Company's anticipated operating losses while completing the network
build-out and to pay-off $8.7 million in debt.
(d) In May 1999, the Company consolidated the convertible notes payable to
affiliates issued to the Weiss, Peck & Greer Venture Partners affiliated funds
in 1998 and 1999 for a total of $3.167 million into two subordinated promissory
notes that will be converted into shares of common stock concurrently with
completion of the Initial Public Offering at a 48% discount upon the Initial
Public Offering. The stock purchase warrants issued by the Company in August
1998 (see note 9(d)) and held by the Weiss, Peck & Greer Venture Partners
affiliated funds were terminated. In May 1999, the Company issued new warrants
to the Weiss, Peck & Greer Venture Partners affiliated funds to purchase shares
of common stock for an aggregate price of up to $2.73 million at a price 25%
less than the price of a share of common stock sold in the Initial Public
Offering. These warrants for 243,001 shares may be exercised for two years from
the date of issuance. The Company expects to allocate $1.7 million to the fair
value of the warrants and record a discount on the convertible notes payable
which will be recognized as interest expense over the period from the date of
issuance to the expected date of conversion (August 1999).
In May 1999, the Company consolidated the convertible notes payable to
affiliates issued to the JAFCO America Ventures, Inc. affiliated funds in 1998
and 1999 for a total of $4.394 million into two subordinated promissory notes
that will be converted into shares of common stock concurrently with the
completion of the Initial Public Offering at a 48% discount upon the Initial
Public Offering. The stock purchase warrants issued by the Company in August
1998 (see note 9(d)) and held by the JAFCO America Ventures, Inc. affiliated
funds were terminated.
The notes described in the previous two paragraphs, which were issued with an
"in the money" conversion feature, will be accounted for in accordance with
EITF Issue 98-5. The amount related to the fair value of the beneficial
conversion feature of $7.0 million will be allocated to additional paid-in
capital with a like amount recognized as interest expense over the period from
the date of issuance to the expected date of conversion (August 1999).
If the Initial Public Offering is not completed, the Company is required to
repay these new convertible notes one year after their issuance, subject to the
prior repayment of the senior debt.
(e) On May 12, 1999 the Company obtained a loan modification agreement to
defer the initial principal and interest payment due on the Company's $7.7
million long-term debt arrangement from March 1, 1999, to August 31, 1999.
(f) On May 13, 1999, the Company obtained a loan modification agreement for
its $1 million note payable to bank to extend the maturity date from May 9,
1999 to August, 9, 1999.
F-19
<PAGE>
AIRGATE PCS, INC. AND SUBSIDIARIES AND PREDECESSORS
(a Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
(g) On July 9, 1999 the Board of Directors effected a 39,134-for-one stock
split on the Company's common stock and amended the Certificate of
Incorporation of AirGate PCS, Inc. to increase the number of authorized shares
of common stock from 20,000,000 to 25,000,000 shares. Common stock and
additional paid-in capital have been restated retroactively for all periods
presented to reflect this split.
(h) On July 28, 1999 the Board of Directors effected a reverse stock split of
0.996-for-one on the Company's common stock. Common stock and additional paid-
in capital have been restated retroactively for all periods presented to
reflect this split. Additionally, the Board of Directors approved an incentive
stock option plan, whereby 2 million shares were reserved for issuance to
current and future employees. A total of 1,075,000 of these options were
granted at an exercise price of $14 per share. These options vest at various
terms over a five year period beginning at the grant date. Unearned
compensation will be recorded for the difference between the initial public
offering price and the exercise price at the date of grant and will be
recognized as compensation expense as these options vest.
Included in these option grants were a total of 300,000 options granted to
Thomas Dougherty. The options vest quarterly over a five year period beginning
April 15, 2000.
Additionally, on July 28, 1999 the Company obtained a note modification
deferring the maturity date of the $150,000 in notes payable to affiliates from
June 11, 1999 to September 11, 1999.
F-20
<PAGE>
AIRGATE PCS, INC. AND SUBSIDIARIES AND PREDECESSORS
(a Development Stage Enterprise)
CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
As of
June 30,
1999
------------
<S> <C>
Assets
Current assets:
Cash and cash equivalents...................................... $ 2,909,561
Due from AirGate Wireless, LLC................................. 750,998
------------
Total current assets......................................... 3,660,559
Property and equipment, net...................................... 16,531,890
Site lease deposits.............................................. 530,000
Offering costs................................................... 336,880
Other assets..................................................... 130,915
------------
$ 21,190,244
============
Liabilities and Stockholder's Deficit
Current liabilities:
Accounts payable............................................... $ 1,392,178
Accrued interest............................................... 1,465,060
Notes payable.................................................. 1,000,000
Notes payable to affiliates, net .............................. 3,146,312
Current maturities of long-term debt........................... 5,465,997
------------
Total current liabilities.................................... 12,469,547
Long-term debt, excluding current maturities..................... 12,234,003
------------
Total liabilities............................................ 24,703,550
------------
Stockholder's deficit:
Preferred stock, par value $.01 per share; 5,000,000 shares
authorized; no shares issued and outstanding.................. --
Common stock, par value $.01 per share; 25,000,000 shares
authorized; 3,898,270 shares issued and outstanding at June
30, 1999...................................................... 38,983
Additional paid-in capital..................................... 15,867,083
Deficit accumulated during the development stage............... (19,419,372)
------------
Total stockholder's deficit.................................. (3,513,306)
------------
Total liabilities and stockholder's deficit................ $ 21,190,244
============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-21
<PAGE>
AIRGATE PCS, INC. AND SUBSIDIARIES AND PREDECESSORS
(a Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Six-Month
Periods Ended June 30,
------------------------
1999 1998
----------- -----------
<S> <C> <C>
Operating expenses:
General and administrative expenses................ $(1,798,567) $(1,099,724)
Depreciation and amortization...................... (409,274) (745,845)
----------- -----------
Operating loss................................... (2,207,841) (1,845,569)
Interest expense..................................... (5,557,112) (509,775)
----------- -----------
Net loss......................................... $(7,764,953) $(2,355,344)
=========== ===========
Basic net loss per share of common stock............. $ (1.99) $ (0.60)
=========== ===========
Diluted net loss per share of common stock........... $ (1.50) $ (0.47)
=========== ===========
Pro forma net loss per share of common stock......... $ (3.41)
===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-22
<PAGE>
AIRGATE PCS, INC. AND SUBSIDIARIES AND PREDECESSORS
(a Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Six-Month
Periods Ended June 30,
------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................ $(7,764,953) $(2,355,344)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization..................... 409,274 745,845
Accretion of discount on convertible notes to
interest expense................................. 5,037,434 --
(Increase) decrease in:
Due from AirGate Wireless, LLC.................. (372,738) --
Prepaid expenses................................ 100,333 (2,668)
Site lease deposits............................. (530,000) --
Increase (decrease) in:
Accounts payable................................ (57,077) (2,566)
Accrued interest................................ 994,353 397,047
----------- -----------
Net cash used in operating activities......... (2,183,374) (1,217,686)
----------- -----------
Cash flows from investing activities--capital
expenditures....................................... (4,395,799) (31,459)
----------- -----------
Cash flows from financing activities:
Proceeds from notes payable to affiliates....... 2,530,000 1,065,000
Proceeds from notes payable..................... 5,000,000 --
Offering costs.................................. (336,880) --
----------- -----------
Net cash provided by financing activities..... 7,193,120 1,065,000
----------- -----------
Net increase (decrease) in cash and cash
equivalents.................................. 613,947 (184,145)
Cash and cash equivalents at beginning of period.... 2,295,614 146,939
----------- -----------
Cash and cash equivalents at end of period.......... $ 2,909,561 $ (37,206)
=========== ===========
Supplemental disclosure of cash flow information--
cash paid for interest............................. $ 503,063 $ 221,139
=========== ===========
Supplemental disclosure of noncash financing
activities:
Consolidation of accrued interest into notes
payable:
Accrued interest.................................. $ (216,000) $ --
Notes payable to affiliates....................... 216,000 --
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-23
<PAGE>
AIRGATE PCS, INC. AND SUBSIDIARIES AND PREDECESSORS
(a Development Stage Enterprise)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements represent the
accounts of AirGate PCS, Inc. and subsidiaries and predecessors (collectively,
the "Company"). These unaudited consolidated financial statements have been
prepared in accordance with instructions for preparing interim financial
information and, therefore, do not include all information and footnotes
necessary for a fair presentation of financial position, results of operations,
and cash flows in conformity with generally accepted accounting principles. All
adjustments, consisting of normal recurring accruals, which, in the opinion of
management, are necessary to a fair presentation of financial position and
results of operations have been included. The accompanying unaudited
consolidated financial statements should be read in conjunction with the
Company's audited consolidated financial statements and related notes appearing
elsewhere herein.
(2) Development Stage Enterprise
AirGate, LLC, the first predecessor entity of the Company, was established on
June 15, 1995 (inception). The Company has devoted most of its efforts to date
to activities such as preparing business plans, raising capital, and planning
the build-out of its PCS network. From inception through June 30, 1999, the
Company has not generated any revenues and has incurred expenses of
$(19,419,372), resulting in an accumulated deficit during the development stage
of $(19,419,372) as of June 30, 1999.
(3) Net Loss Per Share
Basic net loss per share of common stock is computed by dividing net loss by
the weighted average number of common shares outstanding. Diluted net loss per
share of common stock reflects the conversion of notes payable and the dilutive
effect of outstanding stock options and warrants.
The Company has used the assumed initial public offering price of $15.00 per
common share for purposes of computing diluted net loss per common share.
Pursuant to the rules of the Securities and Exchange Commission, the Company
has included the effect of stock options, stock warrants, and convertible debt
issued in the previous 12 months in the computation of dilutive potential
common shares as if they were outstanding for the entire period, including
periods where the impact of the incremental shares is antidilutive.
F-24
<PAGE>
AIRGATE PCS, INC. AND SUBSIDIARIES AND PREDECESSORS
(a Development Stage Enterprise)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
June 30, 1999 and 1998
(Unaudited)
The following table summarizes information relating to the computation of
basic and diluted net loss per share of common stock for the six-month periods
ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Net loss...................................... $(7,764,953) $(2,355,344)
Assumed conversion of notes payable--interest
expense...................................... 237,988 19,043
----------- -----------
Adjusted net loss............................. $(7,526,965) $(2,336,301)
=========== ===========
Weighted average common shares outstanding.... 3,898,270 3,898,270
Assumed conversion of notes payable........... 985,641 985,641
Dilutive effect of outstanding stock options.. 71,667 71,667
Dilutive effect of outstanding stock
warrants..................................... 60,750 60,750
----------- -----------
Adjusted common shares outstanding............ 5,016,328 5,016,328
=========== ===========
Basic net loss per share of common stock...... $ (1.99) $ (0.60)
=========== ===========
Diluted net loss per share of common stock.... $ (1.50) $ (0.47)
=========== ===========
</TABLE>
The Company has also presented pro forma net loss per share of common stock
for the accompanying interim period. This presentation gives effect to the
additional interest expense to be incurred from the senior subordinated
discount notes offering.
The following table summarizes information relating to the computation of pro
forma net loss per share of common stock for the six-month period ended June
30, 1999:
<TABLE>
<S> <C>
Net loss................................................... $ (7,764,953)
Assumed conversion of notes payable--interest expense...... 237,988
Assumed debt offering--interest expense.................... (9,562,500)
------------
Adjusted net loss.......................................... $(17,089,465)
============
Weighted average common shares outstanding................. 3,898,270
Assumed conversion of notes payable........................ 985,641
Dilutive effect of outstanding stock options............... 71,667
Dilutive effect of outstanding stock warrants.............. 60,750
------------
Adjusted common shares outstanding......................... 5,016,328
============
Pro forma net loss per share of common stock............... $ (3.41)
============
</TABLE>
(4) Stockholder's Deficit and Debt Transactions
(a) On May 14, 1999, the Board of Directors amended the Articles of
Incorporation to increase the number of authorized shares of common stock from
20,000 to 20,000,000 shares and the number of authorized shares of preferred
stock from 5,000 to 5,000,000 shares.
F-25
<PAGE>
AIRGATE PCS, INC. AND SUBSIDIARIES AND PREDECESSORS
(a Development Stage Enterprise)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
June 30, 1999 and 1998
(Unaudited)
(b) In May 1999, the Company received an additional $1.0 million of short-
term financing in the form of convertible notes from affiliates. All notes bear
interest at 8%, are payable upon demand, and automatically convert into shares
of common stock at a 48% discount upon the Initial Public Offering of AirGate
PCS, Inc.
(c) The Company filed a registration statement for an equity and debit
financing in May 1999. The Company selected Donaldson, Lufkin & Jenrette
Securities Corporation to lead an initial public offering to raise $95 million
in equity financing and $150 million in gross proceeds from the issuance of
senior subordinated discount notes due 2009. The Company plans to utilize the
proceeds from the aforementioned offerings to build-out its PCS network, to
fund the Company's anticipated operating losses while completing the network
build-out, and to pay-off $8.7 million of debt.
(d) In May 1999, the Company consolidated the convertible notes payable to
affiliates issued to the Weiss, Peck & Greer Venture Partners affiliated funds
in 1998 and 1999 for a total of $3.167 million into two subordinated promissory
notes that will be converted into shares of common stock concurrently with
completion of the Initial Public Offering at a 48% discount upon the Initial
Public Offering. The stock purchase warrants issued by the Company in August
1998 and held by the Weiss, Peck & Greer Venture Partners affiliated funds were
terminated. In May 1999, the Company issued new warrants to the Weiss, Peck &
Greer Venture Partners affiliated funds to purchase shares of common stock for
an aggregate price of up to $2.75 million at a price 25% less than the price of
a share of common stock sold in the Initial Public Offering. These warrants for
243,001 shares may be exercised for two years from the date of issuance. The
Company has allocated $1.7 million to the fair value of the warrants and
recorded the associated discount on the convertible notes payable as interest
expense over the period from issuance to the expected date of conversion
(August 1999).
In May 1999, the Company consolidated the convertible notes payable to
affiliates issued to the JAFCO America Ventures, Inc. affiliated funds for a
total of $4.394 million into two subordinated promissory notes that will be
converted into shares of common stock concurrently with the completion of the
Initial Public Offering at a 48% discount upon the Initial Public Offering. The
stock purchase warrants issued by the Company in August 1998 and held by the
JAFCO America Ventures, Inc. affiliated funds were terminated.
The notes described in the previous two paragraphs, which were issued with an
"in the money" conversion feature, have been accounted for in accordance with
EITF Issue 98-5. The amount related to the fair value of the beneficial
conversion feature of $7.0 million has been allocated to additional paid-in
capital with a like amount recognized as interest expense over the period from
issuance to the date of conversion (August 1999).
If the Initial Public Offering is not completed, the Company is required to
repay all of these new convertible notes one year after their issuance, subject
to the prior repayment of the senior debt.
(e) On May 13, 1999, the Company obtained a loan modification agreement for
its $1 million note payable to bank to extend the maturity date from May 9,
1999 to August 9, 1999.
F-26
<PAGE>
AIRGATE PCS, INC. AND SUBSIDIARIES AND PREDECESSORS
(a Development Stage Enterprise)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
June 30, 1999 and 1998
(Unaudited)
(f) On May 12, 1999, the Company obtained a loan modification agreement to
defer the initial principal and interest payments due on the Company's $7.7
million long-term debt arrangement from March 1, 1999, to August 31, 1999.
(5) Subsequent Events
(a) On July 9, 1999 the Board of Directors effected a 39,134-for-one stock
split on the Company's common stock and amended the Certificate of
Incorporation of AirGate PCS, Inc. to increase the number of authorized shares
of common stock from 20,000,000 to 25,000,000 shares. Common stock and
additional paid-in capital have been restated retroactively for all periods
presented to reflect this split.
(b) On July 28, 1999 the Board of Directors effected a reverse stock split of
0.996-for-one on the Company's common stock. Common stock and additional paid-
in capital have been restated retroactively for all periods presented to
reflect this split. Additionally, the Board of Directors approved an incentive
stock option plan, whereby 2 million shares were reserved for issuance to
current and future employees. A total of 1,075,000 of these options were
granted at an exercise price of $14 per share. These options vest at various
terms over a five year period beginning at the grant date. Unearned
compensation will be recorded for the difference between the initial public
offering price and the exercise price at the date of grant and will be
recognized as compensation expense as these options vest.
Additionally, on July 28, 1999 the Company obtained a note modification
deferring the maturity date of the $150,000 in notes payable to affiliates from
June 11, 1999 to September 11, 1999.
F-27
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 1999
[LOGO] AirGate PCS
6,333,333 Shares of Common Stock
-----------------------------------------------
PROSPECTUS
-----------------------------------------------
Donaldson, Lufkin & Jenrette
Credit Suisse First Boston
The Robinson-Humphrey Company
- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor
any of the sales made hereunder after the date of this prospectus shall create
an implication that the information contained herein or our affairs have not
changed since the date hereof.
Until , 1999 (25 days after the date of this prospectus), all dealers that
effect transactions in these securities may be required to deliver a
prospectus. This is in addition to the dealer's obligation to deliver a
prospectus when acting as an underwriter in this offering or when selling
previously unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+We will amend and complete the information in this prospectus. Although we +
+are permitted by U.S. federal securities laws to offer these securities using +
+this prospectus, we may not sell them or accept your offer to buy them until +
+the documentation filed with the SEC relating to these securities has been +
+declared effective by the SEC. This prospectus is not an offer to sell these +
+securities or our solicitation of your offer to buy these securities in any +
+state or other jurisdiction where that would not be permitted or legal. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION -- August 2, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Prospectus
, 1999
[LOGO] AirGate PCS
$
% Senior Subordinated Discount Notes Due 2009
- --------------------------------------------------------------------------------
AirGate PCS, Inc.:
. AirGate PCS, Inc.
Harris Tower
Suite 1700
233 Peachtree Street, N.E.
Atlanta, Georgia 30303
(404) 525-7272
The Senior Subordinated Discount Notes:
. Maturity: , 2009.
. Interest Payments: We are selling the senior subordinated discount notes at
a substantial discount from their principal amount at maturity, and no cash
interest will accrue on the senior subordinated discount notes prior to
, 2004. Thereafter, we will pay interest on and commencing ,
2005.
. Subsidiary Guarantees: Our existing subsidiary AGW Leasing Company, Inc.
and all of our future restricted subsidiaries will unconditionally
guarantee the senior subordinated discount notes on a senior subordinated
basis.
. Security: The senior subordinated discount notes are secured by a pledge of
all the capital stock of our future, directly owned subsidiaries. These
pledges will be subordinate to pledges under our senior debt.
<TABLE>
------------------------------------------------
<S> <C> <C>
Per Note Total
------------------------------------------------
Price: % $
Underwriting discount:
Proceeds to AirGate:
------------------------------------------------
</TABLE>
This investment involves risk. See "Risk Factors" beginning on page 6.
- --------------------------------------------------------------------------------
Neither the SEC nor any state securities commission has determined whether this
prospectus is truthful or complete. Nor have they made, nor will they make, any
determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
- --------------------------------------------------------------------------------
Donaldson, Lufkin & Jenrette Paribas Corporation
<PAGE>
Alternate Senior Subordinated Discount Notes Pages
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary...............
Risk Factors..................... 4
Forward-looking Statements.......
Use of Proceeds..................
Capitalization...................
Selected Financial Data..........
Management's Discussion and
Analysis of Financial Condition
and Results of Operations.......
Industry Background..............
Business.........................
The Sprint PCS Agreements........
Description of Certain Indebted-
ness............................
Management.......................
</TABLE>
<TABLE>
<CAPTION>
Page
<S> <C>
Principal Stockholders..........
Certain Transactions............
Regulation of the Wireless
Telecommunications Industry....
Description of Notes............ 8
United States Federal Income Tax
Consequences................... 54
Underwriting.................... 59
Legal Matters................... 60
Experts.........................
Available Information...........
Index to Consolidated Financial
Statements..................... F-1
</TABLE>
----------------
The prospectus includes product names, trade names and trademarks of other
companies.
<PAGE>
Alternate Senior Subordinated Discount Notes Pages
The Offering
Issuer...................... AirGate PCS, Inc.
Securities Offered.......... $ million aggregate principal amount at
maturity of % senior subordinated discount
notes, due 2009. We will issue the senior
subordinated discount notes at a price to
investors that will yield gross proceeds to us of
approximately $150.0 million.
Maturity Date............... , 2009.
Accretion................... The aggregate accreted value of the senior
subordinated discount notes will increase from
$150.0 million at issuance at a rate of %,
compounded semi-annually, to a final accreted
value equal to their aggregate principal amount
of $ million at , 2004.
Interest Rate...............
The senior subordinated discount notes will
accrue interest at the rate of % per annum,
payable semi-annually in cash in arrears on
and of each year, commencing , 2005.
Subsidiary Guarantees.......
The senior subordinated discount notes will be
guaranteed on a senior subordinated basis by our
current subsidiary, AGW Leasing Company, Inc.,
and all of our future restricted subsidiaries.
See "Description of Notes--Brief Description of
the Senior Subordinated Discount Notes and the
Guarantees--The Guarantees" and "Description of
Notes--Subsidiary Guarantees."
Ranking..................... The senior subordinated discount notes will be:
. subordinated in right of payment to all of
our existing and future senior
indebtedness;
. equal in right of payment to all of our
existing and future senior subordinated
indebtedness; and
. senior in right of payment to all of our
existing and future subordinated
indebtedness.
The guarantees will be unsecured obligations of
the guarantors and will be:
. subordinated in right of payment to all
existing and future senior indebtedness of
each guarantor;
. equal in right of payment to all existing
and future senior subordinated indebtedness
of each guarantor; and
. senior in right of payment to all existing
and future subordinated indebtedness of
each guarantor.
See "Description of Notes--Brief Description of
the Senior Subordinated Discount Notes and the
Guarantees."
1
<PAGE>
Alternate Senior Subordinated Discount Notes Pages
Security....................
The senior subordinated discount notes will be
secured by a subordinated pledge of the capital
stock of all of our future, directly owned
subsidiaries. The pledge to secure the senior
subordinated discount notes will be junior to the
pledge to secure our senior debt.
See "Description of Notes--Security."
Optional Redemption.........
On or after , 2004, we may redeem all or part
of the senior subordinated discount notes at
redemption prices set forth under "Description of
Notes--Optional Redemption," together with
accrued and unpaid interest, if any, to the date
of redemption.
During the first 36 months after the offering of
the senior subordinated discount notes, we may
use the net proceeds from an equity offering to
redeem up to 35% of the accreted value of the
senior subordinated discount notes originally
issued at a redemption price of % of the
accreted value as of the date of redemption,
provided that at least 65% of the accreted value
of the senior subordinated discount notes
originally issued remains outstanding immediately
after the redemption. See "Description of Notes--
Optional Redemption."
Change of Control...........
If we experience a change of control, we will be
required to make an offer to repurchase your
senior subordinated discount notes at a price
equal to 101% of the accreted value, if before
, 2004, or 101% of the aggregate principal
amount thereafter, as applicable, together with
accrued and unpaid interest, if any, to the date
of repurchase. See "Description of Notes--
Repurchase at the Option of Holders--Change in
Control."
Restrictive Covenants....... The indenture governing the senior subordinated
discount notes will contain covenants that, among
other things, will limit our ability and the
ability of our subsidiary and certain of our
future subsidiaries to:
. incur additional indebtedness or issue
preferred stock;
. pay dividends, redeem capital stock or make
other restricted payments or investments;
. create liens on assets;
. merge, consolidate or dispose of assets;
. enter into certain transactions with
affiliates; and
. enter into sale and leaseback transactions.
2
<PAGE>
Alternate Senior Subordinated Discount Notes Pages
See "Description of Notes--Selected Covenants."
Original Issue Discount..... The senior subordinated discount notes are being
issued with original issue discount for U.S.
federal income tax purposes. Thus, although
interest will not be payable on the senior
subordinated discount notes prior to , 2005,
holders will be required to include original
issue discount amounts in gross income for U.S.
federal income tax purposes over the term of the
senior subordinated discount notes in advance of
receipt of cash payments to which such income is
attributable. See "United States Federal Income
Tax Consequences."
Use of Proceeds............. We will use:
. the net proceeds from the sale of the
senior subordinated discount notes;
. the net proceeds from the concurrent sale
of our common stock; and
. the financing provided by Lucent
to fund the following:
. capital expenditures, including the build-
out of our PCS network;
. operating losses;
. working capital requirements; and
. debt service payments, including the
repayment of existing debt.
See "Use of Proceeds."
The closing of our offering of senior subordinated discount notes and our
concurrent offering of common stock, under a separate prospectus, are
conditioned on each other, and both offerings are conditioned on execution of
definitive documentation covering the Lucent financing.
Risk Factors
Investment in the senior subordinated discount notes involves a high degree
of risk. See "Risk Factors" beginning on page 6 for a discussion of the
material factors which should be considered by prospective investors in
evaluating an investment in the senior subordinated discount notes.
3
<PAGE>
Alternate Senior Subordinated Discount Notes Pages
RISK FACTORS
Investment in the senior subordinated discount notes involves a high degree
of risk. In addition to the other information in this prospectus, the following
factors should be considered carefully in evaluating an investment in the
senior subordinated discount notes. The cautionary statements set forth below
and elsewhere in this prospectus should be read in conjunction with
accompanying forward-looking statements included under "Management's Discussion
and Analysis of Financial Condition and Results of Operations," "Business" and
elsewhere herein.
Risks Related to the Offering
Because the senior subordinated discount notes are subordinated to other debt
that encumbers our assets, you may not be fully repaid if we become insolvent
If we become insolvent, we may not have sufficient assets to make payments
on amounts due on any or all of the senior subordinated discount notes or the
subsidiary guarantees. The right to payment on the senior subordinated discount
notes will be subordinated to all of our existing and future senior debt,
including our financing with Lucent. Similarly, each subsidiary guarantee of
the senior subordinated discount notes will be subordinated to all existing and
future senior debt of the applicable guarantor. If we become bankrupt,
liquidate, dissolve, reorganize or undergo a similar proceeding, our or such
guarantor's assets will be available to pay obligations on the senior
subordinated discount notes or the applicable guarantee only after all
outstanding senior debt of such party has been paid in full. In addition, an
event of a default under our senior debt may prohibit us and the guarantors of
the senior subordinated discount notes from paying the senior subordinated
discount notes or the guarantees of the senior subordinated discount notes.
Because the subsidiary guarantees will be unsecured, you may not be fully
repaid under the guarantees if we become insolvent
Because the guarantees of the senior subordinated discount notes will be
unsecured, if we become insolvent, you may be repaid only after our senior debt
is satisfied. Our senior debt is secured by liens on substantially all of our
assets and those of our subsidiary and future subsidiaries. If we were to
default on our senior debt, the lenders could foreclose on the collateral
regardless of any default with respect to the senior subordinated discount
notes. These assets would first be used to repay in full all amounts
outstanding under our senior debt.
Our agreements with Sprint PCS and the infrastructure equipment used in our
network creates the value of our assets. These assets are highly specialized
and, taken individually, have limited marketability, particularly as a result
of some of the provisions in our agreements with Sprint PCS. Therefore, in a
foreclosure sale, these assets are likely to be sold as an entirety, and the
lender may not realize enough money to satisfy all senior debt.
Holders of our senior debt will control enforcement of the pledges of any of
our subsidiaries' stock which may affect the trustee's ability to independently
pursue remedies on behalf of holders of senior subordinated discount notes
The holders of the senior debt are given the exclusive right to control all
decisions relating to the enforcement of remedies under the pledge agreement of
the stock of our current and future subsidiaries. As a result, you will not be
able to force a sale of the collateral securing the senior subordinated
discount notes or otherwise independently pursue the remedies of a secured
creditor
4
<PAGE>
Alternate Senior Subordinated Discount Notes Pages
under the pledge agreement. Our senior debtholders may have interests that are
different from yours and our senior debtholders may elect not to pursue their
remedies under the pledge agreement at a time when it would be advantageous for
you to do so.
Because federal and state statutes may allow courts to void the guarantees of
the senior subordinated discount notes, you may not have the right to receive
any money pursuant to the guarantees
Although the guarantees of the senior subordinated discount notes provide you
with a direct claim against the assets of the applicable guarantor, creditors
of a bankrupt guarantor may challenge the guarantee. If a challenge to a
guarantee were upheld, then the applicable guarantee would be invalid and
unenforceable, junior to all creditors, including trade creditors, of that
guarantor.
The creditors of a bankrupt guarantor could challenge a guarantee on the
grounds that the guarantee constituted a fraudulent conveyance under bankruptcy
law. If a court were to rule that the guarantee did constitute a fraudulent
conveyance, then the court could void the obligations under the guarantee or
subordinate the guarantee to other debt of the guarantor or take other action
detrimental to holders of the senior subordinated discount notes. In addition,
any of the guarantees could be subject to the claim that, since the guarantee
was incurred for our benefit, and only indirectly for the benefit of our
subsidiary that provided the guarantee, the obligations of the applicable
guarantor were incurred for less than fair consideration.
Our debt instruments contain provisions and requirements that could limit our
ability to pursue borrowing opportunities
The restrictions to be contained in the indenture governing the senior
subordinated discount notes, and the restrictions contained in our senior debt,
may limit our ability to implement our business plan, finance future
operations, respond to changing business and economic conditions, secure
additional financing, if needed, and engage in opportunistic transactions. Our
senior debt also will restrict our ability and the ability of our subsidiary
and our future subsidiaries to do the following:
. create liens;
. make certain payments, including payments of dividends and distributions
in respect of capital stock;
. consolidate, merge and sell assets;
. engage in certain transactions with affiliates; and
. fundamentally change our business.
In addition, our senior debt will require us to maintain certain ratios,
including:
. leverage ratios;
. an interest coverage ratio; and
. a fixed charges ratio,
and to satisfy certain tests, including tests relating to:
. minimum covered population;
. minimum number of subscribers to our services; and
. minimum aggregate service revenue per subscriber.
5
<PAGE>
Alternate Senior Subordinated Discount Notes Pages
We may not satisfy the financial ratios and tests under our senior debt due
to events that are beyond our control. If we fail to satisfy any of the
financial ratios and tests, we could be in default under our senior debt or may
be limited in our ability to access additional funds under our senior debt,
which could result in our being unable to make payments on the senior
subordinated discount notes.
Because the senior subordinated discount notes will be issued with original
issue discount, you will have to include interest in your taxable income before
you receive cash
The senior subordinated discount notes will be issued at a substantial
discount from their principal amount at maturity. Original issue discount,
i.e., the difference between the stated redemption price at maturity of the
senior subordinated discount notes, including all cash payments of principal
and interest, and the issue price of the senior subordinated discount notes,
will accrue from the issue date of the senior subordinated discount notes and
will be included in your gross income for federal income tax purposes before
you receive the cash payment of such interest. United States federal income tax
law may postpone or limit our deduction of interest or original issue discount.
See "United States Federal Income Tax Consequences."
The bankruptcy laws may reduce your claim in the event of our insolvency
If a bankruptcy case were commenced by or against us under the United States
Bankruptcy Code after the issuance of the senior subordinated discount notes,
your claim with respect to the principal amount of the senior subordinated
discount notes may be limited to an amount equal to the sum of the initial
offering price and that portion of the original issue discount that is not
deemed to constitute unmatured interest for purposes of the United States
Bankruptcy Code. Any original issue discount that had not amortized as of the
date of the bankruptcy filing could constitute unmatured interest for purposes
of the United States Bankruptcy Code. To the extent that the United States
Bankruptcy Code differs from the Internal Revenue Code in determining the
method of amortization of original issue discount, you may recognize taxable
gain or loss upon payment of your claim in bankruptcy.
If an event constituting a change in control of AirGate occurs, we may be
unable to fulfill our obligation to purchase your senior subordinated discount
notes
Our senior debt prohibits us from purchasing any of the senior subordinated
discount notes before their stated maturity. Under the indenture governing the
senior subordinated discount notes, upon a change in control we will, subject
to certain contractual limitations, be required to make an offer to repurchase
all of the senior subordinated discount notes. In the event we become subject
to a change in control at a time when we are prohibited from purchasing the
senior subordinated discount notes, we may seek the consent of the holders of
our senior debt to purchase the senior subordinated discount notes or attempt
to refinance the debt that contains the prohibition. If we do not obtain a
consent or repay the senior debt, our failure to purchase the tendered senior
subordinated discount notes would constitute an event of default under the
indenture, which would in turn result in a default under the senior debt. Even
if we obtain the consent, we cannot assure you that we will have sufficient
resources to repurchase the senior subordinated discount notes following the
change in control.
6
<PAGE>
Alternate Senior Subordinated Discount Notes Pages
The senior subordinated discount notes may not have an active market and the
price may be volatile, so you may be unable to sell your senior subordinated
discount notes at the price you desire or at all
We cannot ensure that a liquid market will develop for the senior
subordinated discount notes, that you will be able to sell your senior
subordinated discount notes at a particular time if at all or that the prices
that you receive when you sell will be favorable. Prior to this offering, there
has been no public market for the senior subordinated discount notes. The
underwriters have told us that they intend to make a market in the senior
subordinated discount notes, but they are not obliged to do so. The
underwriters may discontinue any marketmaking in the senior subordinated
discount notes at any time in their sole discretion. Future trading prices of
the senior subordinated discount notes will depend on many factors, including
our operating performance and financial condition, prevailing interest rates
and the market for similar securities.
7
<PAGE>
Alternate Senior Subordinated Discount Notes Pages
DESCRIPTION OF NOTES
You can find the definitions of many of the terms used in this description
under the subheading "Certain Definitions." In this description, the word
"AirGate" refers only to AirGate PCS, Inc. and not to any of its Subsidiaries.
AirGate will issue the senior subordinated discount notes under an Indenture
(the "Indenture") among itself, the Guarantors and Bankers Trust Company, as
trustee (the "Trustee"). The terms of the senior subordinated discount notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939 (the "Trust Indenture Act"). The
Indenture will be qualified as an indenture under the Trust Indenture Act. The
intercreditor agreement and the pledge agreement each referred to under the
subcaption "Security" also define the terms of the pledges that will be made in
connection with the senior subordinated discount notes.
The following description is a summary of the material provisions of the
Indenture, the pledge agreement and the intercreditor agreement. We urge you to
read the Indenture, the pledge agreement and the intercreditor agreement
because they define your rights as a holder of these senior subordinated
discount notes. We have filed a copy of the Indenture as an exhibit to the
registration statement which includes this prospectus.
Brief Description of the Senior Subordinated Discount Notes and the Guarantees
The Senior Subordinated Discount Notes
These senior subordinated discount notes:
. are general obligations of AirGate;
. are secured by a senior subordinated pledge of the capital stock of
AirGate's future, directly owned Subsidiaries;
. are subordinated in right of payment to all existing and future Senior
Debt of AirGate;
. are equal in right of payment to all existing and future senior
subordinated indebtedness of AirGate;
. are senior in right of payment to all existing and future subordinated
indebtedness of AirGate; and
. are unconditionally guaranteed on a senior subordinated basis by the
Guarantors.
The senior subordinated discount notes will be effectively subordinated to
all liabilities of AirGate's Subsidiaries.
The Guarantees
These senior subordinated discount notes are guaranteed by AGW Leasing
Company, Inc. and all future Restricted Subsidiaries.
The Guarantees of these senior subordinated discount notes:
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. are general obligations of each Guarantor;
. are subordinated in right of payment to all existing and future Senior
Debt of such Guarantor;
. are equal in right of payment with all existing and future senior
subordinated Indebtedness of each Guarantor; and
. are senior in right of payment to all existing and future subordinated
Indebtedness of each Guarantor.
Assuming we had completed the offering of these senior subordinated discount
notes and applied the net proceeds as intended, as of June 30, 1999, AirGate
and the Guarantors would have had total Senior Debt of approximately $10.0
million. The Indenture will permit us and the Guarantors to incur additional
Senior Debt.
As of the date of the Indenture, all of our Subsidiaries will be "Restricted
Subsidiaries." However, under the circumstances described below under the
subheading "Selected Covenants--Designation of Restricted and Unrestricted
Subsidiaries," we will be permitted to designate Subsidiaries meeting
particular requirements as "Unrestricted Subsidiaries." Unrestricted
Subsidiaries will not be subject to many of the restrictive covenants in the
Indenture. Unrestricted Subsidiaries will not guarantee these senior
subordinated discount notes.
Principal, Maturity and Interest
AirGate will issue senior subordinated discount notes with a maximum
aggregate principal amount of $ million. The senior subordinated discount
notes will mature on , 2009.
Cash interest will not be paid or accrue on the senior subordinated discount
notes prior to , 2005, and will be payable at a rate of % per annum,
semi-annually in arrears on and of each year, commencing , 2005
to holders of record of such senior subordinated discount notes at the close of
business on the and next preceding the Interest Payment Date (each a
"Regular Record Date"). Cash interest will accrue from the most recent Interest
Payment Date to which interest has been paid or duly provided for or, if no
interest has been paid or duly provided for, from , 2004. Cash interest
will be computed on a basis of a 360-day year of twelve 30-day months.
Accretion of original issue discount will be computed on a basis of a 360-day
year of twelve 30 day months, compounded semi-annually. Certain of AirGate's
existing and proposed debt agreements restrict the ability of AirGate's
Subsidiaries to pay dividends to enable AirGate to pay interest on the senior
subordinated discount notes.
The senior subordinated discount notes will be issued at a substantial
discount from the aggregate stated principal amount thereof. For federal income
tax purposes, significant amounts of original issue discount, taxable as
ordinary income will be recognized by holders of the senior subordinated
discount notes annually as long as they hold the senior subordinated discounts
notes, including in advance of the receipt of cash interest payments thereon.
See "United States Federal Income Tax Consequences."
The senior subordinated discount notes are not subject to any sinking fund.
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The principal of, premium, if any, and interest on the senior subordinated
discount notes will be payable, and the senior subordinated discount notes will
be exchangeable and transferable, at the office or agency of AirGate in the
City of New York maintained for such purposes, which initially will be the
office of the Trustee located at 130 Liberty Street, 31st floor, New York, New
York 10006, Attn: Corporate Trust Administration Department. The senior
subordinated discount notes will be issued only in registered form without
coupons and only in denominations of $1,000 and any integral multiple thereof.
No service charge will be made for any registration of transfer or exchange or
redemption of senior subordinated discount notes, but AirGate may require
payment in certain circumstances of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection therewith.
Methods of Receiving Payments on the Senior Subordinated Discount Notes
If a holder of senior subordinated discount notes has given wire transfer
instructions to AirGate, AirGate will make all principal, premium and interest
payments on those senior subordinated discount notes in accordance with those
instructions. All other payments on these senior subordinated discount notes
will be made at the office or agency of the Paying Agent and Registrar within
the City and State of New York unless AirGate elects to make interest payments
by check mailed to the holders of senior subordinated discount notes at their
address set forth in the register of holders.
Paying Agent and Registrar for the Senior Subordinated Discount Notes
The Trustee will initially act as Paying Agent and Registrar. AirGate may
change the Paying Agent or Registrar without prior notice to the holders of the
senior subordinated discount notes, and AirGate or any of its Subsidiaries may
act as Paying Agent or Registrar.
Transfer and Exchange
A Holder of senior subordinated discount notes may transfer or exchange such
notes in accordance with the Indenture. The Registrar and the Trustee may
require a holder, among other things, to furnish appropriate endorsements and
transfer documents and AirGate may require a holder to pay any taxes and fees
required by law or permitted by the Indenture. AirGate is not required to
transfer or exchange any senior subordinated discount note selected for
redemption. Also, AirGate is not required to transfer or exchange any senior
subordinated discount note for a period of 15 days before a selection of senior
subordinated discount notes to be redeemed.
The registered holder of a senior subordinated discount note will be treated
as the owner of it for all purposes.
Guarantees
The Guarantors will jointly and severally guarantee AirGate's obligations on
a senior subordinated basis under these senior subordinated discount notes.
Each Guarantee will be:
. subordinated in right of payment to all existing and future senior
Indebtedness of each Guarantor;
. equal in right of payment to all existing and future senior subordinated
Indebtedness of each Guarantor; and
. senior in right of payment to all existing and future subordinated
Indebtedness of each Guarantor.
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The obligations of each Guarantor under its Guarantee will be limited as
necessary to prevent that Guarantee from constituting a fraudulent conveyance
under applicable law. See "Risk Factors--Risks Related to the Offering--Federal
and state statutes may allow courts to void the senior subordinated discount
notes and guarantees of the senior subordinated discount notes."
A Guarantor may not sell or otherwise dispose of all or substantially all of
its assets, or consolidate with or merge with or into another Person, whether
or not such Guarantor is the surviving Person, unless:
. immediately after giving effect to that transaction, no Default or Event
of Default exists; and
. either:
. the Person acquiring the property in any such sale or disposition or
the Person formed by or surviving any such consolidation or merger
assumes all the obligations of that Guarantor pursuant to a
supplemental indenture satisfactory to the Trustee; or
. the Net Proceeds of such sale or other disposition are applied in
accordance with the applicable provisions of the Indenture.
The Guarantee of a Guarantor will be released:
. in connection with any sale or other disposition of all or substantially
all of the assets of that Guarantor, including by way of merger or
consolidation, if AirGate applies the Net Proceeds of that sale or other
disposition, in accordance with the applicable provisions of the
Indenture; or
. in connection with any sale of all of the capital stock of a Guarantor,
if AirGate applies the Net Proceeds of that sale in accordance with the
applicable provisions of the Indenture; or
. if AirGate designates any Restricted Subsidiary that is a Guarantor as an
Unrestricted Subsidiary.
See "--Repurchase at the Option of Holders--Asset Sales."
A Guarantee will also be automatically released if the Guarantor is
designated as an Unrestricted Subsidiary.
In addition, a Guarantee will be released upon the foreclosure of the
security interest in the capital stock of the applicable Guarantor so long as
(1) all of such stock is sold, (2) the proceeds from the sale of the stock are
applied in accordance with the terms of the intercreditor agreement, (3) the
applicable senior Guarantee is released and (4) certain other conditions are
met.
Security
The senior subordinated discount notes will be secured by a pledge of the
Capital Stock of all of the future direct Subsidiaries of the Company.
AirGate, representatives of the holders of Senior Debt, the Trustee and the
Collateral Agent will enter into an intercreditor agreement defining the terms
of the pledges that secure these senior subordinated discount notes and the
Senior Debt. These pledges will secure the payment and performance when due of
all of the Obligations of AirGate under the Senior Debt and all Obligations of
AirGate under the Indenture and these senior subordinated discount notes as
provided in the respective pledge agreements.
The security interest created by the pledge agreement in favor of the Trustee
will be junior to the security interest in favor of Senior Debt. The
intercreditor agreement provides that the holders of Senior Debt will be
entitled to control virtually all decisions relating to the exercise of
remedies
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under the pledge agreements. As a result, the holders of senior subordinated
discount notes will not be able to force a sale of Collateral or otherwise
exercise many of the remedies available to a secured creditor without the
concurrence of the holders of Senior Debt. See "Risk Factors--Risks Related to
the Offering--Holders of our senior debt will control enforcement of the
exercise of remedies under the pledge agreements, which may affect the
Trustee's ability to independently pursue remedies on behalf of holders of the
senior subordinated discount notes."
So long as no Default or Event of Default shall have occurred and be
continuing, and subject to certain terms and conditions, AirGate will be
entitled to receive all cash dividends, interest and other payments made upon
or with respect to the Collateral pledged by AirGate and to exercise any voting
and other consensual rights pertaining to the Collateral pledged by AirGate.
Upon the occurrence and during the continuance of a Default or Event of
Default,
. all rights of AirGate to exercise such voting or other consensual rights
shall cease, and all such rights shall become vested in the Senior Debt's
collateral agent, which, to the extent permitted by law, shall have the
sole right to exercise such voting and other consensual rights;
. all rights of AirGate to receive all cash dividends, interest and other
payments made upon or with respect to the Collateral will cease and such
cash dividends, interest and other payments will be paid to the Senior
Debt's collateral agent; and
. the Senior Debt's collateral agent may sell the Collateral or any part
thereof in accordance with the terms of the intercreditor agreement and
the pledge agreements. All funds distributed under the pledge agreements
and received by the Senior Debt's collateral agent for the benefit of the
Senior Debt and the holders of the senior subordinated discount notes
will be distributed by the Senior Debt's collateral agent in accordance
with the provisions of the intercreditor agreement.
The Senior Debt's collateral agent will determine the circumstances and
manner in which the Collateral shall be disposed of and whether to foreclose on
the Collateral following a Default or Event of Default. The Senior Debt's
collateral agent will follow any instructions given to it by the representative
of the holders of Senior Debt.
The pledges will be released:
. upon the full and final payment and performance of all Obligations of
AirGate under the Indenture and the senior subordinated discount notes;
and
. if the Capital Stock of any Subsidiary pledged to secure these senior
subordinated discount notes is sold, the Net Proceeds from that sale are
applied in accordance with the terms of the intercreditor agreement.
Subordination
The payment of principal of and premium, if any, and interest on the senior
subordinated discount notes will be subordinated in right of payment, as set
forth in the Indenture, to the prior payment in full of all Senior Debt.
If AirGate fails to make any payment on the senior subordinated discount
notes when due or within any applicable grace period, whether or not on account
of the payment blockage provisions referred to below, such failure would
constitute an Event of Default under the Indenture and would
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enable the holders to accelerate the maturity thereof. The rights of the
holders of senior subordinated discount notes to receive payment upon an
acceleration of the maturity will be subordinated in right of payment to the
rights of the holders of the Senior Debt. See "Events of Default and Remedies."
The obligations of each Guarantor under its Guarantee are unsecured senior
subordinated obligations. As such, the rights of holders of senior subordinated
discount notes to receive payment by a Guarantor pursuant to its Guarantee will
be subordinated in right of payment to the rights of holders of the Senior
Debt. The terms of the subordination provisions described below with respect to
AirGate's obligations under the senior subordinated discount notes apply
equally to a Guarantor and the obligations of such Guarantor under its
Guarantee.
The terms of the subordination provisions described below will not apply to
payments from money or the proceeds of U.S. Government obligations deposited in
trust prior to the occurrence of an event prohibiting payment of or on the
senior subordinated discount notes and held in trust by the Trustee for the
payment of principal of an interest on the senior subordinated discount notes
pursuant to the provisions described under "Legal Defeasance and Covenant
Defeasance."
Upon any distribution to creditors of AirGate in a liquidation or dissolution
of AirGate or in a bankruptcy, reorganization, insolvency, receivership or
similar proceeding relating to AirGate or its property, an assignment for the
benefit of creditors or any marshaling of AirGate's assets and liabilities, the
holders of Senior Debt will be entitled to receive payment in full in cash or
cash equivalents of all Obligations due in respect of such Senior Debt
(including interest after the commencement of any such proceeding at the rate
specified in the applicable Senior Debt) before the holders of senior
subordinated discount notes will be entitled to receive any payment with
respect to the Subordinated Note Obligations, and until all obligations with
respect to Senior Debt are paid in full in cash or cash equivalents, any
distribution to which the holders of senior subordinated discount notes would
be entitled shall be made to the holders of Senior Debt (except that holders of
senior subordinated discount notes may receive and retain Permitted Junior
Securities and payments made from the trust described under "Legal Defeasance
and Covenant Defeasance").
AirGate also may not make any payment upon or in respect of the Subordinated
Note Obligations (except in Permitted Junior Securities or from the trust
described under "Legal Defeasance and Covenant Defeasance") if (a) a default in
the payment of the principal of, or premium, if any, or interest on, or
commitment fees relating to, Designated Senior Debt occurs and is continuing
beyond any applicable period of grace or (b) any other default occurs and is
continuing with respect to Designated Senior Debt that permits holders of the
Designated Senior Debt as to which such default relates to accelerate its
maturity and the Trustee receives a notice of such default (a "Payment Blockage
Notice") from AirGate or the holders of any Designated Senior Debt. Payments on
the senior subordinated discount notes may and shall be resumed (including the
payment of any amounts previously blocked by such Payment Blockage Notice) (a)
in the case of a payment default, upon the date, on which such default is cured
or waived and (b) in the case of a nonpayment default, the earlier of the date
on which such nonpayment default is cured or waived or 179 days after the date
on which the applicable Payment Blockage Notice is received, unless the
maturity of any Designated Senior Debt has been accelerated. No new period of
payment blockage may be commenced unless and until 360 days have elapsed since
the effectiveness of the immediately prior Payment Blockage Notice. No
nonpayment default that existed or was continuing on the date of delivery of
any Payment Blockage Notice to the Trustee shall be, or be made, the basis for
a subsequent Payment Blockage Notice unless such default shall have been waived
or cured for a period of not less than 90 days.
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The Indenture will further require that AirGate promptly notify holders of
Designated Senior Debt if payment of the senior subordinated discount notes is
accelerated because of an Event of Default. As a result of the subordination
provisions described above, in the event of a liquidation or insolvency,
holders of senior subordinated discount notes may recover less ratably than
creditors of AirGate who are holders of Senior Debt.
Optional Redemption
During the first 36 months after the Issue Date, AirGate may on any one or
more occasions redeem up to 35% of the Accreted Value of the senior
subordinated discount notes originally issued under the Indenture at a
redemption price of % of the Accreted Value thereof, with the net cash
proceeds of one or more Equity Offerings; provided that
. at least 65% of the Accreted Value of senior subordinated discount notes
originally issued under the Indenture remains outstanding immediately
after the occurrence of such redemption, excluding senior subordinated
discount notes held by AirGate and its Subsidiaries; and
. the redemption must occur within 60 days of the date of the closing of
such Equity Offering.
Except pursuant to the preceding paragraph, the senior subordinated discount
notes will not be redeemable at AirGate's option prior to , 2004.
After , 2004, AirGate may redeem all or a part of these senior
subordinated discount notes upon not less than 30 nor more than 60 days'
notice, at the redemption prices,
expressed as percentages of principal amount at maturity thereof, set forth
below plus accrued and unpaid interest thereon, if any, to the applicable
redemption date, if redeemed during the twelve-month period beginning on of
the years indicated below:
<TABLE>
<CAPTION>
Percentage of
Principal Amount
Year at Maturity
<S> <C>
2004........................ %
2005........................ %
2006........................ %
2007 and thereafter......... 100.00%
</TABLE>
Notwithstanding the foregoing, AirGate's outstanding Senior Debt currently
prohibits AirGate from redeeming any senior subordinated discount notes.
Repurchase at the Option of Holders
Change of Control
If a Change of Control occurs, each Holder of senior subordinated discount
notes will have the right to require AirGate to repurchase all or any part,
equal to $1,000 or an integral multiple thereof, of that Holder's senior
subordinated discount notes pursuant to the Change of Control Offer. In the
Change of Control Offer, AirGate will offer a Change of Control Payment in cash
equal to 101% of the Accreted Value of senior subordinated discount notes
repurchased on any purchase date prior to , 2004 or 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest thereon, if any, to
the date of purchase if on or after , 2004. Within ten days following any
Change of Control, AirGate will mail a notice to each Holder of senior
subordinated discount notes describing the transaction or transactions that
constitute the Change of Control and offering to repurchase senior subordinated
discount notes on the Change of Control Payment Date specified in
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such notice, pursuant to the procedures required by the Indenture and described
in such notice. AirGate will comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to
the extent such laws and regulations are applicable in connection with the
repurchase of the senior subordinated discount notes as a result of a Change of
Control.
To the extent that the provisions of any securities laws or regulations
conflict with the Change of Control provisions of the Indenture, AirGate will
comply with the applicable securities laws and regulations and will not be
deemed to have breached its obligations under the Change of Control provisions
of the Indenture by virtue of such conflict.
On the Change of Control Payment Date, AirGate will, to the extent lawful:
. accept for payment all senior subordinated discount notes or portions
thereof properly tendered pursuant to the Change of Control Offer;
. deposit with the Paying Agent an amount equal to the Change of Control
Payment in respect of all senior subordinated discount notes or portions
thereof so tendered; and
. deliver or cause to be delivered to the Trustee the senior subordinated
discount notes so accepted together with an Officers' Certificate stating
the aggregate principal amount or Accreted Value, as applicable, of
senior subordinated discount notes or portions thereof being purchased by
AirGate.
The Paying Agent will promptly mail to each holder of senior subordinated
discount notes so tendered the Change of Control Payment for such senior
subordinated discount notes, and the Trustee will promptly authenticate and
mail or cause to be transferred by book entry to each Holder a new senior
subordinated discount note equal in principal amount to any unpurchased portion
of the senior subordinated discount notes surrendered, if any; provided that
each such new senior subordinated discount note will be in a principal amount
of $1,000 or an integral multiple thereof.
Prior to complying with any of the provisions of this "Change of Control"
covenant, but in any event within 90 days following a Change of Control,
AirGate will either repay all outstanding Senior Debt or obtain the requisite
consents, if any, under all agreements governing outstanding Senior Debt to
permit the repurchase of senior subordinated discount notes required by this
covenant. AirGate will publicly announce the results of the Change of Control
Offer on or as soon as practicable after the Change of Control Payment Date.
The provisions described above that require AirGate to make a Change of
Control Offer following a Change of Control will be applicable regardless of
whether or not any other provisions of the Indenture are applicable. Except as
described above with respect to a Change of Control, the Indenture does not
contain provisions that permit the holders of the senior subordinated discount
notes to require that AirGate repurchase or redeem the senior subordinated
discount notes in the event of a takeover, recapitalization or similar
transaction.
AirGate's outstanding Senior Debt currently prohibits AirGate from purchasing
any senior subordinated discount notes, and also provides that certain change
of control events with respect to AirGate would constitute a default under the
agreements governing the Senior Debt. Any future credit agreements or other
agreements relating to Senior Debt to which AirGate becomes a party may contain
similar restrictions and provisions. In the event a Change of Control occurs at
a time when AirGate is prohibited from purchasing senior subordinated discount
notes, AirGate could seek the consent of its senior lenders to the purchase of
senior subordinated discount notes or could attempt to
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refinance the borrowings that contain such prohibition. If AirGate does not
obtain such a consent or repay such borrowings, AirGate will remain prohibited
from purchasing senior subordinated discount notes. In such case, AirGate's
failure to purchase tendered senior subordinated discount notes would
constitute an Event of Default under the Indenture which would, in turn,
constitute a default under such Senior Debt. In such circumstances, the
subordination provisions in the Indenture would likely restrict payments to the
holders of senior subordinated discount notes.
AirGate will not be required to make a Change of Control Offer upon a Change
of Control if a third party makes the Change of Control Offer in the manner, at
the times and otherwise in compliance with the requirements set forth in the
Indenture applicable to a Change of Control Offer made by AirGate and purchases
all senior subordinated discount notes validly tendered and not withdrawn under
such Change of Control Offer.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of AirGate and its Subsidiaries taken as a whole. Although there
is a limited body of case law interpreting, the phrase "substantially all,"
there is no precise established definition of the phrase under applicable law.
Accordingly, the ability of a holder of senior subordinated discount notes to
require AirGate to repurchase such senior subordinated discount notes as a
result of a sale, lease, transfer, conveyance or other disposition of less than
all of the assets of AirGate and its Subsidiaries taken as a whole to another
Person or group may be uncertain.
Selection and Notice
If less than all of the senior subordinated discount notes are to be redeemed
at any time, the Trustee will select senior subordinated discount notes for
redemption as follows:
. if the senior subordinated discount notes are listed, in compliance with
the requirements of the principal national securities exchange on which
the senior subordinated discount notes are listed; or
. if the senior subordinated discount notes are not so listed, on a pro
rata basis, by lot or by such method as the Trustee shall deem fair and
appropriate.
No senior subordinated discount notes of $1,000 or less shall be redeemed in
part. Notices of redemption shall be mailed by first class mail at least 30 but
not more than 60 days before the redemption date to each holder of senior
subordinated discount notes to be redeemed at its registered address. Notices
of redemption may not be conditional.
If any senior subordinated discount note is to be redeemed in part only, the
notice of redemption that relates to that senior subordinated discount note
shall state the portion of the principal amount thereof to be redeemed. A new
senior subordinated discount note in principal amount equal to the unredeemed
portion of the original senior subordinated discount note will be issued in the
name of the holder thereof upon cancellation of the original senior
subordinated discount note. Senior subordinated discount notes called for
redemption become due on the date fixed for redemption. On and after the
redemption date, interest ceases to accrue on senior subordinated discount
notes or portions of them called for redemption.
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Selected Covenants
Asset Sales
AirGate will not, and will not permit any of its Restricted Subsidiaries to,
consummate an Asset Sale unless:
(1) AirGate, or the Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair
market value of the assets or Equity Interests issued or sold or
otherwise disposed of;
(2) such fair market value is determined by AirGate's Board of Directors
and evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee; and
(3) at least 85% of the consideration therefor received by AirGate or such
Restricted Subsidiary is in the form of cash or Cash Equivalents. For
purposes of this provision, each of the following shall be deemed to be
cash:
(a) any liabilities, as shown on AirGate's or such Restricted
Subsidiary's most recent balance sheet, of AirGate or any
Restricted Subsidiary, other than contingent liabilities and
liabilities that are by their terms subordinated to the senior
subordinated discount notes or any Guarantee, that are assumed by
the transferee of any such assets pursuant to a customary novation
agreement that releases AirGate or such Restricted Subsidiary from
further liability; and
(b) any securities, senior subordinated discount notes or other
obligations received by AirGate or any such Restricted Subsidiary
from such transferee that are contemporaneously, subject to
ordinary settlement periods, converted by AirGate or such
Restricted Subsidiary into cash, to the extent of the cash received
in that conversion.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
AirGate may apply such Net Proceeds at its option:
(1) to repay Senior Debt;
(2) to acquire all or substantially all of the assets of, or a majority of
the Voting Stock of, another Permitted Business which becomes part of,
or which is or becomes, a Restricted Subsidiary;
(3) to make a capital expenditure in assets that are used or useful in a
Permitted Business; or
(4) to acquire other long-term assets that are used or useful in a
Permitted Business.
Pending the final application of any such Net Proceeds, AirGate may temporarily
reduce revolving credit borrowings or otherwise invest such Net Proceeds in any
manner that is not prohibited by the Indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute Excess Proceeds. When the
aggregate amount of Excess Proceeds exceeds $10.0 million, AirGate will make an
Asset Sale Offer to all Holders of senior subordinated discount notes and all
holders of other Indebtedness that is pari passu with the senior subordinated
discount notes containing provisions similar to those set forth in the
Indenture with respect to offers to purchase or redeem with the proceeds of
sales of assets to purchase the maximum principal amount of senior subordinated
discount notes and such other pari passu Indebtedness that may be purchased
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out of the Excess Proceeds. The offer price in any Asset Sale Offer will be
equal to 100% of the Accreted Value or 100% of the principal amount, plus
accrued and unpaid interest, if any, to the date of purchase, as applicable,
and will be payable in cash. If any Excess Proceeds remain after consummation
of an Asset Sale Offer, AirGate may use such Excess Proceeds for any purpose
not otherwise prohibited by the Indenture. If the aggregate principal amount of
senior subordinated discount notes and such other pari passu Indebtedness
tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, the
Trustee shall select the senior subordinated discount notes and such other pari
passu Indebtedness to be purchased on a pro rata basis. Upon completion of each
Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero.
AirGate will comply with the requirements of Rule 14e-1 under the Exchange
Act and any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable in connection with each repurchase of
senior subordinated discount notes pursuant to an Asset Sale Offer. To the
extent that the provisions of any securities laws or regulations conflict with
the Asset Sale provisions of the Indenture, AirGate will comply with the
applicable securities laws and regulations and will not be deemed to have
breached its obligations under the Asset Sale provisions of the Indenture by
virtue of such conflict.
Limitation on Restricted Payments
Prior to and including December 31, 2002, AirGate shall not, directly or
indirectly,
(1) declare or pay any dividend on, or make any distribution to the holders
of, any shares of its Equity Interests, other than dividends or
distributions payable solely in its Equity Interests, other than
Disqualified Stock, or in options, warrants or other rights to purchase
any such Equity Interests, other than Disqualified Stock;
(2) purchase, redeem or otherwise acquire or retire for value, or permit
any Restricted Subsidiary to, directly or indirectly, purchase, redeem
or otherwise acquire or retire for value, other than value consisting
solely of Equity Interests of AirGate that is not Disqualified Stock or
options, warrants or other rights to acquire such Equity Interests that
is not Disqualified Stock, any Equity Interests of AirGate, including
options, warrants or other rights to acquire such Equity Interests;
(3) redeem, repurchase, defease or otherwise acquire or retire for value,
or permit any Restricted Subsidiary to, directly or indirectly, redeem,
repurchase, defease or otherwise acquire or retire for value, other
than value consisting solely of Equity Interests of AirGate that is not
Disqualified Stock or options, warrants or other rights to acquire such
Equity Interests that is not Disqualified Stock, prior to any scheduled
maturity, scheduled repayment or scheduled sinking fund payment, any
Indebtedness that is subordinate, whether pursuant to its terms or by
operation of law, in right of payment to the senior subordinated
discount notes; or
(4) make, or permit any Restricted Subsidiary, directly or indirectly, to
make, any Restricted Investment;
(each of the foregoing actions set forth in clauses (1) through (4), other
than any such action that is a Permitted Investment, being referred to as a
"Restricted Payment"). After December 31, 2002, AirGate shall not, directly
or indirectly, make any Restricted Payment, and shall not permit any
Restricted Subsidiary to make any Restricted Investment, unless, at the
time thereof, and after giving effect thereto,
(a) no Default or Event of Default shall have occurred and be continuing;
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(b) AirGate would, at the time of such Restricted Payment and after giving
pro forma effect thereto as if such Restricted Payment had been made at
the beginning of the applicable period, have been permitted to incur at
least $1.00 of additional Indebtedness, other than Permitted Debt,
pursuant to clause (a) or (b) of the first paragraph of the covenant
described below under the caption "--Limitation on Incurrence of
Indebtedness and Issuance of Preferred Stock"; and
(c) after giving effect to such Restricted Payment on a pro forma basis,
the aggregate amount of all Restricted Payments made on or after the
Closing Date shall not exceed
(i) the amount of (x) the Operating Cash Flow of AirGate after December
31, 2002 through the end of the latest full fiscal quarter for
which consolidated financial statements of AirGate are available
preceding the date of such Restricted Payment, treated as a single
accounting period, less (y) 150% of the cumulative Consolidated
Interest Expense of AirGate after December 31, 2002 through the end
of the latest full fiscal quarter for which consolidated financial
statements of AirGate are available preceding the date of such
Restricted Payment treated as a single accounting period, plus
(ii) the aggregate Net Proceeds, including the fair market value of
property other than cash, as determined:
(A) in the case of any property other than cash with a value less
than $25 million, by the Board of Directors, whose good-faith
determination shall be conclusive and as evidenced by a Board
Resolution, or
(B) in the case of any property other than cash with a value equal
to or greater than $25 million, by an accounting, appraisal or
investment banking firm of national standing and evidenced by a
written opinion of such firm,
received by AirGate from the issuance and sale, other than to a
Restricted Subsidiary, on or after the Closing Date of shares of
its Equity Interests other than Disqualified Stock, or any options,
warrants or other rights to purchase such Equity Interests, other
than Disqualified Stock, other than shares of Equity Interests or
options warrants or other rights to purchase Equity Interests or
shares issuable upon exercise thereof, plus
(iii) the aggregate Net Proceeds, including the fair market value of
property other than cash, as determined:
(A) in the case of any property other than cash with a value less
than $25 million, by the Board of Directors, whose good-faith
determination shall be conclusive and as evidenced by a Board
Resolution, or
(B) in the case of any property other than cash with a value equal
to or greater than $25 million, by an accounting, appraisal or
investment banking firm of national standing and evidenced by a
written opinion of such firm,
received by AirGate from the issuance or sale, other than to a
Restricted Subsidiary, after the Closing Date of any Equity
Interests of AirGate, other than Disqualified Stock, or any
options, warrants or other rights to purchase such Equity
Interests, other than Disqualified Stock, upon the conversion of,
or exchange for, Indebtedness of AirGate or a Restricted
Subsidiary, plus
(iv) the aggregate Net Proceeds received by AirGate or any Restricted
Subsidiary from the sale, disposition or repayment, other than to
AirGate or a Restricted Subsidiary, of any
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Investment made after the Closing Date and constituting a Restricted
Payment in an amount equal to the lesser of (x) the return of
capital with respect to such Investment and (y) the initial amount
of such Investment, in either case, less the cost of disposition of
such Investment.
The foregoing limitations in this "Limitation on Restricted Payments"
covenant do not limit or restrict the making of any Permitted Investment, and a
Permitted Investment shall not be counted as a Restricted Payment for purposes
of clause (c) above. In addition, so long as no Default or Event of Default
shall have occurred and be continuing, the foregoing limitations do not prevent
AirGate from:
(1) paying a dividend on Equity Interests of AirGate within 60 days after
the declaration thereof if, on the date when the dividend was declared,
AirGate could have paid such dividend in accordance with the provisions
of the Indenture;
(2) repurchasing Equity Interests of AirGate, including options, warrants
or other rights to acquire such Equity Interests, from former employees
or directors of AirGate or any Subsidiary thereof for consideration not
to exceed $2.0 million in the aggregate in any fiscal year; provided
that any unused amount in any 12 month period may be carried forward to
one or more future periods; provided, further, that the aggregate
amount of all such repurchases made pursuant to this clause (2) does
not exceed $10.0 million in the aggregate;
(3) the redemption, repurchase, defeasance or other acquisition or
retirement for value of Indebtedness that is subordinated in right of
payment to the senior subordinated discount notes, including premium,
if any, and accrued and unpaid interest, with the proceeds of, or in
exchange for:
(a) the proceeds of a capital contribution or a substantially
concurrent offering of, shares of Equity Interests, other than
Disqualified Stock, of AirGate or options, warrants or other rights
to acquire such Equity Interests, or
(b) Indebtedness that is at least as subordinated in right of payment
to the senior subordinated discount notes, including premium, if
any, and accrued and unpaid interest, as the Indebtedness being
purchased, with Restricted Payments pursuant to this clause not
being counted as Restricted Payments for purposes of clause (c)
above;
(4) the repurchase, redemption or other acquisition of Equity Interests of
AirGate, or options, warrants or other rights to acquire such Equity
Interests, in exchange for, or out of the proceeds of a capital
contribution or a substantially concurrent offering of, shares of
Common Stock, other than Disqualified Stock, of AirGate or options,
warrants or other rights to acquire such Equity Interests; or
(5) other Restricted Payments not to exceed $5.0 million in the aggregate
at any time outstanding, with Restricted Payments pursuant to this
clause not being counted as Restricted Payments for purposes of clause
(c) above.
In addition, if any Person in which an Investment is made, which Investment
constitutes a Restricted Payment when made, thereafter becomes a Restricted
Subsidiary, all such Investments previously made in such Person shall no longer
be counted as Restricted Payments for purposes of calculating the aggregate
amount of Restricted Payments pursuant to clause (c) of the second preceding
paragraph to the extent such Investments would otherwise be so counted.
For purposes of clause (3) and (4) above, the net proceeds received by
AirGate from the issuance or sale of its Equity Interests either upon the
conversion of, or exchange for, Indebtedness
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of AirGate or any Restricted Subsidiary shall be deemed to be an amount equal
to (a) the sum of (1) the principal amount or Accreted Value, whichever is
less, of such Indebtedness on the date of such conversion or exchange and (2)
the additional cash consideration, if any, received by AirGate upon such
conversion or exchange, less any payment on account of fractional shares, minus
(b) all expenses incurred in connection with such issuance or sale. In
addition, for purposes of clause (3) and (4) above, the net proceeds received
by AirGate from the issuance or sale of its Equity Interests upon the exercise
of any options or warrants of AirGate or any Restricted Subsidiary shall be
deemed to be an amount equal to (a) the additional cash consideration, if any,
received by AirGate upon such exercise, minus (b) all expenses incurred in
connection with such issuance or sale.
For purposes of this "Limitation on Restricted Payments" covenant, if a
particular Restricted Payment involves a noncash payment, including a
distribution of assets, then such Restricted Payment shall be deemed to be an
amount equal to the cash portion of such Restricted Payment, if any, plus an
amount equal to the fair market value of the noncash portion of such Restricted
Payment, as determined by the Board of Directors, whose good-faith
determination shall be conclusive and evidenced by a Board Resolution. Not
later than the date of making any Restricted Payment, AirGate shall deliver to
the Trustee an Officers' Certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
this "Limitation on Restricted Payments" covenant were computed, together with
a copy of any fairness opinion or appraisal required by the Indenture.
The amount of any Investment outstanding at any time shall be deemed to be
equal to the amount of such Investment on the date made, less the return of
capital, repayment of loans and return on capital, including interest and
dividends, in each case, received in cash, up to the amount of such Investment
on the date made.
Limitation on Incurrence of Indebtedness and Issuance of Preferred Stock
AirGate shall not, and shall not permit any Restricted Subsidiary to, incur
any Indebtedness, including Acquired Debt, other than Permitted Debt, and
AirGate shall not issue any Disqualified Stock unless immediately after giving
effect to the incurrence of such Indebtedness or the issuance of such
Disqualified Stock and the receipt and application of the net proceeds
therefrom, including, without limitation, the application or use of the net
proceeds therefrom to repay Indebtedness or make any Restricted Payment, (a)
the Consolidated Debt to Annualized Operating Cash Flow Ratio would be (1) less
than 7.0 to 1.0, if prior to September 1, 2005 and (2) less than 6.0 to 1.0, if
on or after September 1, 2005 or (b) in the case of any incurrence of
Indebtedness prior to September 1, 2005 only, Consolidated Debt would be equal
to or less than 70% of Total Invested Capital.
So long as no Default or Event of Default shall have occurred and be
continuing or would be caused thereby, the first paragraph of this covenant
will not prohibit the incurrence of any of the following, items of Indebtedness
(collectively, "Permitted Debt"):
(1) the incurrence by AirGate and its Subsidiaries of Existing
Indebtedness;
(2) the incurrence by AirGate and the Guarantors of Indebtedness
represented by the senior subordinated discount notes and the
Guarantees;
(3) the incurrence by AirGate and any Guarantor of Indebtedness under
Credit Facilities; provided that the aggregate principal amount of all
Indebtedness of AirGate and the Guarantors outstanding under all Credit
Facilities at any time outstanding, after giving
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effect to such incurrence, does not exceed an amount equal to $175.0
million less the aggregate amount of all Net Proceeds of Asset Sales
applied by AirGate or any of its Subsidiaries since the date of the
Indenture to repay Indebtedness under a Credit Facility pursuant to the
covenant described above under the caption "--Repurchase at the Option
of Holders--Asset Sales";
(4) the incurrence by AirGate or any of its Restricted Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case, incurred for
the purpose of leasing or financing all or any part of the purchase
price or cost of construction or improvement of inventory, property,
plant or equipment used in the business of AirGate or such Restricted
Subsidiary, including telephone and computer systems and operating
facilities, in an aggregate principal amount not to exceed $5.0 million
at any time outstanding;
(5) the incurrence by AirGate or any of its Restricted Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds
of which are used to refund, refinance or replace, Indebtedness, other
than intercompany Indebtedness, that was permitted by the Indenture to
be incurred under the first paragraph of this covenant or clauses (1),
(2) or (12) of this paragraph;
(6) the incurrence by AirGate or any of its Restricted Subsidiaries of
intercompany Indebtedness between or among AirGate and any of its
Wholly Owned Restricted Subsidiaries that are Guarantors; provided,
however, that:
(a) if AirGate or any Guarantor is the obligor on such Indebtedness,
such Indebtedness must be expressly subordinated to the prior
payment in full in cash of all Obligations with respect to the
senior subordinated discount notes, in the case of AirGate, or the
Guarantee of such Guarantor, in the case of a Guarantor; and
(b) (1) any subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness being held by a Person other than
AirGate or a Wholly Owned Restricted Subsidiary thereof and (2) any
sale or other transfer of any such Indebtedness to a Person that is
not either AirGate or a Wholly Owned Restricted Subsidiary thereof,
shall be deemed, in each case, to constitute an incurrence of such
Indebtedness by AirGate or such Restricted Subsidiary, as the case
may be, that was not permitted by this clause (6);
(7) the incurrence by AirGate or any of its Restricted Subsidiaries of
Hedging Obligations that are incurred for the purpose of fixing or
hedging interest rate risk with respect to any floating rate
Indebtedness that is permitted by the terms of the Indenture to be
outstanding;
(8) the guarantee by AirGate or any of the Guarantors of Indebtedness of
AirGate or a Restricted Subsidiary of AirGate that was permitted to be
incurred by another provision of this covenant;
(9) the incurrence by AirGate's Unrestricted Subsidiaries of Non-Recourse
Debt; provided, however, that if any such Indebtedness ceases to be
Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of AirGate that was not permitted by this clause (9);
(10) the accrual of interest, accretion or amortization of original issue
discount, the payment of interest on any Indebtedness in the form of
additional Indebtedness with the same terms,
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and the payment of dividends on Disqualified Stock in the form of
additional shares of the same class of Disqualified Stock;
(11) Indebtedness (A) in respect of performance, surety or appeal bonds or
bankers' acceptances provided in the ordinary course of business; and
(B) arising from agreements providing for indemnification, adjustment
of purchase price or similar obligations, or from guarantees or
letters of credit, surety bonds or performance bonds securing any
obligations of AirGate or any Restricted Subsidiary pursuant to such
agreements, in any case incurred in connection with the disposition of
any business, assets or Restricted Subsidiary (other than guarantees
of Indebtedness incurred by a person acquiring all or any portion of
such business, assets or Restricted Subsidiary for the purpose of
financing such acquisition), in a principal amount not to exceed the
gross proceeds actually received by AirGate or any Restricted
Subsidiary in connection with such disposition; and
(12) the incurrence by AirGate or any of its Restricted Subsidiaries of
additional Indebtedness in an aggregate principal amount, or accreted
value, as applicable, at any time outstanding, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (12), not to exceed
$50.0 million;
For purposes of determining compliance with this "Limitation on Incurrence
of Indebtedness and Issuance of Preferred Stock" covenant, in the event that
an item of proposed Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (1) through (12) above, or
is entitled to be incurred pursuant to the first paragraph of this covenant,
AirGate will be permitted to classify such item of Indebtedness on the date of
its incurrence, or later reclassify all or a portion of such item of
Indebtedness, in any manner that complies with this covenant.
No Senior Subordinated Debt
The Indenture will provide that AirGate and the Guarantors will not incur
any Indebtedness that pursuant to its terms is subordinate or junior in right
of payment to any Senior Debt and senior in any respect in right of payment to
the senior subordinated discount notes or the Guarantees; provided that the
foregoing limitation shall not apply to distinctions between categories of
Senior Debt of AirGate or a Guarantor that exist by reason of any Liens or
Guarantees arising or created in respect of some but not all such Senior Debt.
Liens
AirGate will not, and will not permit any Guarantor to, create, incur,
assume or otherwise cause or suffer to exist or become effective any Lien of
any kind securing Indebtedness that is pari passu with the senior subordinated
discount notes or the applicable Guarantee, as the case may be, or is
subordinated Indebtedness, upon any of their property or assets, now owned or
hereafter acquired, unless all payments due under the Indenture and the senior
subordinated discount notes are secured equally and ratably with, or prior to,
in the case of subordinated Indebtedness, the obligations so secured until
such time as such obligations are no longer secured by such Lien; provided
that this restriction will not apply to Permitted Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries
AirGate will not, and will not permit any of its Restricted Subsidiaries,
directly or indirectly, to create or permit to exist or become effective any
encumbrance or restriction on the ability of any Restricted Subsidiary to:
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(1) pay dividends or make any other distributions on its Capital Stock to
AirGate or any of AirGate's Restricted Subsidiaries, or with respect to
any other interest or participation in, or measured by, its profits, or
pay any indebtedness owed to AirGate or any of its Restricted
Subsidiaries;
(2) make loans or advances to AirGate or any of AirGate's Restricted
Subsidiaries; or
(3) transfer any of its properties or assets to AirGate or any of AirGate's
Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) Existing Indebtedness or Credit Facilities as in effect on the date of
the Indenture and any amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements or
refinancings thereof, provided that such amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacement
or refinancings are no more restrictive, taken as a whole, with respect
to such dividend and other payment restrictions than those contained in
such Existing Indebtedness, as in effect on the date of the Indenture;
(2) the Indenture and the senior subordinated discount notes;
(3) applicable law;
(4) any instrument governing Indebtedness or Capital Stock of a Person
acquired by AirGate or any of its Restricted Subsidiaries as in effect
at the time of such acquisition, except to the extent such Indebtedness
was incurred in connection with or in contemplation of such
acquisition, which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the
Person, or the property or assets of the Person, so acquired, provided
that, in the case of Indebtedness, such Indebtedness was permitted by
the terms of the Indenture to be incurred;
(5) customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices;
(6) purchase money obligations for property acquired in the ordinary course
of business that impose restrictions on the property so acquired of the
nature described in clause (3) of the preceding paragraph;
(7) any agreement for the sale or other disposition of a Restricted
Subsidiary that restricts distributions by such Restricted Subsidiary
pending its sale or other disposition;
(8) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those
contained in the agreements governing the Indebtedness being
refinanced;
(9) Liens securing Indebtedness otherwise permitted to be incurred pursuant
to the provisions of the covenant described above under the caption "--
Liens" that limit the right of AirGate or any of its Restricted
Subsidiaries to dispose of the assets subject to such Lien;
(10) provisions with respect to the disposition or distribution of assets
or property in joint venture agreements and other similar agreements
entered into in the ordinary course of business; and
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(11) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of
business.
Merger, Consolidation or Sale of Assets
AirGate shall not, in any transaction or series of related transactions,
merge or consolidate with or into, or sell, assign, convey, transfer or
otherwise dispose of its properties and assets substantially as an entirety to,
any Person, and shall not permit any of its Restricted Subsidiaries to enter
into any such transaction or series of transactions if such transaction or
series of transactions, in the aggregate, would result in a sale, assignment,
conveyance, transfer or other disposition of the properties and assets of
AirGate and its Restricted Subsidiaries, taken as a whole, substantially as an
entirety to any Person, unless, at the time and after giving effect thereto:
(1) either: (A) if the transaction or series of transactions is a
consolidation of AirGate with or a merger of AirGate with or into any
other Person, AirGate shall be the surviving Person of such merger or
consolidation, or (B) the Person formed by any consolidation with or
merger with or into AirGate, or to which the properties and assets of
AirGate or AirGate and its Restricted Subsidiaries, taken as a whole,
as the case may be, substantially as an entirety are sold, assigned,
conveyed or otherwise transferred (any such surviving Person or
transferee Person referred to in this clause (B) being the "Surviving
Entity"), shall be a corporation, partnership, limited liability
company or trust organized and existing under the laws of the United
States of America, any state thereof or the District of Columbia and
shall expressly assume by a supplemental indenture executed and
delivered to the Trustee, in form satisfactory to the Trustee, all the
obligations of AirGate under the senior subordinated discount notes and
the Indenture and, in each case, the Indenture, as so supplemented,
shall remain in full force and effect;
(2) immediately before and immediately after giving effect to such
transaction or series of transactions on a pro forma basis including
any Indebtedness incurred or anticipated to be incurred in connection
with or in respect of such transaction or series of transactions, no
Default or Event of Default shall have occurred and be continuing; and
(3) AirGate or the Surviving Entity will, at the time of such transaction
and after giving pro forma effect thereto as if such transaction had
occurred at the beginning of the applicable period, (A) have
Consolidated Net Worth immediately after the transaction equal to or
greater than the Consolidated Net Worth of AirGate immediately
preceding the transaction and (B) be permitted to Incur at least $1.00
of additional Indebtedness pursuant to clause (a) of the covenant
described above under the caption "Limitation on Incurrence of
Indebtedness and Issuance of Preferred Stock"; provided, however, that
the foregoing requirements shall not apply to any transaction or series
of transactions involving the sale, assignment, conveyance, transfer or
other disposition of the properties and assets by any Restricted
Subsidiary to any other Restricted Subsidiary, or the merger or
consolidation of any Restricted Subsidiary with or into any other
Restricted Subsidiary. The Indenture will also provide that AirGate may
not, directly or indirectly, lease all or substantially all of its
properties or asset, in one or more related transactions, to any other
Person.
In connection with any consolidation, merger, sale, assignment, conveyance,
transfer or other disposition contemplated by the foregoing provisions, AirGate
shall deliver, or cause to be delivered, to the Trustee, in form and substance
reasonably satisfactory to the Trustee, an Officers' Certificate stating that
such consolidation, merger, sale, assignment, conveyance, transfer, or other
disposition
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and the supplemental indenture in respect thereof, required under clause (1)(B)
of the preceding paragraph, comply with the requirements of the Indenture and
an opinion of counsel. Each such Officers' Certificate shall set forth the
manner of determination of AirGate's compliance with clause (3) of the
preceding paragraph.
For all purposes of the Indenture and the senior subordinated discount notes,
including the provisions described in the two immediately preceding paragraphs
and the "Limitation on Incurrence of Indebtedness and Issuance of Preferred
Stock" and "Designation of Restricted and Unrestricted Subsidiaries" covenants,
Subsidiaries of any Surviving Entity will, upon such transaction or series of
transactions, become Restricted Subsidiaries or Unrestricted Subsidiaries as
provided pursuant to the "Designation of Restricted and Unrestricted
Subsidiaries" covenant and all Indebtedness of the Surviving Entity and its
Subsidiaries that was not Indebtedness of AirGate and its Subsidiaries
immediately prior to such transaction or series of transactions shall be deemed
to have been incurred upon such transaction or series of transactions.
The Surviving Entity shall succeed to, and be substituted for, and may
exercise every right and power of AirGate under the Indenture, and the
predecessor company shall be released from all its obligations and covenants
under the Indenture and the senior subordinated discount notes.
Transactions with Affiliates
AirGate will not, and will not permit any of its Restricted Subsidiaries to,
make any payment to, or sell, lease, transfer or otherwise dispose of any of
its properties or assets to, or purchase any property or assets from, or enter
into or make or amend any transaction, contract, agreement, understanding,
loan, advance or guarantee with, or for the benefit of, any Affiliate (each, an
"Affiliate Transaction"), unless:
(1) such Affiliate Transaction is on terms that are no less favorable to
AirGate or the relevant Restricted Subsidiary than those that would
have been obtained in a comparable transaction by AirGate or such
Restricted Subsidiary with an unrelated Person; and
(2) AirGate delivers to the Trustee:
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess
of $1.0 million, a resolution of the Board of Directors set forth
in an Officers' Certificate certifying that such Affiliate
Transaction complies with this covenant and that such Affiliate
Transaction has been approved by a majority of the disinterested
members of the Board of Directors; and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess
of $25.0 million, an opinion as to the fairness to the holders of
senior subordinated discount notes of such Affiliate Transaction
from a financial point of view issued by an accounting, appraisal
or investment banking firm of national standing.
The following items shall not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) any employment agreement entered into by AirGate or any of its
Restricted Subsidiaries in the ordinary course of business and
consistent with the past practice of AirGate or such Restricted
Subsidiary;
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(2) transactions between or among AirGate and/or its Restricted
Subsidiaries;
(3) payment of reasonable directors fees, expenses and indemnification to
Persons who are not otherwise Affiliates of AirGate;
(4) Restricted Payments that are permitted by the provisions of the
Indenture described above under the caption "--Limitation on Restricted
Payments"; and
(5) sales of Equity Interests, other than Disqualified Stock, to Affiliates
of AirGate.
Additional Guarantees
If AirGate or any of its Restricted Subsidiaries acquires or creates another
Restricted Subsidiary after the date of the Indenture, then that newly acquired
or created Restricted Subsidiary must become a Guarantor and execute a
supplemental indenture satisfactory to the Trustee and deliver an Opinion of
Counsel to the Trustee within 10 Business Days of the date on which it was
acquired or created.
Designation of Restricted and Unrestricted Subsidiaries
The Board of Directors may designate any Restricted Subsidiary as an
Unrestricted Subsidiary if that designation would not cause a Default. If a
Restricted Subsidiary is designated as an Unrestricted Subsidiary, all
outstanding Investments owned by AirGate and its Restricted Subsidiaries in the
Subsidiary so designated will be deemed to be an Investment made as of the time
of such designation and will reduce the amount available for Restricted
Payments under paragraph (c) of the covenant described above under the caption
"--Limitation on Restricted Payments" or Permitted Investments, as applicable.
All such outstanding Investments will be valued at their fair market value at
the time of such designation. That designation will only be permitted if such
Restricted Payment would be permitted at that time and if such Restricted
Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. The
Board of Directors may redesignate any Unrestricted Subsidiary to be a
Restricted Subsidiary if the redesignation would not cause a Default.
Sale and Leaseback Transactions
AirGate will not, and will not permit any of its Restricted Subsidiaries to,
enter into any sale and leaseback transaction; provided that AirGate or any
Restricted Subsidiary of AirGate that is a Guarantor may enter into a sale and
leaseback transaction if:
(1) AirGate or that Guarantor, as applicable, could have (a) incurred
Indebtedness in an amount equal to the Attributable Debt relating to
such sale and leaseback transaction under the tests in (a) and (b), if
applicable, of the covenant described above under the caption "--
Limitation on Incurrence of Indebtedness and Issuance of Preferred
Stock" and (b) incurred a Lien to secure such Indebtedness pursuant to
the covenant described above under the caption "--Liens";
(2) the gross cash proceeds of that sale and leaseback transaction are at
least equal to the fair market value, as determined in good faith by
the Board of Directors and set forth in an Officers' Certificate
delivered to the Trustee, of the property that is the subject of such
sale and leaseback transaction; and
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(3) the transfer of assets in that sale and leaseback transaction is
permitted by, and AirGate applies the proceeds of such transaction in
compliance with, the covenant described above under the caption "--
Repurchase at the Option of Holders--Asset Sales."
Limitation on Issuances and Sales of Equity Interests in Wholly Owned
Restricted Subsidiaries
AirGate will not, and will not permit any of its Restricted Subsidiaries to,
transfer, convey, sell, lease or otherwise dispose of any Equity Interests in
any Wholly Owned Restricted Subsidiary of AirGate to any Person, other than
AirGate or a Wholly Owned Restricted Subsidiary of AirGate, unless:
(1) such transfer, conveyance, sale, lease or other disposition is of all
the Equity Interests in such Wholly Owned Restricted Subsidiary; and
(2) the cash Net Proceeds from such transfer, conveyance, sale, lease or
other disposition are applied in accordance with the covenant described
above under the caption "--Repurchase at the Option of Holders--Asset
Sales."
In addition, AirGate will not permit any Wholly Owned Restricted Subsidiary
of AirGate to issue any of its Equity Interests, other than, if necessary,
shares of its Capital Stock constituting directors' qualifying shares, to any
Person other than to AirGate or a Wholly Owned Restricted Subsidiary of
AirGate.
Business Activities
AirGate will not, and will not permit any Restricted Subsidiary to, engage in
any business other than Permitted Businesses.
Payments for Consent
AirGate will not, and will not permit any of its Subsidiaries to, directly or
indirectly, pay or cause to be paid any consideration to or for the benefit of
any holder of senior subordinated discount notes for or as an inducement to any
consent, waiver or amendment of any of the terms or provisions of the Indenture
or the senior subordinated discount notes unless such consideration is offered
to be paid and is paid to all holders of the senior subordinated discount notes
that consent, waive or agree to amend in the time frame set forth in the
solicitation documents relating to such consent, waiver or agreement.
Reports
Whether or not required by the Commission, so long as any senior subordinated
discount notes are outstanding, AirGate will furnish to the Holders of senior
subordinated discount notes, within the time periods specified in the
Commission's rules and regulations:
(1) all quarterly and annual financial information that would be required
to be contained in a filing with the Commission on Forms 10-Q and 10-K
if AirGate were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report
on the annual financial statements by AirGate's certified independent
accountants; and
(2) all current reports that would be required to be filed with the
Commission on Form 8-K if AirGate were required to file such reports.
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If AirGate has designated any of its Subsidiaries as Unrestricted
Subsidiaries, then the quarterly and annual financial information required by
the preceding paragraph shall include a reasonably detailed presentation,
either on the face of the financial statements or in the footnotes thereto, and
in Management's Discussion and Analysis of Financial Condition and Results of
Operations, of the financial condition and results of operations of AirGate and
its Restricted Subsidiaries separate from the financial condition and results
of operations of the Unrestricted Subsidiaries of AirGate.
In addition, whether or not required by the Commission, AirGate will file a
copy of all of the information and reports referred to in clauses (1) and (2)
above with the Commission for public availability within the time periods
specified in the Commission's rules and regulations, unless the Commission will
not accept such a filing, and make such information available to securities
analysts and prospective investors upon request.
Events of Default and Remedies
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest on the senior
subordinated discount notes, whether or not prohibited by the
subordination provisions of the Indenture;
(2) default in payment when due of the principal of or premium, if any, on
the senior subordinated discount notes, whether or not prohibited by
the subordination provisions of the Indenture;
(3) failure by AirGate or any of its Restricted Subsidiaries to comply with
the provisions described under the captions "Repurchase at the Option
of Holders--Change of Control," "Repurchase at the Option of Holders--
Asset Sales."
(4) failure by AirGate or any of its Restricted Subsidiaries for 60 days
after notice to comply with any of the other agreements in the
Indenture or the Pledge Agreement;
(5) default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by AirGate or any of its Restricted
Subsidiaries, or the payment of which is guaranteed by AirGate or any
of its Restricted Subsidiaries, whether such Indebtedness or guarantee
now exists, or is created after the date of the Indenture, if that
default:
(a) is caused by a failure to pay principal of or premium, if any, or
interest on such Indebtedness prior to the expiration of the grace
period provided in such Indebtedness on the date of such default (a
"Payment Default"); or
(b) results in the acceleration of such Indebtedness prior to its
express maturity,
and, in each case, the principal amount of any such Indebtedness, together
with the principal amount of any other such Indebtedness under which there
has been a Payment Default or the maturity of which has been so
accelerated, aggregates $5.0 million or more;
(6) failure by AirGate or any of its Restricted Subsidiaries to pay final
judgments aggregating in excess of $5.0 million, which judgments are
not paid, discharged or stayed for a period of 60 days;
(7) breach by AirGate of any material representation or warranty or
agreement in the pledge agreement, the repudiation by AirGate of any of
its obligations under the pledge agreement or the unenforceability of
the pledge agreement against AirGate for any reason;
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(8) except as permitted by the Indenture, any Guarantee shall be held in
any judicial proceeding to be unenforceable or invalid or shall cease
for any reason to be in full force and effect or any Guarantor, or any
Person acting on behalf of any Guarantor, shall deny or disaffirm its
obligations under its Guarantee;
(9) certain events of bankruptcy or insolvency with respect to AirGate or
any of its Restricted Subsidiaries; and
(10) any event occurs that causes, subject to any applicable grace period,
an Event of Termination under any of the Sprint Agreements.
In the case of an Event of Default arising from certain events of bankruptcy
or insolvency, with respect to AirGate, any Restricted Subsidiary that is a
Significant Subsidiary or any group of Restricted Subsidiaries that, taken
together, would constitute a Significant Subsidiary, all outstanding senior
subordinated discount notes will become due and payable immediately without
further action or notice. If any other Event of Default occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the then outstanding senior subordinated discount notes may declare all the
senior subordinated discount notes to be due and payable immediately.
Holders of the senior subordinated discount notes may not enforce the
Indenture or the senior subordinated discount notes except as provided in the
Indenture. Subject to certain limitations, Holders of a majority in principal
amount of the then outstanding senior subordinated discount notes may direct
the Trustee in its exercise of any trust or power. The Trustee may withhold
from holders of the senior subordinated discount notes notice of any continuing
Default or Event of Default, except a Default or Event of Default relating to
the payment of principal or interest, if it determines that withholding notice
is in their interest.
The holders of a majority in aggregate principal amount of the senior
subordinated discount notes then outstanding by notice to the Trustee may on
behalf of the holders of all of the senior subordinated discount notes waive
any existing Default or Event of Default and its consequences under the
Indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the senior subordinated discount notes.
In the case of any Event of Default occurring by reason of any willful action
or inaction taken or not taken by or on behalf of AirGate with the intention of
avoiding payment of the premium that AirGate would have had to pay if AirGate
then had elected to redeem the senior subordinated discount notes pursuant to
the optional redemption provisions of the Indenture, an equivalent premium
shall also become and be immediately due and payable to the extent permitted by
law upon the acceleration of the senior subordinated discount notes. If an
Event of Default occurs prior to , 2004, by reason of any willful action
or inaction taken or not taken by or on behalf of AirGate with the intention of
avoiding the prohibition on redemption of the senior subordinated discount
notes prior to , 2004, then the premium specified in the Indenture shall
also become immediately due and payable to the extent permitted by law upon the
acceleration of the senior subordinated discount notes.
AirGate is required to deliver to the Trustee annually a statement regarding
compliance with the Indenture. Upon becoming aware of any Default or Event of
Default, AirGate is required to deliver to the Trustee a statement specifying
such Default or Event of Default.
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No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of AirGate or any
Guarantor, as such, shall have any liability for any obligations of AirGate or
the Guarantors under the senior subordinated discount notes, the Indenture, the
Guarantees, the pledge agreements or for any claim based on, in respect of, or
by reason of, such obligations or their creation. Each holder of senior
subordinated discount notes by accepting a senior subordinated discount note
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the senior subordinated discount notes. The
waiver may not be effective to waive liabilities under the federal securities
laws.
Legal Defeasance and Covenant Defeasance
AirGate may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding senior subordinated
discount notes and all obligations of the Guarantors discharged with respect to
their Guarantees ("Legal Defeasance") except for:
(1) the rights of holders of outstanding senior subordinated discount notes
to receive payments in respect of the principal of, premium, if any,
and interest on such senior subordinated discount notes when such
payments are due from the trust referred to below;
(2) AirGate's obligations with respect to the senior subordinated discount
notes concerning issuing temporary senior subordinated discount notes,
registration of senior subordinated discount notes, mutilated,
destroyed, lost or stolen senior subordinated discount notes and the
maintenance of an office or agency for payment and money for security
payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the Trustee, and
AirGate's obligations in connection therewith; and
(4) the Legal Defeasance provisions of the Indenture.
In addition, AirGate may, at its option and at any time, elect to have the
obligations of AirGate and the Guarantors released with respect to certain
covenants that are described in the Indenture ("Covenant Defeasance") and
thereafter any omission to comply with those covenants shall not constitute a
Default or Event of Default with respect to the senior subordinated discount
notes. In the event Covenant Defeasance occurs, certain events, not including
non-payment, bankruptcy, receivership, rehabilitation and insolvency events,
described under "Events of Default" will no longer constitute an Event of
Default with respect to the senior subordinated discount notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) AirGate must irrevocably deposit with the Trustee, in trust, for the
benefit of the holders of the senior subordinated discount notes, cash
in U.S. dollars, non-callable Government Securities, or a combination
thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay
the principal of, premium, if any, and interest on the outstanding
senior subordinated discount notes on the stated maturity or on the
applicable redemption date, as the case may be, and AirGate must
specify whether the senior subordinated discount notes are being
defeased to maturity or to a particular redemption date;
(2) in the case of Legal Defeasance, AirGate shall have delivered to the
Trustee an Opinion of Counsel reasonably acceptable to the Trustee
confirming that (a) AirGate has received from,
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or there has been published by, the Internal Revenue Service a ruling or
(b) since the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that,
and based thereon such opinion of counsel shall confirm that, the
holders of the outstanding senior subordinated discount notes will not
recognize income, gain or loss for federal income tax purposes as a
result of such Legal Defeasance and will be subject to federal income
tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, AirGate shall have delivered to the
Trustee an Opinion of Counsel reasonably acceptable to the Trustee
confirming that the holders of the outstanding senior subordinated
discount notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will be
subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Covenant
Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be continuing
either: (a) on the date of such deposit other than a Default or Event
of Default resulting from the borrowing of funds to be applied to such
deposit; or (b) or insofar as Events of Default from bankruptcy or
insolvency events are concerned, at any time in the period ending on
the 91st day after the date of deposit;
(5) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material
agreement or instrument, other than the Indenture, to which AirGate or
any of its Restricted Subsidiaries is a party or by which AirGate or
any of its Restricted Subsidiaries is bound;
(6) AirGate must have delivered to the Trustee an opinion of counsel to the
effect that, assuming no intervening bankruptcy of AirGate between the
date of deposit and the 91st day following the deposit and assuming
that no holder is an "insider" of AirGate under applicable bankruptcy
law, after the 91st day following the deposit, the trust funds will not
be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally;
(7) AirGate must deliver to the Trustee an Officers' Certificate stating
that the deposit was not made by AirGate with the intent of preferring
the holders of senior subordinated discount notes over the other
creditors of AirGate with the intent of defeating, hindering, delaying
or defrauding creditors of AirGate or others; and
(8) AirGate must deliver to the Trustee an Officers' Certificate and an
opinion of counsel, each stating that all conditions precedent relating
to the Legal Defeasance or the Covenant Defeasance have been complied
with.
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the Indenture or
the senior subordinated discount notes may be amended or supplemented with the
consent of the holders of at least a majority in aggregate Accreted Value of
the senior subordinated discount notes then outstanding including, without
limitation, consents obtained in connection with a purchase of, or tender offer
or exchange offer for, senior subordinated discount notes, and any existing
default or compliance with any provision of the Indenture or the senior
subordinated discount notes may be waived with the consent of the holders of a
majority in aggregate Accreted Value of the then
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outstanding senior subordinated discount notes including, without limitation,
consents obtained in connection with a purchase of, or tender offer or exchange
offer for, senior subordinated discount notes.
Without the consent of each holder adversely affected, an amendment or waiver
may not, with respect to any senior subordinated discount notes held by a non-
consenting holder:
(1) reduce the principal amount of senior subordinated discount notes whose
holders must consent to an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any senior
subordinated discount note or alter the provisions with respect to the
redemption of the senior subordinated discount notes, other than
provisions relating to the covenants described above under the caption
"--Repurchase at the Option of Holders";
(3) reduce the rate of or change the time for payment of interest on any
senior subordinated discount note;
(4) waive a Default or Event of Default in the payment of principal of or
premium, if any, or interest on the senior subordinated discount notes,
except a rescission of acceleration of the senior subordinated discount
notes by the holders of at least a majority in aggregate principal
amount of the senior subordinated discount notes and a waiver of the
payment default that resulted from such acceleration;
(5) make any senior subordinated discount note payable in money other than
that stated in the senior subordinated discount notes;
(6) make any change in the provisions of the Indenture relating to waivers
of past Defaults or the rights of holders of senior subordinated
discount notes to receive payments of principal of or premium, if any,
or interest on the senior subordinated discount notes;
(7) waive a redemption payment with respect to any senior subordinated
discount note, other than a payment required by one of the covenants
described above under the caption "--Repurchase at the Option of
Holders"; or
(8) make any change in the preceding amendment and waiver provisions.
In addition, any amendment to, or waiver of, the provisions of the Indenture
relating to the security interests created by the pledge agreement that
adversely affects the rights of the holders of the senior subordinated discount
notes will require the consent of the holders of at least 75% in aggregate
principal amount of senior subordinated discount notes then outstanding.
Notwithstanding the preceding, without the consent of any Holder of senior
subordinated discount notes, AirGate and the Trustee may amend or supplement
the Indenture or the senior subordinated discount notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated senior subordinated discount notes in
addition to or in place of certificated senior subordinated discount
notes;
(3) to provide for the assumption of AirGate's obligations to Holders of
senior subordinated discount notes in the case of a merger or
consolidation or sale of all or substantially all of AirGate's assets;
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(4) to make any change that would provide any additional rights or benefits
to the holders of senior subordinated discount notes or that does not
adversely affect the legal rights under the Indenture of any holder; or
(5) to comply with requirements of the Commission in order to effect or
maintain the qualification of the Indenture under the Trust Indenture
Act.
Concerning the Trustee
If the Trustee becomes a creditor of AirGate or any Guarantor, the Indenture
limits its right to obtain payment of claims in certain cases, or to realize on
certain property received in respect of any such claim as security or
otherwise. The Trustee will be permitted to engage in other transactions;
however, if it acquires any conflicting interest it must eliminate such
conflict within 90 days, apply to the Commission for permission to continue or
resign.
The holders of a majority in principal amount of the then outstanding senior
subordinated discount notes will have the right to direct the time, method and
place of conducting any proceeding for exercising any remedy available to the
Trustee, subject to certain exceptions. The Indenture provides that in case an
Event of Default shall occur and be continuing, the Trustee will be required,
in the exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any holder of senior subordinated discount notes, unless such
holder shall have offered to the Trustee security and indemnity satisfactory to
it against any loss, liability or expense.
Certain Definitions
Set forth below are many of the defined terms used in the Indenture.
Reference is made to the Indenture for a full disclosure of all such terms, as
well as any other capitalized terms used herein for which no definition is
provided.
"Accreted Value" of any outstanding senior subordinated discount note as of
or to any date of determination means an amount equal to the sum of (1) the
issue price of such senior subordinated discount note as determined in
accordance with Section 1273 of the Internal Revenue Code plus (2) the
aggregate of the portions of the original issue discount, i.e., the excess of
the amounts considered as part of the "stated redemption price at maturity" of
such senior subordinated discount note within the meaning of Section 1273(a)(2)
of the Internal Revenue Code or any successor provisions, whether denominated
as principal or interest, over the issue price of such senior subordinated
discount note, that shall theretofore have accrued pursuant to Section 1272 of
the Internal Revenue Code, without regard to Section 1272(a)(7) of the Internal
Revenue Code, from the date of issue of such senior subordinated discount note
(a) for each six-month or shorter period ending or prior to the date
of determination and (b) for the shorter period, if any, from the end of the
immediately preceding six-month or shorter period, as the case may be, to the
date of determination, plus (3) accrued and unpaid interest to the date such
Accreted Value is paid (without duplication of any amount set forth in (ii)
above), minus all amounts theretofore paid in respect of such senior
subordinated discount note, which amounts are considered as part of the "stated
redemption price at maturity" of such senior subordinated discount note within
the meaning of Section 1273(a)(2) of the Internal Revenue Code or any successor
provisions whether such amounts paid were denominated principal or interest.
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"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other Person
is merged with or into or became a Subsidiary of such specified Person,
whether or not such Indebtedness is incurred in connection with, or in
contemplation of, such other Person merging with or into, or becoming a
Subsidiary of, such specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control,"
as used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of 10% or more of
the Voting Stock of a Person shall be deemed to be control. For purposes of
this definition, the terms "controlling," "controlled by" and "under common
control with" shall have correlative meanings.
"Annualized Operating Cash Flow" means Operating Cash Flow, for the latest
two full fiscal quarters for which consolidated financial statements of AirGate
are available multiplied by two.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any assets or
rights, other than sales of inventory and sales of obsolete equipment
in the ordinary course of business consistent with past practices;
provided that the sale, conveyance or other disposition of all or
substantially all of the assets of AirGate and its Restricted
Subsidiaries taken as a whole will be governed by the provisions of the
Indenture described above under the caption "--Repurchase at the Option
of Holders--Change of Control" and/or the provisions described above
under the caption "--Selected Covenants--Merger, Consolidation or Sale
of Assets" and not by the provisions of the Asset Sale covenant; and
(2) the issuance of Equity Interests by any of AirGate's Restricted
Subsidiaries or the sale of Equity Interests in any of its Restricted
Subsidiaries,
Notwithstanding the preceding, the following items shall not be deemed to be
Asset Sales:
(1) any single transaction or series of related transactions that: (a)
involves assets having a fair market value of less than $1.0 million;
or (b) results in net proceeds to AirGate and its Restricted
Subsidiaries of less than $1.0 million;
(2) a transfer of assets between or among AirGate and its Wholly Owned
Restricted Subsidiaries;
(3) an issuance of Equity Interests by a Wholly Owned Restricted Subsidiary
to AirGate or to another Wholly Owned Restricted Subsidiary;
(4) a Restricted Payment that is permitted by the covenant described above
under the caption "--Selected Covenants--Limitation on Restricted
Payments"; and
(5) any transfer by AirGate or a Subsidiary of property or equipment with a
fair market value of less than $5.0 million to a Person who is not an
Affiliate of AirGate in exchange for property or equipment that has a
fair market value at least equal to the fair market value of the
property or equipment so transferred; provided that, in the event of a
transfer described
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in this clause (5), AirGate shall deliver to the Trustee an officer's
certificate certifying that such exchange complies with this clause (5).
"Attributable Debt" in respect of a sale and leaseback transaction means, at
the time of determination, the present value of the obligation of the lessee
for net rental payments during the remaining term of the lease included in such
sale and leaseback transaction including any period for which such lease has
been extended or may, at the option of the lessor, be extended. Such present
value shall be calculated using a discount rate equal to the rate of interest
implicit in such transaction, determined in accordance with GAAP.
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person," as such term is used in Section 13(d)(3)
of the Exchange Act, such "person" shall be deemed to have beneficial ownership
of all securities that such "person" has the right to acquire, whether such
right is currently exercisable or is exercisable only upon the occurrence of a
subsequent condition.
"Board Resolution" means a copy of a resolution certified by the Secretary or
an Assistant Secretary of AirGate to have been duly adopted by the Board of
Directors, unless the context specifically requires that such resolution be
adopted by a majority of the disinterested directors, in which case by a
majority of such directors, and to be in full force and effect on the date of
such certification and delivered to the Trustee.
"Capital Lease Obligation" means, at the time any determination thereof is to
be made, the amount of the liability in respect of a capital lease that would
at that time be required to be capitalized on a balance sheet in accordance
with GAAP.
"Capital Stock"means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents, however
designated, of corporate stock;
(3) in the case of a partnership or limited liability company, partnership
or membership interests, whether general or limited; and
(4) any other interest or participation that confers on a Person the right
to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cash Equivalents" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by the
United States government or any agency or instrumentality thereof,
provided that the full faith and credit of the United States is pledged
in support thereof, having maturities of not more than six months from
the date of acquisition;
(3) certificates of deposit and eurodollar time deposits with maturities of
six months or less from the date of acquisition, bankers' acceptances
with maturities not exceeding six months and overnight bank deposits,
in each case, with any domestic commercial bank having capital and
surplus in excess of $500 million and a Thompson Bank Watch Rating of
"B" or better;
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(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3)
above entered into with any financial institution meeting the
qualifications specified in clause (3) above;
(5) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Corporation and in each
case maturing within six months after the date of acquisition; and
(6) money market funds at least 95% of the assets of which constitute Cash
Equivalents of the kinds described in clauses (1) through (5) of this
definition.
"Change of Control" means the occurrence of any of the following:
(1) the sale, transfer, conveyance or other disposition, other than by way
of merger or consolidation, in one or a series of related transactions,
of all or substantially all of the assets of AirGate and its
Subsidiaries taken as a whole to any "person," as such term is used in
Section 13(d)(3) of the Exchange Act;
(2) the adoption of a plan relating to the liquidation or dissolution of
AirGate;
(3) the consummation of any transaction, including, without limitation, any
merger or consolidation, the result of which is that any "person," as
defined above, becomes the Beneficial Owner, directly or indirectly, of
more than 50% of the Voting Stock of AirGate, measured by voting power
rather than number of shares;
(4) the first day on which a majority of the members of the Board of
Directors of AirGate are not Continuing Directors; or
(5) AirGate consolidates with, or merges with or into, an Person, or any
Person consolidates with, or merges with or into, AirGate, in any such
event pursuant to a transaction in which any of the outstanding Voting
Stock of AirGate is converted into or exchanged for cash, securities or
other property, other than any such transaction where the Voting Stock
of AirGate outstanding immediately prior to such transaction is
converted into or exchanged for Voting Stock, other than Disqualified
Stock, of the surviving or transferee Person constituting a majority of
the outstanding shares of such Voting Stock of such surviving or
transferee Person immediately after giving effect to such issuance.
"Change of Control Offer" means a written offer (the "Offer") sent by AirGate
by first class mail, postage prepaid, to each holder at his address appearing
in the security register maintained by the Trustee on the date of the Offer
offering to purchase the senior subordinated discount notes at the purchase
price specified in such Offer, as determined pursuant to the Indenture. Unless
otherwise required by applicable law, the Offer shall specify an expiration
date (the "Expiration Date") of the Change of Control Offer which shall be,
subject to any contrary requirements of applicable law, not less than 30 days
or more than 60 days after the date of such Offer and a settlement date (the
"Purchase Date") for purchase of senior subordinated discount notes within five
Business Days after the Expiration Date. AirGate shall notify the Trustee at
least 15 days or such shorter period as is acceptable to the Trustee, prior to
the mailing of the Offer of AirGate's obligation to make an Offer to Purchase,
and the Offer shall be mailed by AirGate or, at AirGate's request, by the
Trustee in the name and at the expense of AirGate.
The Offer shall contain information concerning the business of AirGate and
its Subsidiaries which, at a minimum, shall include:
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(1) the most recent annual and quarterly financial statements and
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" contained in the documents required to be filed
with the Trustee pursuant to the Indenture (which requirements may be
satisfied by delivery of such documents together with the Offer),
(2) a description of material developments in AirGate's business subsequent
to the date of the latest of such financial statements referred to in
clause (1) including a description of the events requiring AirGate to
make the Change of Control Offer,
(3) if required under applicable law, pro forma financial information
concerning, among other things, the Change of Control Offer, and
(4) any other information required by applicable law to be included
therein.
The Offer shall contain all instructions and materials necessary to enable
such holders to tender their senior subordinated discount notes pursuant to the
Change of Control Offer. The Offer shall also state:
(1) the section of the Indenture pursuant to which the Change of Control
Offer is being made;
(2) the Expiration Date and the Purchase Date;
(3) the aggregate principal amount at Stated Maturity of the outstanding
senior subordinated discount notes offered to be purchased by AirGate
pursuant to the Change of Control Offer (the "Purchase Amount");
(4) the purchase price to be paid by AirGate for each $1,000 principal
amount at Stated Maturity of senior subordinated discount notes
accepted for payment as specified pursuant to the Indenture (the
"Purchase Price");
(5) that the holder may tender all or any portion of the senior
subordinated discount notes registered in the name of such holder and
that any portion of senior subordinated discount notes tendered must be
tendered in an integral multiple of $1,000 of principal amount at
Stated Maturity;
(6) the place or places where the senior subordinated discount notes are to
be surrendered for tender pursuant to the Change of Control Offer;
(7) that interest, if any, on any senior subordinated discount notes not
tendered or tendered but not purchased by the Company pursuant to the
Change of Control Offer will continue to accrue;
(8) that on the Purchase Date the Purchase Price will become due and
payable upon each Note being accepted for payment pursuant to the
Change of Control Offer;
(9) that each holder electing to tender senior subordinated discount notes
pursuant to the Change of Control Offer will be required to surrender
such senior subordinated discount notes at the place or places
specified in the Offer prior to the close of business on the Expiration
Date. Such senior subordinated discount notes must be, if AirGate or
the Trustee so requires, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Company and the
Trustee duly executed by the holder thereof or his attorney duly
authorized in writing;
(10) that holders will be entitled to withdraw all or any portion of the
senior subordinated discount notes tendered if AirGate, or its Paying
Agent, receives, not later than the close of
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business on the Expiration Date, a facsimile transmission or letter
setting forth the name of the holder, the principal amount at Stated
Maturity of the senior subordinated discount notes the Holder tendered,
the certificate number of the senior subordinated discount notes the
holder tendered and a statement that such holder is withdrawing all or a
portion of his tender;
(11) that AirGate shall purchase all such senior subordinated discount
notes duly tendered and not withdrawn pursuant to the Change of
Control Offer; and
(12) that in the case of any holder whose senior subordinated discount
notes are purchased only in part, AirGate shall execute, and the
Trustee shall authenticate and deliver to the holder of such senior
subordinated discount notes without service charge, new senior
subordinated discount notes of any authorized denomination as
requested by such holder, in an aggregate principal amount at Stated
Maturity equal to and in exchange for the unpurchased portion of the
aggregate principal amount at Stated Maturity of the senior
subordinated discount notes so tendered.
Any Change of Control Offer shall be governed by and effected in accordance
with the Offer for such Change of Control Offer.
"Closing Date" means , 1999, the date on which the senior subordinated
discount notes were originally issued under the Indenture.
"Consolidated Debt" means the aggregate amount of Indebtedness of AirGate and
its Restricted Subsidiaries on a Consolidated basis outstanding at the date of
determination.
"Consolidated Debt to Annualized Operating Cash Flow Ratio" means, as at any
date of determination, the ratio of (i) Consolidated Debt to (ii) the
Annualized Operating Cash Flow of AirGate as of the most recently completed
fiscal quarter of AirGate for which financial statements are available.
"Consolidated Interest Expense" of any Person means, for any period, (1) the
aggregate interest expense and fees and other financing costs in respect of
Indebtedness (including amortization of original issue discount and non-cash
interest payments and accruals), (2) the interest component in respect of
Capital Lease Obligations and any deferred payment obligations of such Person
and its Restricted Subsidiaries determined on a consolidated basis in
accordance with GAAP, (3) all commissions, discounts, other fees and charges
owed with respect to letters of credit and bankers' acceptance financing and
net costs (including amortization of discounts) associated with interest rate
swap and similar agreements and with foreign currency hedge, exchange and
similar agreements and (4) the product of (a) all dividend payments, whether or
not in cash, on any series of Preferred Capital Stock of such Person or any of
its Restricted Subsidiaries, other than dividend payments on Capital Stock
payable solely in Capital Stock of AirGate (other than Disqualified Stock) or
to AirGate or its Restricted Subsidiaries, times (b) a fraction, the numerator
of which is one and the denominator of which is one minus the then current
combined federal, state and local statutory tax rate of such Person, expressed
as a decimal, in each case, on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to any specified Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that:
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(1) the Net Income, but not loss, of any Person that is not a Restricted
Subsidiary or that is accounted for by the equity method of accounting
shall be included only to the extent of the amount of dividends or
distributions paid in cash to the specified Person or a Wholly Owned
Subsidiary thereof;
(2) the Net Income of any Restricted Subsidiary shall be excluded to the
extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not
at the date of determination permitted without any prior governmental
approval that has not been obtained or, directly or indirectly, by
operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation
applicable to that Restricted Subsidiary or its stockholders;
(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall
be excluded;
(4) the Net Income, but not loss, of any Unrestricted Subsidiary shall be
excluded, whether or not distributed to the specified Person or one of
its Subsidiaries; and
(5) the cumulative effect of a change in accounting principles shall be
excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of:
(1) the consolidated equity of the common stockholders of such Person and
its consolidated Subsidiaries as of such date; plus
(2) the respective amounts reported on such Person's balance sheet as of
such date with respect to any series of preferred stock, other than
Disqualified Stock, that by its terms is not entitled to the payment of
dividends unless such dividends may be declared and paid only out of
net earnings in respect of the year of such declaration and payment,
but only to the extent of any cash received by such Person upon
issuance of such preferred stock.
"Consolidation" means the consolidation of the accounts of each of the
Restricted Subsidiaries with those of AirGate, if and to the extent that the
accounts of each such Restricted Subsidiary would normally be consolidated with
those of AirGate in accordance with generally accepted accounting principles;
provided, however, that "Consolidation" shall not include consolidation of the
accounts of any Unrestricted Subsidiary, but the interest of AirGate or any
Restricted Subsidiary in any Unrestricted Subsidiary shall be accounted for as
an investment. The term "Consolidated" has a correlative meaning.
"Continuing Directors" means, as of any date of determination, any member of
the Board of Directors of AirGate who:
(1) was a member of such Board of Directors on the date of the Indenture;
or
(2) was nominated for election or elected to such Board of Directors with
the approval of a majority of the Continuing Directors who were members
of such Board at the time of such nomination or election.
"Credit Facilities" means, with respect to AirGate or any Guarantor, one or
more debt facilities or commercial paper facilities, in each case with banks or
other institutional lenders providing for revolving credit loans, term loans,
receivables financing, including through the sale of receivables to such
lenders or to special purpose entities formed to borrow from such lenders
against such
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receivables, or letters of credit, and shall include the Lucent Financing in
each case, as amended, restated, modified, renewed, refunded, replaced or
refinanced in whole or in part from time to time.
"Default" means any event that is, or with the passage of time or the giving
of notice or both would be, an Event of Default.
"Designated Senior Debt" means (a) the Credit Facilities and (b) any other
Senior Debt that has been designated by AirGate in writing to the Trustee as
"Designated Senior Debt."
"Disqualified Stock" means any Capital Stock that, by its terms, or by the
terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder thereof, or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the holder
thereof, in whole or in part, on or prior to the date that is 91 days after the
date on which the senior subordinated discount notes mature. Notwithstanding
the preceding sentence, any Capital Stock that would constitute Disqualified
Stock solely because the holders thereof have the right to require AirGate to
repurchase such Capital Stock upon the occurrence of a change of control or an
asset sale shall not constitute Disqualified Stock if the terms of such Capital
Stock provide that AirGate may not repurchase or redeem any such Capital Stock
pursuant to such provisions unless such repurchase or redemption complies with
the covenant described above under the caption "--Selected Covenants--
Limitation on Restricted Payments."
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock, but excludes any debt security that is
convertible into, or exchangeable for, Capital Stock.
"Equity Offering" means any public or private offering of Capital Stock of
AirGate in which the gross proceeds to AirGate are at least $50.0 million
provided, however the underwritten public offering of AirGate common stock sold
pursuant to a prospectus dated as of the Closing Date shall not constitute an
Equity Offering.
"Event of Termination" means any of the events described in (1) Section 11.3
of the Management Agreement; (2) Section 13.2 of the Trademark Agreement or (3)
Section 13.2 of the Spectrum Trademark Agreement.
"Existing Indebtedness" means the $150,000 in aggregate principal amount of
Indebtedness of AirGate and its Restricted Subsidiaries in existence on the
date of the Indenture, until such amounts are repaid.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"Government Securities" means (1) any security which is (a) a direct
obligation of the United States of America for the payment of which the full
faith and credit of the United States of America is pledged or (b) an
obligation of a Person controlled or supervised by and acting as an agency or
instrumentality of the United States of America the payment of which is
unconditionally guaranteed as a full faith and credit obligation of the United
States of America, which, in either case, is not
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callable or redeemable at the option of the issuer thereof, and (2) any
depository receipt issued by a bank, as defined in the Securities Act, as
custodian with respect to any Government Securities and held by such bank for
the account of the holder of such depository receipt, or with respect to any
specific payment of principal of or interest on any Government Securities which
is so specified and held, provided that, except as required by law, such
custodian is not authorized to make any deduction from the amount payable to
the holder of such depository receipt from any amount received by the custodian
in respect of the Government Securities or the specific payment of principal or
interest evidenced by such depository receipt.
"Guarantee" means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any Indebtedness.
"Guarantors" means each of AGW Leasing Company, Inc. and any future
subsidiary that executes a Guarantee in accordance with the provisions of the
Indenture, and their respective successors and assigns.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under:
(1) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements; and
(2) other agreements or arrangements designed to protect such Person
against fluctuations in interest rates.
"Indebtedness" means, with respect to any specified Person, any indebtedness
of such Person, whether or not contingent, in respect of:
(1) borrowed money;
(2) evidenced by bonds, senior subordinated discount notes, debentures or
similar instruments or letters of credit, or reimbursement agreements
in respect thereof;
(3) banker's acceptances;
(4) representing Capital Lease Obligations;
(5) the balance deferred and unpaid of the purchase price of any property,
except any such balance that constitutes an accrued expense or trade
payable; or
(6) representing any Hedging Obligations;
if and to the extent any of the preceding, other than letters of credit and
Hedging Obligations, would appear as a liability upon a balance sheet of the
specified Person prepared in accordance with GAAP. In addition, the term
"Indebtedness" includes all Indebtedness of others secured by a Lien on any
asset of the specified Person, whether or not such Indebtedness is assumed by
the specified Person, and, to the extent not otherwise included, the Guarantee
by such Person of any indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value thereof, in the case of any Indebtedness issued with
original issue discount; and
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(2) the principal amount thereof, together with any interest thereon that
is more than 30 days past due, in the case of any other Indebtedness.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons, including Affiliates, in the forms of direct or
indirect loans, including guarantees of Indebtedness or other obligations,
advances or capital contributions, excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business,
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If AirGate or any Restricted Subsidiary of AirGate sells or otherwise disposes
of any Equity Interests of any direct or indirect Restricted Subsidiary of
AirGate such that, after giving effect to any such sale or disposition, such
Person is no longer a Restricted Subsidiary of AirGate, AirGate shall be deemed
to have made an Investment on the date of any such sale or disposition equal to
the fair market value of the Equity Interests of such Restricted Subsidiary not
sold or disposed of in an amount determined as provided in the final paragraph
of the covenant described above under the caption "--Selected Covenants--
Limitation on Restricted Payments."
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law, including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code, or equivalent statutes, of any jurisdiction.
"Lucent Financing" means the Credit Agreement dated as of , 1999 among
AirGate PCS, Inc. as Borrower, the Lenders party thereto and Lucent
Technologies Inc. as Administrative Agent, as such may be amended, restated,
modified, renewed, refunded, replaced or refinanced in whole or in part from
time to time.
"Net Income" means, with respect to any Person, the net income (loss) of such
Person and its Restricted Subsidiaries, determined in accordance with GAAP and
before any reduction in respect of preferred stock dividends, excluding,
however:
(1) any gain, but not loss, together with any related provision for taxes
on such gain (but not loss), realized in connection with: (a) any Asset
Sale; or (b) the disposition of any securities by such Person or any of
its Restricted Subsidiaries or the extinguishment of any Indebtedness
of such Person or any of its Restricted Subsidiaries; and
(2) any extraordinary gain, but not loss, together with any related
provision for taxes on such extraordinary gain, but not loss.
"Net Proceeds" means the aggregate cash proceeds received by AirGate or any
of its Restricted Subsidiaries in respect of any Asset Sale, including, without
limitation, any cash received upon the sale or other disposition of any non-
cash consideration received in any Asset Sale, net of the direct costs relating
to such Asset Sale, including, without limitation, legal, accounting and
investment banking fees, and sales commissions, and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof, in
each case after taking into account any available tax credits or deductions and
any tax sharing arrangements and amounts required to be applied to the
repayment of Indebtedness, other than Senior Debt, secured by a Lien on the
asset or assets that were the subject of such Asset Sale and appropriate
amounts to be provided by AirGate or any Restricted Subsidiary,
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as the case may be, as a reserve required in accordance with GAAP against any
liabilities associated with such Asset Sale and retained by AirGate or any
Restricted Subsidiary, as the case may be, after such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale.
"Non-Recourse Debt" means Indebtedness:
(1) as to which neither AirGate nor any of its Restricted Subsidiaries (a)
provides credit support of any kind, including any undertaking,
agreement or instrument that would constitute Indebtedness, (b) is
directly or indirectly liable as a guarantor or otherwise, or (c)
constitutes the lender;
(2) no default with respect to which, including any rights that the holders
thereof may have to take enforcement action against an Unrestricted
Subsidiary, would permit upon notice, lapse of time or both any holder
of any other Indebtedness, other than the senior subordinated discount
notes, of AirGate or any of its Restricted Subsidiaries to declare a
default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity; and
(3) as to which the lenders have been notified in writing that they will
not have any recourse to the stock or assets of AirGate or any of its
Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Officers' Certificate" means a certificate signed by the Chairman of the
Board, the President or Vice President, and by the Treasurer, an Assistant
Treasurer, the Secretary, or an Assistant Secretary, of AirGate, and delivered
to the Trustee.
"Operating Cash Flow" means, for any fiscal quarter, (i) AirGate's
Consolidated Net Income (Loss) plus (ii) depreciation, amortization and other
non-cash charges in respect thereof for such fiscal quarter, plus (iii) all
amounts deducted in calculating Consolidated Net Income (Loss) for such fiscal
quarter in respect of Consolidated Interest Expense, and all income taxes,
whether or not deferred, applicable to such income period, all as determined on
a consolidated basis in accordance with generally accepted accounting
principles. For purposes of calculating Operating Cash Flow for the fiscal
quarter most recently completed for which financial statements are available
prior to any date on which an action is taken that requires a calculation of
the Operating Cash Flow to Consolidated Interest Expense Ratio or Consolidated
Debt to Annualized Cash Flow Ratio, (1) any Person that is a Restricted
Subsidiary on such date (or would become a Restricted Subsidiary in connection
with the transaction that requires the determination of such ratio) will be
deemed to have been a Restricted Subsidiary at all times during such fiscal
quarter, (2) any Person that is not a Restricted Subsidiary on such date (or
would cease to be a Restricted Subsidiary in connection with the transaction
that requires the determination of such ratio) will be deemed not to have been
a Restricted Subsidiary at any time during such fiscal quarter and (3) if
AirGate or any Restricted Subsidiary shall have in any manner acquired
(including through commencement of activities constituting such operating
business) or disposed of (including through termination or discontinuance of
activities constituting such operating business) any operating business during
or subsequent to the most recently completed fiscal quarter, such calculation
will be made on a pro forma basis on the
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assumption that such acquisition or disposition had been completed on the first
day of such completed fiscal quarter.
"Paying Agent" means any Person authorized by AirGate to pay the principal
of, and premium, if any, or interest on any senior subordinated discount notes
on behalf of AirGate.
"Permitted Business" means the business primarily involved in the ownership,
design, construction, development, acquisition, installation, integration,
management and/or provision of Telecommunications Assets or any business or
activity reasonably related or ancillary thereto, including, without
limitation, any business conducted by AirGate or any Restricted Subsidiary on
the Closing Date.
"Permitted Investments" means:
(1) any Investment in AirGate or in a Wholly Owned Restricted Subsidiary of
AirGate that is a Guarantor;
(2) any Investment in Cash Equivalents;
(3) any Investment by AirGate or any Restricted Subsidiary of AirGate in a
Person, if as a result of such Investment:
(a) such Person becomes a Wholly Owned Restricted Subsidiary of
AirGate; or
(b) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is
liquidated into, AirGate or a Wholly Owned Restricted Subsidiary of
AirGate;
(4) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption "--
Repurchase at the Option of Holders--Asset Sales";
(5) any acquisition of assets solely in exchange for the issuance of Equity
Interests, other than Disqualified Stock, of AirGate;
(6) investments, the payment of which consists only of Equity Interests,
other than Disqualified Stock; and
(7) other Investments in any Person having an aggregate fair market value,
measured on the date each such Investment was made and without giving
effect to subsequent changes in value, when taken together with all
other Investments made pursuant to this clause (7) since the date of
the Indenture, not to exceed $5.0 million.
"Permitted Junior Securities" means Equity Interests in AirGate or its
Subsidiaries or debt securities of AirGate or its Subsidiaries that are
subordinated to all Senior Debt (and any debt securities issued in exchange for
Senior Debt) to substantially the same extent as, or to a greater extent than,
the senior subordinated discount notes are subordinated to Senior Debt.
"Permitted Liens" means:
(1) Liens on the assets of AirGate and any Guarantor securing Indebtedness
and other Obligations under Credit Facilities that were permitted by
the terms of the Indenture to be incurred;
(2) Liens in favor of AirGate or the Guarantors;
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(3) Liens on property of a Person existing at the time such Person is
merged with or into or consolidated with AirGate or any Restricted
Subsidiary of AirGate; provided that such Liens were in existence prior
to the contemplation of such merger or consolidation and do not extend
to any assets other than those of the Person merged into or
consolidated with AirGate or the Restricted Subsidiary;
(4) Liens on property existing at the time of acquisition thereof by
AirGate or any Restricted Subsidiary of AirGate, provided that such
Liens were in existence prior to the contemplation of such acquisition;
(5) Liens and deposits made to secure the performance of statutory
obligations, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of
business;
(6) Liens to secure Indebtedness, including Capital Lease Obligations,
permitted by clause (5) of the second paragraph of the covenant
entitled "Limitation on Incurrence of Indebtedness and Issuance of
Preferred Stock" covering only the assets acquired with such
Indebtedness;
(7) Liens existing on the date of the Indenture;
(8) Liens on Assets of Guarantors to secure Senior Debt of such Guarantor
that was permitted by the Indenture to be incurred;
(9) Liens for taxes, assessments or governmental charges or claims that are
not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor; and
(10) Liens incurred in the ordinary course of business of AirGate or any
Restricted Subsidiary of AirGate with respect to obligations that do
not exceed $5.0 million at any one time outstanding.
"Permitted Refinancing Indebtedness" means any Indebtedness of AirGate or any
of its Restricted Subsidiaries issued in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of AirGate or any of its Restricted Subsidiaries, other than
intercompany Indebtedness; provided that:
(1) the principal amount, or accreted value, if applicable, of such
Permitted Refinancing Indebtedness does not exceed the principal amount
of, or accreted value, if applicable, plus the amount of any premium
required to be paid in connection with such refinancing pursuant to the
terms of the Indebtedness refinanced or the amount of any premium
reasonably determined by AirGate as necessary to accomplish such
refinancing, plus accrued interest on, the Indebtedness so extended,
refinanced, renewed, replaced, defeased or refunded, plus the amount of
reasonable expenses incurred in connection therewith;
(2) such Permitted Refinancing Indebtedness has a final maturity date later
than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity
of, the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded;
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the senior
subordinated discount notes, such Permitted Refinancing Indebtedness
has a final maturity date later than the final maturity date of, and is
subordinated in right of payment to, the senior subordinated discount
notes on terms at
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least as favorable to the holders of senior subordinated discount notes
as those contained in the documentation governing the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; and
(4) such Indebtedness is incurred either by AirGate or by the Restricted
Subsidiary who is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Preferred Capital Stock," as applied to the Capital Stock of any Person,
means Capital Stock of such Person of any class or classes, however designated,
that ranks prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.
"Restricted Investment" means any Investment that is not a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Senior Debt" means:
(1) all Indebtedness outstanding under Credit Facilities and all Hedging
Obligations with respect thereto; and
(2) all Obligations with respect to the items listed in the preceding
clause (1).
Notwithstanding anything to the contrary in the preceding, Senior Debt will not
include:
(1) any liability for federal, state, local or other taxes owed or owing by
AirGate;
(2) any Indebtedness of AirGate to any of its Subsidiaries or other
Affiliates;
(3) any trade payables; or
(4) any Indebtedness that is incurred in violation of the Indenture.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
"Sprint Agreements" means the (1) Management Agreement between SprintCom,
Inc. and AirGate, dated as of July 22, 1998, and any exhibits, schedules or
addendum thereto, as such may be amended, modified or supplemented from time to
time (the "Management Agreement"); (2) Sprint PCS Services Agreement between
Sprint Spectrum L.P. and AirGate, dated as of July 22, 1998, and any exhibits,
schedules or addendum thereto, as such may be amended, modified or supplemented
from time to time; (3) Sprint Trademark and Service Mark License Agreement
between Sprint Communications Company, L.P. and AirGate, dated as of July 22,
1998, and any exhibits, schedules or addendum thereto, as such may be amended,
modified or supplemented from time to time (the "Trademark Agreement"); and (4)
Sprint Trademark and Service mark License Agreement between Sprint Spectrum
L.P. and AirGate, dated as of July 22, 1998, and any exhibits, schedules or
addendum thereto, as such may be amended, modified or supplemented from time to
time (the "Spectrum Trademark Agreement").
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"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations
to repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subordinated Note Obligations" means all Obligations with respect to the
senior subordinated discount notes, including without limitation, principal of,
premium, if any, and interest, if any, payable pursuant to the terms of the
senior subordinated discount notes (including upon the acceleration of
redemption thereof), together with and including any amounts received or
receivable upon the exercise of rights of recission or other rights of action
(including claims for damages) or otherwise.
"Subsidiary" means, with respect to any Person:
(1) any corporation, association or other business entity of which more
than 50% of the total voting power of shares of Capital Stock entitled,
without regard to the occurrence of any contingency, to vote in the
election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by such Person or one or
more of the other Subsidiaries of that Person, or a combination
thereof; and
(2) any partnership (a) the sole general partner or the managing general
partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person, or any combination thereof.
"Telecommunications Assets" means, with respect to any Person, any asset that
is utilized by such Person, directly or indirectly, for the design,
development, construction, installation, integration, operation, management or
provision of PCS telecommunications equipment, inventory, technology, systems
and/or services. Telecommunications Assets shall include stock, joint venture
or partnership interests of an entity where substantially all of the assets of
the entity consist of Telecommunications Assets.
"Total Invested Capital" means at any time of determination, the sum of,
without duplication, (i) the total amount of equity contributed to AirGate as
of the Closing Date (being $7.6 million), plus (ii) the aggregate net cash
proceeds received by AirGate from the common stock offering concurrent with
this offering, plus (iii) the aggregate net cash proceeds received by AirGate
from capital contributions or any other issuance or sale of Capital Stock
(other than Disqualified Stock but including Capital Stock issued upon the
conversion of convertible Debt or from the exercise of options, warrants or
rights to purchase Capital Stock (other than Disqualified Stock), including
cash payments under the Committed Capital Contribution, subsequent to the
Closing Date, other than to a Restricted Subsidiary, plus (iv) the aggregate
net repayment of any Investment made after the Closing Date and constituting a
Restricted Payment in an amount equal to the lesser of (a) the return of
capital with respect to such Investment and (b) the initial amount of such
Investment, in either case, less the cost of the disposition of such
Investment, plus (v) an amount equal to the Consolidated Net Investment (as of
the date of determination) AirGate and/or any of the Restricted Subsidiaries
has made in any Subsidiary that has been designated as an Unrestricted
Subsidiary after the Closing Date upon its redesignation as a Restricted
Subsidiary in accordance with the covenant described under "Restricted
Subsidiaries," plus (vi) Consolidated Debt minus (vii) the aggregate amount of
all Restricted Payments declared or made on or after the Closing Date.
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"Trustee" means the trustee under the Indenture.
"Unrestricted Subsidiary" means any Subsidiary of AirGate that is designated
by the Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution, but only to the extent that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or understanding
with AirGate or any Restricted Subsidiary of AirGate unless the terms
of any such agreement, contract, arrangement or understanding are no
less favorable to AirGate or such Restricted Subsidiary than those that
might be obtained at the time from Persons who are not Affiliates of
AirGate;
(3) is a Person with respect to which neither AirGate nor any of its
Restricted Subsidiaries has any direct or indirect obligation (a) to
subscribe for additional Equity Interests or (b) to maintain or
preserve such Person's financial condition or to cause such Person to
achieve any specified levels of operating results;
(4) has not guaranteed or otherwise directly or indirectly provided credit
support for any Indebtedness of AirGate or any of its Restricted
Subsidiaries; and
(5) has at least one director on its board of directors that is not a
director or executive officer of AirGate or any of its Restricted
Subsidiaries and has at least one executive officer that is not a
director or executive officer of AirGate or any of its Restricted
Subsidiaries.
Any designation of a Subsidiary of AirGate as an Unrestricted Subsidiary
shall be evidenced to the Trustee by filing with the Trustee a certified copy
of the Board Resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the preceding
conditions and was permitted by the covenant described above under the caption
"--Selected Covenants--Limitation on Restricted Payments." If, at any time, any
Unrestricted Subsidiary would fail to meet the preceding requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of the Indenture and any Indebtedness of such
Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of AirGate
as of such date and, if such Indebtedness is not permitted to be incurred as of
such date under the covenant described under the caption "Limitation on
Incurrence of Indebtedness and Issuance of Preferred Stock," AirGate shall be
in default of such covenant. The Board of Directors of AirGate may at any time
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided
that such designation shall be deemed to be an incurrence of Indebtedness by a
Restricted Subsidiary of AirGate of any outstanding Indebtedness of such
Unrestricted Subsidiary and such designation shall only be permitted if (1)
such Indebtedness is permitted under the covenant described under the caption
"--Selected Covenants--Limitation on Incurrence of Indebtedness and Issuance of
Preferred Stock," calculated on a pro forma basis as if such designation had
occurred at the beginning of the four-quarter reference period; and (2) no
Default or Event of Default would be in existence following such designation.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
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(1) the sum of the products obtained by multiplying (a) the amount of each
then remaining installment, sinking fund, serial maturity or other
required payments of principal, including payment at final maturity, in
respect thereof, by (b) the number of years, calculated to the nearest
one-twelfth, that will elapse between such date and the making of such
payment; by
(2) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which, other than directors' qualifying shares, shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person and one or more Wholly Owned Restricted
Subsidiaries of such Person.
Book-Entry; Delivery; Form and Transfer
The senior subordinated discount notes initially will be in the form of one
or more registered global senior subordinated discount notes without interest
coupons (collectively, the "Global Senior Subordinated Discount Notes"). Upon
issuance, the Global Senior Subordinated Discount Notes will be deposited with
the Trustee, as custodian for The Depository Trust Company ("DTC"), in New
York, New York, and registered in the name of DTC or its nominee for credit to
the accounts of DTC's Direct and Indirect Participants, as defined below.
Transfer of beneficial interests in any Global Senior Subordinated Discount
Notes will be subject to the applicable rules and procedures of DTC and its
Direct or Indirect Participants, including, if applicable, those of Euroclear
and Cedel, which may change from time to time.
The Global Senior Subordinated Discount Notes may be transferred, in whole
and not in part, only to another nominee of DTC or to a successor of DTC or its
nominee in certain limited circumstances. Beneficial interests in the Global
Senior Subordinated Discount Notes may be exchanged for senior subordinated
discount notes in certificated form in certain limited circumstances. See "--
Transfers of Interests in Global Senior Subordinated Discount Notes for
Certificated Senior Subordinated Discount Notes."
Initially, the Trustee will act as Paying Agent and Registrar. The senior
subordinated discount notes may be presented for registration of transfer and
exchange at the offices of the Registrar.
Depositary Procedures
DTC has advised AirGate that DTC is a limited-purpose trust company created
to hold securities for its participating organizations (collectively, the
"Direct Participants") and to facilitate the clearance and settlement of
transactions in those securities between Direct Participants through electronic
book-entry changes in accounts of Participants. The Direct Participants include
securities brokers and dealers, including the underwriters, banks, trust
companies, clearing corporations and certain other organizations, including the
Euroclear System ("Euroclear") and Cedel Bank, societe anonyme ("Cedel").
Access to DTC's system is also available to other entities that clear through
or maintain a direct or indirect, custodial relationship with a Direct
Participant (collectively, the "Indirect Participants").
DTC has advised AirGate that, pursuant to DTC's procedures, (1) upon deposit
of the Global Senior Subordinated Discount Notes, DTC will credit the accounts
of the Direct Participants designated by the underwriters with portions of the
principal amount of the Global Senior
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Subordinated Discount Notes that have been allocated to them by the
underwriters, and (2) DTC will maintain records of the ownership interests of
such Direct Participants in the Global Senior Subordinated Discount Notes and
the transfer of ownership interests by and between Direct Participants. DTC
will not maintain records of the ownership interests of, or the transfer of
ownership interests by and between, Indirect Participants or other owners of
beneficial interests in the Global Senior Subordinated Discount Notes. Direct
Participants and Indirect Participants must maintain their own records of the
ownership interests of, and the transfer of ownership interests by and between,
Indirect Participants and other owners of beneficial interests in the Global
Senior Subordinated Discount Notes.
Investors in the Global Senior Subordinated Discount Notes may hold their
interests therein directly through DTC if they are Direct Participants in DTC
or indirectly through organizations that are Direct Participants in DTC.
The laws of some states in the United States require that certain persons
take physical delivery in definitive, certificated form, of securities that
they own. This may limit or curtail the ability to transfer beneficial
interests in a Global Senior Subordinated Discount Note to such persons.
Because DTC can act only on behalf of Direct Participants, which in turn act on
behalf of Indirect Participants and others, the ability of a person having a
beneficial interest in a Global Senior Subordinated Discount Note to pledge
such interest to persons or entities that are not Direct Participants in DTC,
or to otherwise take actions in respect of such interests, may be affected by
the lack of physical certificates evidencing such interests. For certain other
restrictions on the transferability of the senior subordinated discount notes
see "--Transfers of Interests in Global Senior Subordinated Discount Notes for
Certificated Senior Subordinated Discount Notes".
Except as described in "--Transfers of Interests in Global Senior
Subordinated Discount Notes for Certificated Senior Subordinated Discount
Notes", owners of beneficial interests in the Global Senior Subordinated
Discount Notes will not have senior subordinated discount notes registered in
their names, will not receive physical delivery of senior subordinated discount
notes in certificated form and will not be considered the registered owners or
holders thereof under the Indenture for any purpose.
Under the terms of the Indenture, AirGate and the Trustee will treat the
persons in whose names the senior subordinated discount notes are registered,
including senior subordinated discount notes represented by Global Senior
Subordinated Discount Notes, as the owners thereof for the purpose of receiving
payments and for any and all other purposes whatsoever. Payments in respect of
the principal, premium and interest on Global Senior Subordinated Discount
Notes registered in the name of DTC or its nominee will be payable by the
Trustee to DTC or its nominee as the registered holder under the Indenture.
Consequently, neither AirGate, the Trustee nor any agent of AirGate or the
Trustee has or will have any responsibility or liability for (1) any aspect of
DTC's records or any Direct Participant's or Indirect Participant's records or
any Direct Participant's or Indirect Participant's records relating to or
payments made on account of beneficial ownership interests in the Global Senior
Subordinated Discount Notes or for maintaining, supervising or reviewing any of
DTC's records or any Direct Participant's or Indirect Participant's records
relating to the beneficial ownership interests in any Global Senior
Subordinated Discount Note or (2) any other matter relating to the actions and
practices of DTC or any of its Direct Participants or Indirect Participants.
DTC has advised AirGate that its current payment practice, for payments of
principal, interest and the like, with respect to securities such as the senior
subordinated discount notes is to credit the
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accounts of the relevant Direct Participants with such payment on the payment
date in amounts proportionate to such Direct Participant's respective ownership
interests in the Global Senior Subordinated Discount Notes as shown on DTC's
records. Payments by Direct Participants and Indirect Participants to the
beneficial owners of the senior subordinated discount notes will be governed by
standing instructions and customary practices between them and will not be the
responsibility of DTC, the Trustee or AirGate. Neither AirGate nor the Trustee
will be liable for any delay by DTC or its Direct Participants or Indirect
Participants in identifying the beneficial owners of the senior subordinated
discount notes, and AirGate and the Trustee may conclusively rely on and will
be protected in relying on instructions from DTC or its nominee as the
registered owner of the senior subordinated discount notes for all purposes.
The Global Senior Subordinated Discount Notes will trade in DTC's Same-Day
Funds Settlement System and, therefore, transfers between direct Participants
in DTC will be effected in accordance with DTC's procedures, and will be
settled in immediately available funds. Transfers between Indirect
Participants, other than Indirect Participants who hold an interest in the
senior subordinated discount notes through Euroclear or Cedel, who hold an
interest through a Direct Participant will be effected in accordance with the
procedures of such Direct Participant but generally will settle in immediately
available funds. Transfers between and among Indirect Participants who hold
interests in the senior subordinated discount notes through Euroclear and Cedel
will be effected in the ordinary way in accordance with their respective rules
and operating procedures.
Subject to compliance with the transfer restrictions applicable to the senior
subordinated discount notes described herein, cross-market transfers between
Direct Participants in DTC, on the one hand, and Indirect Participants who hold
interests in the senior subordinated discount notes through Euroclear or Cedel,
on the other hand, will be effected by Euroclear's or Cedel's respective
Nominee through DTC in accordance with DTC's rules on behalf of Euroclear or
Cedel; however, delivery of instructions relating to crossmarket transactions
must be made directly to Euroclear or Cedel, as the case may be, by the
counterparty in accordance with the rules and procedures of Euroclear or Cedel
and within their established deadlines, i.e., Brussels time for Euroclear and
UK time for Cedel. Indirect Participants who hold interest in the senior
subordinated discount notes through Euroclear and Cedel may not deliver
instructions directly to Euroclear's or Cedel's Nominee. Euroclear or Cedel
will, if the transaction meets its settlement requirements, deliver
instructions to its respective Nominee to deliver or receive interests on
Euroclear's or Cedel's behalf in the relevant Global Senior Subordinated
Discount Note in DTC, and make or receive payment in accordance with normal
procedures for same-day fund settlement applicable to DTC.
Because of time zone differences, the securities accounts of an Indirect
Participant who holds an interest in the senior subordinated discount notes
through Euroclear or Cedel purchasing an interest in a Global Senior
Subordinated Discount Note from a Direct Participant in DTC will be credited,
and any such crediting will be reported to Euroclear or Cedel during the
European business day immediately following the settlement date of DTC in
New York. Although recorded in DTC's accounting records as of DTC's settlement
date in New York, Euroclear and Cedel customers will not have access to the
cash amount credited to their accounts as a result of a sale of an interest in
a Global Senior Subordinated Discount Note to a DTC Participant until the
European business day for Euroclear or Cedel immediately following DTC's
settlement date.
DTC has advised AirGate that it will take any action permitted to be taken by
a holder of senior subordinated discount notes only at the direction of one or
more Direct Participants to whose account interests in the Global Senior
Subordinated Discount Notes are credited and only in respect of such
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portion of the aggregate principal amount of the senior subordinated discount
notes to which such Direct Participant or Direct Participants has or have given
direction. However, if there is an Event of Default under the senior
subordinated discount notes, DTC reserves the right to exchange Global Senior
Subordinated Discount Notes, without the direction of one or more of its Direct
Participants, for legended senior subordinated discount notes in certificated
form, and to distribute such certificated forms of senior subordinated discount
notes to its Direct Participants. See "--Transfers of Interests in Global
Senior Subordinated Discount Notes for Certificated Senior Subordinated
Discount Notes."
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures to
facilitate transfers of interests in the Global Senior Subordinated Discount
Notes among Direct Participants, including Euroclear and Cedel, they are under
no obligation to perform or to continue to perform such procedures, and such
procedures may be discontinued at any time. None of AirGate, the underwriters
or the Trustee shall have any responsibility for the performance by DTC,
Euroclear or Cedel or their respective Direct and Indirect Participants of
their respective obligations under the rules and procedures governing any of
their operations.
The information in this section concerning DTC, Euroclear and Cedel and their
book-entry systems has been obtained from sources that AirGate believes to be
reliable, but AirGate takes no responsibility for the accuracy thereof.
Transfers of Interests in Global Senior Subordinated Discount Notes for
Certificated Senior Subordinated Discount Notes
An entire Global Senior Subordinated Discount Note may be exchanged for
definitive senior subordinated discount notes in registered, certificated form
without interest coupons ("Certificated Senior Subordinated Discount Notes")
if:
(1) DTC
(a) notifies AirGate that it is unwilling or unable to continue as
depositary for the Global Senior Subordinated Discount Notes and
AirGate thereupon fails to appoint a successor depositary within
90 days or
(b) has ceased to be a clearing agency registered under the Exchange
Act,
(2) AirGate, at its option, notifies the Trustee in writing that it
elects to cause the issuance of Certificated Senior Subordinated
Discount Notes or
(3) there shall have occurred and be continuing a Default or an Event of
Default with respect to the senior subordinated discount notes.
In any such case, AirGate will notify the Trustee in writing that, upon
surrender by the Direct and Indirect Participants of their interest in such
Global Senior Subordinated Discount Note, Certificated Senior Subordinated
Discount Notes will be issued to each person that such Direct and Indirect
Participants and the DTC identify as being the beneficial owners of the related
senior subordinated discount notes.
Beneficial interests in Global Senior Subordinated Discount Notes held by any
Direct or Indirect Participant may be exchanged for Certificated Senior
Subordinated Discount Notes upon request to DTC, by such Direct Participant,
for itself or on behalf of an Indirect Participant, to the Trustee in
accordance with customary DTC procedures. Certificated Senior Subordinated
Discount Notes delivered in exchange for any beneficial interest in any Global
Senior Subordinated Discount Note will be registered in the names, and issued
in any approved denominations, requested by DTC on behalf of such Direct or
Indirect Participants, in accordance with DTC's customary procedures.
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Neither AirGate nor the Trustee will be liable for any delay by the holder of
any Global Senior Subordinated Discount Note or DTC in identifying the
beneficial owners of senior subordinated discount notes, and AirGate and the
Trustee may conclusively rely on, and will be protected in relying on,
instructions from the holder of the Global Senior Subordinated Discount Note or
DTC for all purposes.
Same Day Settlement and Payment
The Indenture will require that payments in respect of the senior
subordinated discount notes represented by the Global Senior Subordinated
Discount Notes, including principal, premium, if any, and interest, be made by
wire transfer of immediately available same day funds to the accounts specified
by the holder of interests in such Global Senior Subordinated Discount Notes.
With respect to Certificated Senior Subordinated Discount Notes, AirGate will
make all payments of principal, premium, if any, and interest by wire transfer
of immediately available same day funds to the accounts specified by the
holders thereof or, if no such account is specified, by mailing a check to each
such holder's registered address. AirGate expects that secondary trading in the
Certificated Senior Subordinated Discount Notes will also be settled in
immediately available funds.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of United States federal income tax
consequences of the acquisition, ownership and disposition of the senior
subordinated discount notes. Unless otherwise stated this discussion is limited
to the tax consequences to those persons who purchase the senior subordinated
discount notes on their original issue and who hold such senior subordinated
discount notes as capital assets within the meaning of Section 1221 of the
Internal Revenue Code of 1986, as amended (the "Code"). The discussion does not
purport to address tax consequences to holders who may be subject to special
tax rules because of their status, such as financial institutions, insurance
companies, tax-exempt organizations and broker-dealers, or because of how they
hold the senior subordinated discount notes, such as if the senior subordinated
discount notes are held as part of a straddle, hedge, conversion transaction,
or other integrated investment. In addition, this discussion does not address
U.S. federal alternative minimum tax consequences or any aspect of state, local
or foreign taxation. This discussion is based upon the Code, the Treasury
regulations promulgated thereunder and administrative and judicial
interpretation thereof, all or which are subject to change possibly on a
retroactive basis.
For purposes of this discussion, a U.S. holder is any United States citizen
or resident, corporation or partnership or other entity created or organized on
or under the laws of the United States or any state thereof, estate the income
of which is subject to United State federal income taxation regardless of its
source, or trust if a United States court exercises primary jurisdiction over
its administration and one or more United States persons have the authority to
control all of its substantial decisions. A foreign holder is any holder other
than a U.S. holder.
Prospective purchasers of the senior subordinated discount notes are urged to
consult their tax advisors concerning the United States federal income tax
consequences to them to acquiring, owning and disposing of the senior
subordinated discount notes, as well as the application of state, local and
foreign income and other tax laws.
Characterization of the Senior Subordinated Discount Notes
AirGate will treat the senior subordinated discount notes as indebtedness for
federal income tax purposes, and the following discussion assumes that such
treatment will be respected.
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Tax Consequences to U.S. Holders
Taxation of interest. The senior subordinated discount notes will be treated
as issued with original issue discount ("OID"). Thus, all U.S. holders,
regardless of their method of accounting for tax purposes, will be required to
include OID in income as it accrues. OID generally will be treated as interest
income to the U.S. holder and will accrue on a yield-to-maturity basis over the
life of the senior subordinated discount notes, as discussed below. The rate at
which OID accrues on the life of the senior subordinated discount notes will
not necessarily equal the stated rate of interest on the senior subordinated
discount notes payable beginning in 2005. U.S. holders will not be required to
include in income the actual cash receipt of interest payments beginning in
2005.
The amount of OID with respect to a senior subordinated discount note will be
an amount equal to the excess of the stated redemption price at maturity of
such senior subordinated discount note over the issue price of such senior
subordinated discount note. The stated redemption price at maturity of each
senior subordinated discount note will include all cash payments, including
principal and interest, required to be made under the senior subordinated
discount note through maturity. The issue price of a senior subordinated
discount note will be the first price at which a substantial portion of the
senior subordinated discount notes are sold to the holder for cash.
The amount of OID accruing to a holder with respect to any senior
subordinated discount note will be the sum of the "daily portions" of OID with
respect to such senior subordinated discount note for each day during the
taxable year in which such holder owns such senior subordinated discount note
("accrued OID"). The daily portion is determined by allocating to each day in
any "accrual period" a pro rata portion of the OID allocable to that accrual
period. An accrual period may be of any length and may vary in length over the
term of a senior subordinated discount note provided that each accrual period
is no longer than one year and each scheduled payment of principal or interest
occurs either on the final day or on the first day of an accrual period.
Accrual periods for the senior subordinated discount notes will occur every six
months with the final accrual period expected to end on the date of maturity.
The amount of OID accruing during any six-month accrual period with respect
to a senior subordinated discount note will be equal to the following amount:
(1) the "adjusted issue price" of such senior subordinated discount note at the
beginning of that accrual period, multiplied by (2) the yield to maturity of
such senior subordinated discount note (taking into account the length of the
accrual period). OID allocable to the final accrual period is the difference
between the amount payable at maturity and the adjusted issue price at the
beginning of the final accrual period. If all accrual periods are of equal
length, except for an initial short accrual period, the amount of OID allocable
to the initial short accrual period may be computed under any reasonable
method. The adjusted issue price of a senior subordinated discount note at the
beginning of its first accrual period will be equal to its issue price.
The adjusted issue price at the beginning of any subsequent accrual period
will be equal to:
. the adjusted issue price at the beginning of the preceding accrual
period, increased by,
. the amount of OID accrued during the preceding accrual period, and
included in the gross income of any holder, and decreased by,
. any payments made on the senior subordinated discount note during the
preceding accrual period.
AirGate may redeem the senior subordinated discount notes at any time on or
after a certain date, and, in certain circumstances, may redeem or repurchase
all or a portion of the senior subordinated discount notes any time prior to
the maturity date. For purposes of calculating OID on the senior subordinated
discount notes, the Treasury regulations will treat AirGate as having
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exercised its option to redeem the senior subordinated discount notes if the
exercise of that option would lower the yield on the senior subordinated
discount notes. Because AirGate's exercise of the option to redeem would
increase, rather than decrease, the yield on the senior subordinated discount
notes, it will not be treated as having exercised the option under these rules.
Sale, exchange or retirement of the senior subordinated discount notes. Upon
the sale, exchange or retirement of senior subordinated discount notes, a U.S.
holder will recognize gain or loss equal to the difference between the amount
realized upon the sale, exchange or retirement and the U.S. holder's adjusted
tax basis in the senior subordinated discount notes. An original U.S. holder's
adjusted tax basis in the senior subordinated discount notes generally will be
the U.S. holder's cost therefor, increased by the amount of OID previously
accrued on the senior subordinated discount notes through the sale, exchange or
retirement date and decreased by the amount of all prior cash payments received
with respect to the senior subordinated discount notes. Gain or loss recognized
by a U.S. holder on the sale, exchange, or retirement of the senior
subordinated discount notes will be capital gain or loss. An individual who
disposes of senior subordinated discount notes that he or she holds as a
capital asset for more than one year qualifies for long term capital gains tax
rate. Effective 2001, the 20% rate drops to 18% or the 10% rate drops to 8% for
capital assets acquired after the year 2000 and held for more than five years.
To take advantage of the lower rate, individuals may elect to treat pre-2001
property as sold and repurchased at fair market value on January 1, 2001.
Tax Consequences to Foreign Holders
Assuming that the interest income received by a foreign holder is not
effectively connected with the foreign holder's conduct of a trade or business
in the United States, a foreign holder generally will not be subject to United
States federal income or withholding tax on such interest so long as the
foreign holder (1) is not actually or constructively a "10 percent shareholder"
of AirGate or a "controlled foreign corporation" with respect to which AirGate
is a "related person" within the meaning of the Code, and (2) provides an
appropriate statement, signed under penalties of perjury, certifying that the
beneficial owner of the senior subordinated discount note is a foreign person
and providing that foreign person's name and address. If the foregoing
conditions are not satisfied, then interest paid on the senior subordinated
discount notes will be subject to United States withholding tax at a rate of 30
percent, unless such rate is reduced or eliminated pursuant to an applicable
tax treaty.
Any capital gain a foreign holder realized on the sale, exchange, retirement
or other taxable disposition of a senior discount note will be exempt from
United States federal income and withholding tax, provided that:
(a) the gain is not effectively connected with the foreign holder's conduct
of a trade or business in the United States;
(b) in the case of a foreign holder that is an individual, the foreign holder
is not present in the United States for 183 days or more in the taxable
year; and
(c) the foreign holder is not subject to tax pursuant to the provisions of
U.S. tax law applicable to certain expatriates.
If the interest, gain or other income a foreign holder recognizes on a senior
subordinated discount note is effectively connected with the foreign holder's
conduct of a trade or business in the United States, the foreign holder,
although exempt from the withholding tax previously discussed if an appropriate
statement is furnished, generally will be subject to United States federal
income tax on the interest, gain or other income at regular federal income tax
rates. In addition, if the foreign holder is a foreign corporation, it may be
subject to a branch profits tax equal to 30 percent of its
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"effectively connected earnings and profits," as adjusted for certain items,
unless it qualifies for a lower rate under an applicable tax treaty.
If interest on the senior subordinated discount notes is exempt from
withholding of United States federal income tax under the rules described
above, the senior subordinated discount notes will not be included in the
estate of a deceased foreign holder for United States federal estate tax
purposes.
Information Reporting and Backup Withholding
AirGate will be required to report annually to the IRS, and to each holder of
record, the amount of OID accrued on the senior subordinated discount notes and
the amount of interest withheld for federal income taxes, if any, for each
calendar year, except as to exempt holders, generally, corporations, tax-exempt
organizations, qualified pension and profit-sharing trusts, individual
retirement accounts, or nonresident aliens who provide certification as to
their status. Each holder, other than holders who are not subject to the
reporting requirements will be required to provide to AirGate, under penalties
of perjury, a certificate containing the holder's name, address, correct
federal taxpayer identification number and a statement that the holder is not
subject to backup withholding. Should a nonexempt holder fail to provide the
required certificate, AirGate will be required to withhold 31% of the interest
otherwise payable to the holder and to remit the withheld amount to the IRS as
a credit against the holder's federal income tax liability.
In the case of payments of interest to foreign holders, temporary Treasury
regulations provide that the 31% backup withholding tax and certain information
reporting will not apply to such payments with respect to which the requisite
certification, as described above for the exemption from the 30% withholding
tax, has been received or an exemption has otherwise been established; provided
that neither AirGate nor its payment agent has actual knowledge that the holder
is a United States person or that the conditions of any other exemption are not
in fact satisfied. Under temporary Treasury regulations, these information
reporting and backup withholding requirements will apply, however, to the gross
proceeds paid to a foreign holder on the disposition of the senior subordinated
discount notes by or through a United States office of a United States or
foreign broker, unless the holder certifies to the broker under penalties of
perjury as to its name, address and status as a foreign person or the holder
otherwise establishes an exemption. Information reporting requirements, but not
backup withholding, will also apply to a payment of the proceeds of a
disposition of, the senior subordinated discount notes by or through a foreign
office of a United States broker or foreign brokers with certain types of
relationships to the United States unless such broker has documentary evidence
in its file that the holder of the senior subordinated discount notes is not a
United States person, and such broker has no actual knowledge to the contrary,
or the holder establishes an exception. Neither information reporting nor
backup withholding generally will apply to a payment of the proceeds of a
disposition of the senior subordinated discount notes by or through a foreign
office of a foreign broker not subject to the preceding sentence.
The Treasury Department recently promulgated final regulations regarding the
withholding and information reporting rules relating to foreign holders
discussed above. In general, the final regulations do not significantly alter
the substantive withholding and information reporting requirements but rather
unify current certification procedures and forms and clarify reliance
standards. The final regulations are generally effective for payments made
after December 31, 1999, subject to certain transition rules. Foreign holders
should consult their own tax advisors with respect to the impact, if any, of
the new final regulations.
57
<PAGE>
Alternate Senior Subordinated Discount Notes Pages
Applicable High-Yield Discount Obligations
If the senior subordinated discount notes are considered to have "significant
OID" and if the yield of the senior subordinated discount notes is at least
five percentage points above the applicable federal rate, the senior
subordinated discount notes will be classified as applicable high yield
discount obligations and AirGate would not be able to deduct for tax purposes
any OID required to be accrued on the senior subordinated discount notes until
such interest is actually paid. In addition, if the senior subordinated
discount notes are classified as applicable high yield discount obligations and
the yield on the senior subordinated discount notes is more than six percentage
points above the applicable federal rate, then:
. a portion of such interest corresponding to the yield in excess of six
percentage points above the applicable federal rate would not be
deductible by AirGate at any time, and
. a U.S. corporate holder may be entitled to treat the interest that would
not be deductible as a dividend to the extent of the earnings and profits
of AirGate, which may then qualify for the dividends received deduction.
In such event, U.S. corporate holders should consult their tax advisers
concerning the availability of the dividends received deduction.
58
<PAGE>
Alternate Senior Subordinated Discount Notes Pages
UNDERWRITING
We, each of the subsidiary guarantors and the underwriters named below have
entered into an underwriting agreement covering the senior subordinated
discount notes to be offered in this offering. Donaldson, Lufkin & Jenrette
Securities Corporation and Paribas Corporation are acting as representatives of
the underwriters. Each underwriter has agreed to purchase from us the principal
amount of senior subordinated discount notes set forth opposite its name in the
following table.
<TABLE>
<CAPTION>
Principal Amount
of Senior Subordinated
Underwriters Discount Notes
<S> <C>
Donaldson, Lufkin &
Jenrette Securities
Corporation..............
Paribas Corporation.......
------------
Total................... $
============
</TABLE>
The underwriting agreement provides that if the underwriters take any of the
senior subordinated discount notes set forth in the table above, then they must
take all of these senior subordinated discount notes. No underwriter is
obligated to take any shares allocated to a defaulting underwriter except under
limited circumstances.
The underwriters initially propose to offer the senior subordinated discount
notes in part directly to the public at the initial public offering price set
forth on the cover page of this prospectus and in part to certain dealers,
including the underwriters, at such price less a concession not in excess of %
of the principal amount of the senior subordinated discount notes. The
underwriters may allow, and such dealers may re-allow, to certain other dealers
a concession not in excess of % of the principal amount of the senior
subordinated discount notes. After the initial offering of the senior
subordinated discount notes, the public offering price and other selling terms
may be changed by the underwriters at any time without notice. The underwriters
do not intend to confirm sales to any accounts over which they exercise
discretionary authority.
We and each of the subsidiary guarantors have jointly and severally agreed to
indemnify the underwriters against certain liabilities, including liabilities
under the Securities Act, or to contribute to payments that the underwriters
may be required to make in respect thereof.
There is no existing market for the senior subordinated discount notes. We
cannot assure you as to the liquidity of any market that may develop for the
senior subordinated discount notes, the ability of the holders of the senior
subordinated discount notes to sell their senior subordinated discount notes or
the price at which holders would be able to sell their senior subordinated
discount notes. Future trading prices of the senior subordinated discount notes
will depend on many factors, including, among other things, prevailing interest
rates, AirGate's operating results and the market for similar securities.
AirGate has been advised by the underwriters that the underwriters intend to
make a market in the senior subordinated discount notes, subject to the limits
imposed by the Securities Act and the Securities Exchange Act, however, they
are not obligated to do so, and may discontinue such market making at any time
without notice.
Other than in the United States, no action has been taken by AirGate or the
underwriters that would permit a public offering of the senior subordinated
discount notes included in this offering in any jurisdiction where action for
that purpose is required. The senior subordinated discount notes included in
this offering may not be offered or sold, directly or indirectly, nor may this
prospectus or any other offering material or advertisement in connection with
the offer and sale of any such senior
59
<PAGE>
Alternate Senior Subordinated Discount Notes Pages
subordinated discount notes be distributed or published in any jurisdiction,
except under circumstances that will result in compliance with the applicable
rules and regulations of such jurisdiction. This prospectus is not an offer to
sell or a solicitation of an offer to buy any senior subordinated discount
notes included in this offering in any jurisdiction where that would not be
permitted or legal.
We expect that delivery of the senior subordinated discount notes will be
made to investors on or about , 1999.
The underwriters may purchase and sell senior subordinated discount notes in
the open market in connection with this offering. These transactions may
include short sales, stabilizing transactions and purchases to cover positions
created by short sales. Short sales involve the sale by the underwriters of a
greater number of senior subordinated discount notes than they are required to
purchase in the offering. Stabilizing transactions consist of certain bids or
purchases made for the purpose of preventing or slowing a decline in the market
price of the senior subordinated discount notes while the offering is in
progress. The underwriters may also impose a penalty bid, which means that an
underwriter must repay to the other underwriters a portion of the underwriting
discount received by it. An underwriter may be subject to a penalty bid if the
representatives of the underwriters, while engaging in stabilizing or short
covering transactions, repurchase senior subordinated discount notes sold by or
for the account of that underwriter. These activities may stabilize, maintain
or otherwise affect the market price of the senior subordinated discount notes.
As a result, the price of the senior subordinated discount notes may be higher
than the price that otherwise might exist in the open market. If the
underwriters commence these activities, they may discontinue them at any time.
The underwriters may carry out these transactions in the over-the-counter
market or otherwise.
Donaldson, Lufkin & Jenrette Securities Corporation is also acting as
underwriter under our concurrent offering of common stock, for which they will
receive fees customary for performing such services. In addition, we have
engaged Donaldson, Lufkin & Jenrette Securities Corporation to serve as our
financial advisor in the negotiation of our financing from Lucent, for which
Donaldson, Lufkin & Jenrette Securities Corporation is entitled to receive fees
customary for performing such services.
LEGAL MATTERS
The validity of the senior subordinated discount notes offered hereby will be
passed upon for AirGate by Patton Boggs LLP, Washington, D.C. Certain legal
matters in connection with this offering will be passed upon for the
underwriters by Skadden, Arps, Slate, Meagher & Flom (Illinois), Chicago,
Illinois.
60
<PAGE>
Alternate Senior Subordinated Discount Notes Pages
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 1999
[LOGO]
$
% Senior Subordinated Discount Notes Due 2009
----------------
PROSPECTUS
----------------
Donaldson, Lufkin & Jenrette
Paribas Corporation
- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor
any sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of AirGate
have not changed since the date hereof.
Until , 1999 (90 days after the date of this prospectus), all dealers that
effect transactions in these securities may be required to deliver a
prospectus. This is in addition to the dealer's obligation to deliver a
prospectus when acting as an underwriter in this offering or when selling
previously unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
<PAGE>
Part II
Information Not Required in the Prospectus
Item 13. Other Expenses of Issuance and Distribution
AirGate PCS, Inc. and AGW Leasing Company, Inc. (the "Registrants") estimate
that expenses (other than underwriting discounts and commissions) in connection
with the offering described in this Registration Statement will be as set forth
in the following table. All amounts shown are estimates except for the
Securities and Exchange Commission registration fee, the NASD filing fee and
the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................ $ 75,801
National Association of Securities Dealers, Inc. filing fee........ 27,767
Nasdaq National Market listing fees................................ 76,625
Printing and engraving expenses.................................... 350,000
Accountants' fees and expenses..................................... 250,000
Legal fees and expenses............................................ 350,000
Fees and expenses for qualifications under state securities laws
(including legal fees)............................................ 10,000
Transfer agent fees................................................ 5,000
Miscellaneous...................................................... 854,807
----------
Total............................................................ $2,000,000
==========
</TABLE>
Item 14. Indemnification of Directors and Officers
In accordance with General Corporation Law of the State of Delaware (being
Chapter 1 of Title 8 of the Delaware Code), each Registrant's Certificate of
Incorporation provides as follows:
Each Registrant's Certificate of Incorporation provides that the Registrant
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the Registrant to procure a judgment in its favor by reason of the fact that
such person acted in any of the capacities set forth above, against expenses
(including attorney's fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if such person
acted under similar standards, provided that the Registrant receives a written
undertaking by or on behalf of the director or officer to repay such amount if
it is ultimately determined that that such person is not entitled to be
indemnified by the Registrant.
Each Registrant's Certificate of Incorporation further provides that to the
extent that a director or officer of the Registrant has been successful in the
defense of any action, suit or proceeding referred to above or in the defense
of any claim, issue or matter therein, such person shall be indemnified against
expenses (including attorney's fees) actually and reasonably incurred by him or
her in connection therewith, that indemnification provided for by the
Certificate of Incorporation shall not be deemed exclusive of any other rights
to which the indemnified party may be entitled; and that the Registrant is
empowered to purchase and maintain insurance on behalf of a director or officer
of the Registrant against any liability asserted against him or here in any
such capacity, or arising out of such person's status as such, whether or not
the Registrant would have the power to indemnify him against such liabilities
under the Certificate of Incorporation.
II-1
<PAGE>
In addition to indemnification provided to our officers and directors in the
Certificate of Incorporation and under the laws of Delaware, AirGate PCS, Inc.
has entered into indemnification agreements with certain officers and directors
to provide further assurances and protection from liability that they may incur
in their respective positions and duties in connection with the public offering
or as a fiduciary of AirGate PCS, Inc. and its shareholders. We have agreed to
indemnify and hold harmless, to the extent permitted under Delaware law, each
person and affiliated person (generally, any director, officer, employee,
controlling person, agent, or fiduciary of the indemnified person), provided
that the indemnified person was acting or serving at our request in his
capacity as either an officer, director, employee, controlling person,
fiduciary or other agent or affiliate of AirGate PCS, Inc. Under the
indemnification agreements, each person is indemnified against any and all
losses, claims, damages, expenses and liabilities, joint or several, (including
attorney's fees, expenses and amount in settlement) that occur in connection
with any threatened, pending or completed action, suit, proceeding, alternative
dispute resolution mechanism or hearing, inquiry or investigation that such
indemnified person believes in good faith may lead to the institution of such
action, under the Securities Act of 1933, Securities Exchange Act of 1934 or
other federal or state statutory law or regulation, at common law or otherwise,
which relate directly or indirectly to the registration, purchase, sale or
ownership of any securities of AirGate PCS, Inc. or to any fiduciary obligation
owed with respect to AirGate PCS, Inc. and its stockholders. As a condition to
receiving indemnification, indemnified persons are required to give us notice
in writing of any claim for which indemnification may be sought under this
agreement.
The agreement provides that an indemnified person may receive indemnification
against (1) expenses (including attorney's fees and other costs, expenses and
obligations incurred), judgments, fines and penalties; (2) amounts paid in
settlement (approved by AirGate PCS, Inc.); (3) federal, state, local taxes
imposed as a result of receipt of any payments under the indemnification
agreement; and (4) all interest, assessments and other charges paid or payable
in connection with any expenses, costs of settlement or taxes. An indemnified
person will be indemnified against expenses to the extent that he is successful
on the merits or otherwise, including dismissal of an action without prejudice,
in defense of any action, suit, proceeding, inquiry or investigation. Expenses
that the indemnified person have or will incur in connection with a suit or
other proceeding may be received in advance within 10 days of written demand to
AirGate PCS, Inc.
Prior to receiving indemnification or being advanced expenses, a committee,
consisting of either members of the board of directors or any person appointed
by the board of directors, must make a determination of whether the indemnified
person is entitled to indemnification under Delaware law. If there is a change
in control (as defined in the indemnification agreement) that occurs without
majority approval of the board of directors, then the committee will consist of
independent legal counsel selected by the indemnified person and approved by
AirGate PCS, Inc. to render a written opinion as to whether and the extent of
indemnification that the indemnified person is entitled, which will be binding
on AirGate PCS, Inc. Under the indemnification agreement, an indemnified person
may appeal a determination by the committee's determination not to grant
indemnification or advance expenses by commencing a legal proceeding. Failure
of the committee to make a indemnification determination or the termination of
any claim by judgment, order, settlement, plea of nolo contendere, or
conviction does not create a presumption that either (1) the indemnified person
did not meet a particular standard of conduct or belief or (2) that the court
has determined that indemnification is not available.
Under the indemnification agreement, an indemnified person is entitled to
contribution from us for losses, claims, damages, expenses or liabilities as
well as other equitable considerations upon the
II-2
<PAGE>
determination of a court of competent jurisdiction that indemnification is not
available. The amount contributed by AirGate PCS, Inc. will be in proportion,
as appropriate, to reflect the relative benefits received by us and the
indemnified person or, if such contribution is not permitted under Delaware
law, then the relative benefit will be considered with the relative fault of
both parties. In connection with the registration of AirGate PCS, Inc.'s
securities, the relative benefits received by AirGate PCS, Inc. and indemnified
person will be deemed to be in the same respective proportions of the net
proceeds from the offering (less expenses) received by AirGate PCS, Inc. and
the indemnified person. The relative fault of AirGate PCS, Inc. and the
indemnified person is determined by reference to the whether the untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact relates to information supplied by AirGate PCS, Inc. or
the indemnified person and their relative intent, knowledge, access to
information and opportunity to correct such statement or omission.
Contribution paid takes into account the equitable considerations, if any,
instead of a pro rata or per capital allocation. In connection with the
offering of AirGate PCS, Inc. securities, an indemnified person will not be
required to contribute any amount in excess of the lessor of (1) the proportion
of the total of such losses, claims, damages, or liabilities indemnified
against equal to the proportion of the total securities sold under the
registration statement sold by the indemnified person or (2) the proceeds
received by the indemnified person from the sale of securities under the
registration statement. Contribution will not be available if such person is
found guilty of fraudulent misrepresentation, as defined in the agreement.
In the event that AirGate PCS, Inc. is also obligated under a claim and upon
written notice to the indemnified person, we are entitled to assume defense of
the claim and select counsel which is approved by the indemnified person. Upon
receipt of the indemnified person's approval, AirGate PCS, Inc. will directly
incur the legal expenses and as a result will have the right to conduct the
defense as it sees fit in its sole discretion, including the right to settle
any claim against any indemnified party, without consent of the indemnified
person.
The underwriting agreements to be filed as Exhibits 1.1 and 1.2 to the
Registration Statement provides for indemnification by the underwriters of
AirGate PCS, Inc. and its directors and certain officers, and by AirGate PCS,
Inc. of the underwriters, for certain liabilities arising under the Securities
Act or otherwise.
Item 15. Recent Sales of Unregistered Securities
In accordance with Item 701 of Regulation S-K, the following information is
presented with respect to securities sold by the Registrants within the past
three years which were not registered under the Securities Act.
(i) September 1996 Note
(a) On September 27, 1996, AirGate, L.L.C. (the "LLC") sold a $180,000 8%
note, due and payable or convertible on August 8, 1998. This note was rolled
into the 1998 Financing outlined below.
(b) The note was sold to a related party who qualified as an accredited
investor under Regulation D promulgated under the Securities Act.
(c) The note was sold for $180,000.
(d) The notes were offered and sold in reliance upon an exemption from
registration under Section 4(2) of the Securities Act.
II-3
<PAGE>
(e) Not applicable
(f) Not applicable
(ii) The 1998 Financing
(a) Between August and September 1998, AirGate PCS, Inc. sold $4,815,000 of
8% Convertible Promissory Notes. $3 million of the notes was due on September
18, 1999, while $1.815 million was due on August 20, 1999, unless converted.
The notes are convertible into Series A preferred stock or common stock upon
the satisfaction of certain conditions. AirGate PCS, Inc. also issued warrants
to purchase the preferred stock to the purchasers of the notes, which warrants
were to be exercised on the earlier of five years from the date of issuance or
an initial public offering. These notes were rolled into the May 1999
Refinancing.
(b) The notes and warrants were sold to two related party venture funds and
their affiliates who qualified as accredited investors within the meaning of
Regulation D under the Securities Act.
(c) The notes and the warrants were sold for a total aggregate consideration
of $4,815,000.
(d) The notes were offered and sold in reliance upon an exemption from
registration under Section 4(2) of the Securities Act.
(e) Not applicable
(f) Not applicable
(iii) The 1999 Financings
(a) In March, April and May 1999 AirGate PCS, Inc. sold an aggregate of $2.5
million of 8% subordinated notes.
(b) The notes and warrants were sold to two related party venture funds,
Weiss, Peck and Greer Venture Partners affiliated funds and JAFCO America
Ventures, Inc. affiliated funds, who qualified as accredited investors within
the meaning of Regulation D under the Securities Act.
(c) The notes were sold for a total aggregate consideration of $2.5 million.
(d) The notes were offered and sold in reliance upon an exemption from
registration under Section 4(2) of the Securities Act.
(e) Not applicable
(f) Not applicable
(iv) The May 1999 Refinancing
(a) In May 1999, AirGate PCS, Inc. consolidated the promissory notes issued
to the two related party venture funds in the 1998 financing and the March,
April and May 1999 financings totaling $7.325 million into promissory notes
that will be converted into shares of AirGate PCS, Inc.'s common stock
concurrently with the completion of the offering contemplated hereby at a price
48% less than the price of a share of common stock sold in the offering. The
warrants held by these funds
II-4
<PAGE>
were terminated. In addition, the Registrant issued warrants to Weiss, Peck and
Greer Venture Partners affiliated funds to purchase shares of common stock for
an aggregate price of up to $2.73 million at a price 25% less than the price of
a share of common stock sold in this offering.
(b) The promissory notes and the warrants were issued to two related party
venture funds, Weiss, Peck and Greer Venture Partners affiliated funds and
JAFCO America Ventures, Inc. affiliated funds, who qualified as accredited
investors within the meaning of Regulation D under the Securities Act.
(c) The aggregate consideration received in exchange for the promissory notes
and the warrant was the refinancing of $7.561 million of promissory notes and
the cancellation of warrants held by each venture fund.
(d) The notes and the warrant were offered and sold in reliance upon an
exemption from registration under Section 4(2) of the Securities Act.
(e) Not applicable
(f) Not applicable
Item 16. Exhibits
The exhibits and financial statement schedules filed as a part of the
Registration Statement are as follows:
(a) List of Exhibits
<TABLE>
<C> <S>
1.1* Form of Equity Underwriting Agreement
1.2 Form of Debt Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation of AirGate PCS, Inc.
3.2 Amended and Restated Bylaws of AirGate PCS, Inc.
4.1* Specimen of Common Stock Certificate of AirGate PCS, Inc.
4.2* Form of warrants
4.3** Form of Indenture for Senior Subordinated Discount Notes
5.1 Opinion of Patton Boggs LLP regarding legality of the common stock
being offered
5.2 Opinion of Patton Boggs LLP regarding legality of the Senior
Subordinated Discount Notes being offered
10.1*+ Sprint PCS Management Agreement between SprintCom, Inc. and AirGate
Wireless, L.L.C.
10.2* Sprint PCS Services Agreement between Sprint Spectrum L.P. and AirGate
Wireless, L.L.C.
10.3* Sprint Spectrum Trademark and Service Mark License Agreement
10.4* Sprint Trademark and Service Mark License Agreement
10.5*+ Master Site Agreement dated August 6, 1998 between AirGate and
BellSouth Carolinas PCS, L.P., BellSouth Personal Communications, Inc.
and BellSouth Mobility PCS.
10.6*+ Compass Telecom, L.L.C. Construction Management Agreement
10.7* Commercial Real Estate Lease dated August 7, 1998 between AirGate and
Perry Company of Columbia, Inc. to lease a warehouse facility.
10.8* Form of Indemnification Agreement
</TABLE>
II-5
<PAGE>
<TABLE>
<C> <S>
10.9* Employment Agreement dated April 9, 1999 between AirGate and Mr.
Thomas M. Dougherty
10.10* Form of Executive Employment Agreement
10.11* Form of 1999 Stock Option Plan
10.12** Form of Credit Agreement with Lucent (including the form of pledge
agreement and form of intercreditor agreement)
10.13** Form of Consent and Agreement
21.1* Subsidiaries of AirGate PCS, Inc.
23.1 Consent of KPMG LLP
23.2* Consent of Patton Boggs LLP (included in Exhibits 5.1 and 5.2)
24.1* Powers of Attorney
25.1** Statement of Eligibility and Qualification under the Trust Indenture
Act of 1939 of Trustee, on Form T-1, in connection with the Senior
Subordinated Discount Notes offering
27.1 Financial Data Schedule
</TABLE>
- ---------------------
* Previously filed
**To be filed by amendment
+Confidential treatment requested on portions of these documents
(b) Financial Statement Schedule
No financial statement schedules are filed because the required information
is not applicable or is included in the consolidated financial statements or
related notes.
Item 17. Undertakings
Each of the Registrants hereby undertakes:
(1) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of such Registrant pursuant to the foregoing
provisions, or otherwise, such Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by such Registrant of expenses incurred
or paid by a director, officer or controlling person of such Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, such Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(2) To provide to the underwriter at the closing specified in the
underwriting agreements certificates in such denominations and registered
in such names as required by the underwriter to permit prompt delivery to
each purchaser.
(3) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(4) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE>
Pursuant to the requirements of the Securities Act, AirGate PCS, Inc. has
duly caused this Amendment No. 3 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the County of
Fulton, State of Georgia, on August 2, 1999.
Airgate PCS, Inc.
/s/ Thomas M. Dougherty
By: _________________________________
Name: Thomas M. Dougherty
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Thomas M. Dougherty Chief Executive Officer August 2, 1999
______________________________________ and Director (Principal
Thomas M. Dougherty Executive Officer)
/s/ Alan B. Catherall* Chief Financial Officer August 2, 1999
______________________________________ (Principal Financial and
Alan B. Catherall Accounting Officer)
/s/ W. Chris Blane* Vice President and August 2, 1999
______________________________________ Director
W. Chris Blane
/s/ Thomas D. Body III* Vice President and August 2, 1999
______________________________________ Director
Thomas D. Body III
/s/ Barry Schiffman* Director August 2, 1999
______________________________________
Barry Schiffman
/s/ Gill Cogan* Director August 2, 1999
______________________________________
Gill Cogan
/s/ Thomas M. Dougherty August 2, 1999
*By: _________________________________
Thomas M. Dougherty
Attorney-in-Fact
</TABLE>
<PAGE>
Pursuant to the requirements of the Securities Act, AGW Leasing Company, Inc.
has duly caused this Amendment No. 3 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the County of
Fulton, State of Georgia, on August 2, 1999.
AGW Leasing Company, Inc.
/s/ Thomas M. Dougherty
By: _________________________________
Name: Thomas M. Dougherty
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Thomas M. Dougherty Chief Executive Officer August 2, 1999
______________________________________ and Director (Principal
Thomas M. Dougherty Executive Officer)
/s/ Alan B. Catherall* Chief Financial Officer August 2, 1999
______________________________________ (Principal Financial and
Alan B. Catherall Accounting Officer)
/s/ W. Chris Blane* Vice President and August 2, 1999
______________________________________ Director
W. Chris Blane
/s/ Thomas D. Body III* Vice President and August 2, 1999
______________________________________ Director
Thomas D. Body III
/s/ Barry Schiffman* Director August 2, 1999
______________________________________
Barry Schiffman
/s/ Gill Cogan* Director August 2, 1999
______________________________________
Gill Cogan
/s/ Thomas M. Dougherty August 2, 1999
*By: _________________________________
Thomas M. Dougherty
Attorney-in-Fact
</TABLE>
<PAGE>
EXHIBIT 1.2
$
AIRGATE PCS, INC.
___% Senior Subordinated Discount Notes Due 2009
Payment of Principal and Interest Unconditionally
Guaranteed by the Guarantors named herein
[FORM OF UNDERWRITING AGREEMENT]
------------------------------
____________, 1999
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
PARIBAS CORPORATION
As representatives of the several Underwriters
named in Schedule I hereto
c/o Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue
New York, New York 10172
Dear Sirs:
AirGate PCS, Inc., a Delaware corporation (the "Company"), proposes to
issue and sell $ principal amount of its ___% Senior
Subordinated Discount Notes due 2009 (the "Securities") to the several
underwriters named in Schedule I hereto (the "Underwriters"). The Securities
are to be issued pursuant to the provisions of an Indenture to be dated as of
__________ __, 1999 (the "Indenture") between the Company and ______________, as
Trustee (the "Trustee").
<PAGE>
The Securities are being issued and sold concurrently with an offering by
the Company of shares of its common stock, par value $.01 per
share (the "Common Stock"). In addition, the Company is entering into a Credit
Agreement with Lucent Technologies Inc. ("Lucent") or one of Lucent's affiliates
and is entering into certain other related agreements, including a 5-year
exclusive supply contract between the Company and Lucent (the "Supply Contract")
pursuant to which the Company shall purchase products and services from Lucent
(the Credit Agreement and such other related documents, including the Supply
Contract, being hereinafter referred to, collectively, as the "Vendor Financing
Documents" and the financing to be provided to the Company by Lucent or one of
Lucent's affiliates being hereinafter referred to as the "Vendor Financing").
Section 1. Registration Statement and Prospectus. The Company has
prepared and filed with the Securities and Exchange Commission (the
"Commission") in accordance with the provisions of the Securities Act of 1933,
as amended, and the rules and regulations of the Commission thereunder
(collectively, the "Act"), a registration statement on Form S-1, including a
prospectus, relating to the Securities. The registration statement, as amended
at the time it became effective, including the information (if any) deemed to be
part of the registration statement at the time of effectiveness pursuant to Rule
430A under the Act, is hereinafter referred to as the "Registration Statement";
and the prospectus in the form first used to confirm sales of Securities is
hereinafter referred to as the "Prospectus". If the Company has filed or is
required pursuant to the terms hereof to file a registration statement pursuant
to Rule 462(b) under the Act registering additional __% Senior Subordinated
Discount Notes due 2009 (a "Rule 462(b) Registration Statement"), then, unless
otherwise specified, any reference herein to the term "Registration Statement"
shall be deemed to include such Rule 462(b) Registration Statement.
Section 2. Agreements to Sell and Purchase. On the basis of the
representations and warranties contained in this Agreement, and subject to its
terms and conditions, the Company agrees to issue and sell, and each Underwriter
agrees, severally and not jointly, to purchase from the Company the principal
amount of Securities set forth opposite the name of such Underwriter in Schedule
I hereto at ____% of the principal amount thereof (the "Purchase Price").
Section 3. Terms of Public Offering. The Company is advised by you that
the Underwriters propose (i) to make a public offering of their respective
portions of the Securities as soon after the execution and delivery of this
Agreement as in your
2
<PAGE>
judgment is advisable and (ii) initially to offer the Securities upon the terms
set forth in the Prospectus.
Section 4. Delivery and Payment. The Securities shall be represented by
definitive certificates and shall be issued in such authorized denominations and
registered in such names as Donaldson, Lufkin & Jenrette Securities Corporation
shall request no later than two business days prior to the Closing Date (as
defined below). The Company shall deliver the Securities, with any transfer
taxes thereon duly paid by the Company, to Donaldson, Lufkin & Jenrette
Securities Corporation through the facilities of The Depository Trust Company
("DTC"), for the respective accounts of the several Underwriters, against
payment to the Company of the Purchase Price therefore by wire transfer of
Federal or other funds immediately available in New York City. The certificates
representing the Securities shall be made available for inspection not later
than 9:30 A.M., New York City time, on the business day prior to the Closing
Date (as defined below), at the office of DTC or its designated custodian (the
"Designated Office"). The time and date of delivery and payment for the
Securities shall be 9:00 A.M., New York City time, on ________, 1999 or such
other time on the same or such other date as Donaldson, Lufkin & Jenrette
Securities Corporation and the Company shall agree in writing. The time and
date of such delivery and payment are hereinafter referred to as the "Closing
Date".The documents to be delivered on the Closing Date on behalf of the parties
hereto pursuant to Section 8 of this Agreement shall be delivered at the offices
of Skadden, Arps, Slate, Meagher & Flom (Illinois), 333 West Wacker Drive,
Chicago, Illinois 60606, and the Securities shall be delivered at the Designated
Office, all on the Closing Date.
Section 5. Agreements of the Company. The Company agrees with you:
(a) To advise you promptly and, if requested by you, to confirm such
advice in writing, (i) of any request by the Commission for amendments to the
Registration Statement or amendments or supplements to the Prospectus or for
additional information, (ii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of the suspension
of qualification of the Securities for offering or sale in any jurisdiction, or
the initiation of any proceeding for such purposes, (iii) when any amendment to
the Registration Statement becomes effective, (iv) if the Company is required to
file a Rule 462(b) Registration Statement after the effectiveness of this
Agreement, when the Rule
3
<PAGE>
462(b) Registration Statement has become effective and (v) of the happening of
any event during the period referred to in Section 5(d) below which makes any
statement of a material fact made in the Registration Statement or the
Prospectus untrue or which requires any additions to or changes in the
Registration Statement or the Prospectus in order to make the statements therein
not misleading. If at any time the Commission shall issue any stop order
suspending the effectiveness of the Registration Statement, the Company will use
its best efforts to obtain the withdrawal or lifting of such order at the
earliest possible time.
(b) To furnish to you three (3) signed copies of the Registration
Statement as first filed with the Commission and of each amendment to it,
including all exhibits, and to furnish to you and each Underwriter designated by
you such number of conformed copies of the Registration Statement as so filed
and of each amendment to it, without exhibits, as you may reasonably request.
(c) To prepare the Prospectus, the form and substance of which shall be
satisfactory to you, and to file the Prospectus in such form with the Commission
within the applicable period specified in Rule 424(b) under the Act; during the
period specified in Section 5(d) below, not to file any further amendment to the
Registration Statement and not to make any amendment or supplement to the
Prospectus of which you shall not previously have been advised or to which you
shall reasonably object after being so advised; and, during such period, to
prepare and file with the Commission, promptly upon your reasonable request, any
amendment to the Registration Statement or amendment or supplement to the
Prospectus which may be necessary or advisable in connection with the
distribution of the Securities by you, and to use its best efforts to cause any
such amendment to the Registration Statement to become promptly effective.
(d) Prior to 10:00 A.M., New York City time, on the first business day
after the date of this Agreement and from time to time thereafter for such
period as in the opinion of counsel for the Underwriters a prospectus is
required by law to be delivered in connection with sales by an Underwriter or a
dealer, to furnish in New York City to each Underwriter and any dealer as many
copies of the Prospectus (and of any amendment or supplement to the Prospectus)
as such Underwriter or dealer may reasonably request.
(e) If during the period specified in Section 5(d), any event shall
occur or condition shall exist as a result of which, in the opinion of counsel
for the Underwriters, it becomes necessary to amend or supplement the Prospectus
in order to make the statements therein, in the light of the circumstances when
the Prospectus
4
<PAGE>
is delivered to a purchaser, not misleading, or if, in the opinion of counsel
for the Underwriters, it is necessary to amend or supplement the Prospectus to
comply with applicable law, forthwith to prepare and file with the Commission an
appropriate amendment or supplement to the Prospectus so that the statements in
the Prospectus, as so amended or supplemented, will not in the light of the
circumstances when it is so delivered, be misleading, or so that the Prospectus
will comply with applicable law, and to furnish to each Underwriter and to any
dealer as many copies thereof as such Underwriter or dealer may reasonably
request.
(f) Prior to any public offering of the Securities, to cooperate with
you and counsel for the Underwriters in connection with the registration or
qualification of the Securities for offer and sale by the several Underwriters
and by dealers under the state securities or Blue Sky laws of such jurisdictions
as you may request, to continue such registration or qualification in effect so
long as required for distribution of the Securities and to file such consents to
service of process or other documents as may be necessary in order to effect
such registration or qualification; provided, however, that the Company shall
not be required in connection therewith to qualify as a foreign corporation in
any jurisdiction in which it is not now so qualified or to take any action that
would subject it to general consent to service of process or taxation other than
as to matters and transactions relating to the Prospectus, the Registration
Statement, any preliminary prospectus or the offering or sale of the Securities,
in any jurisdiction in which it is not now so subject.
(g) To mail and make generally available to its security holders as
soon as practicable an earnings statement covering the twelve-month period
ending [September 30], 2000 that shall satisfy the provisions of Section 11(a)
of the Act, and to advise you in writing when such statement has been so made
available.
(h) So long as the Securities are outstanding, (i) to mail and make
generally available as soon as practicable after the end of each fiscal year to
the record holders of the Securities a financial report of the Company and its
subsidiaries on a consolidated basis (and a similar financial report of all
unconsolidated subsidiaries, if any), all such financial reports to include a
consolidated balance sheet, a consolidated statement of operations, a
consolidated statement of cash flows and a consolidated statement of
shareholders' equity as of the end of and for such fiscal year, together with
comparable information as of the end of and for the preceding year, certified by
independent public accountants and (ii) to mail and make generally available as
soon as practicable after the end of each quarterly period (except for the last
quarterly period of each fiscal year) to such holders, a
5
<PAGE>
consolidated balance sheet, a consolidated statement of operations and a
consolidated statement of cash flows (and similar financial reports of all
unconsolidated subsidiaries, if any) as of the end of and for such period, and
for the period from the beginning of such year to the close of such quarterly
period, together with comparable information for the corresponding periods of
the preceding year.
(i) So long as the Securities are outstanding, to furnish to you as
soon as available copies of all reports or other communications furnished to its
security holders or furnished to or filed with the Commission or any national
securities exchange on which any class of securities of the Company is listed
and such other publicly available information concerning the Company and its
subsidiaries as you may reasonably request.
(j) Whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, to pay or cause to be paid all
expenses incident to the performance of its obligations under this Agreement,
including: (i) the fees, disbursements and expenses of the Company's counsel and
the Company's accountants in connection with the registration and delivery of
the Securities under the Act and all other fees and expenses in connection with
the preparation, printing, filing and distribution of the Registration Statement
(including financial statements and exhibits), any preliminary prospectus, the
Prospectus and all amendments and supplements to any of the foregoing, including
the mailing and delivering of copies thereof to the Underwriters and dealers in
the quantities specified herein, (ii) all costs and expenses related to the
transfer and delivery of the Securities to the Underwriters, including any
transfer or other taxes payable thereon, (iii) all costs of printing or
producing this Agreement and any other agreements or documents in connection
with the offering, purchase, sale or delivery of the Securities, (iv) all
expenses in connection with the registration or qualification of the Securities
for offer and sale under the securities or Blue Sky laws of the several states
and all costs of printing or producing any Preliminary and Supplemental Blue Sky
Memoranda in connection therewith (including the filing fees and fees and
disbursements of counsel for the Underwriters in connection with such
registration or qualification and memoranda relating thereto), (v) the filing
fees and disbursements of counsel for the Underwriters in connection with the
review and clearance of the offering of the Securities by the National
Association of Securities Dealers, Inc., (vi) all fees and expenses in
connection with the preparation and filing of any registration statement on Form
8-A relating to the Securities and all costs and expenses incident to the
listing of the Securities on any national securities exchanges and foreign stock
exchanges, (vii) the cost of printing certificates representing the Securities,
(viii) the
6
<PAGE>
costs and charges of any transfer agent, registrar and/or depositary (including
the Depository Trust Company), (ix) any fees charged by rating agencies for the
rating of the Securities, (x) the fees and expenses of the Trustee and the
Trustee's counsel in connection with the Indenture and the Securities and (xi)
all other costs and expenses incident to the performance of the obligations of
the Company hereunder for which provision is not otherwise made in this Section.
(k) Upon receipt of a request from Donaldson, Lufkin & Jenrette
Securities Corporation that the Securities be listed for quotation on the Nasdaq
National Market or listed on the NYSE or AMEX, to use its best efforts (A) to
list for quotation the Securities on the Nasdaq National Market and to maintain
the listing of the Securities on the Nasdaq National Market or (B) to list,
subject to notice of issuance, the Securities on the NYSE or AMEX and to
maintain the listing of the Securities on the NYSE or AMEX, as the case may be,
for so long as the Securities are outstanding.
(l) During the period beginning on the date hereof and continuing to
and including the Closing Date, not to offer, sell, contract to sell or
otherwise transfer or dispose of any debt securities of the Company or any
warrants, rights or options to purchase or otherwise acquire debt securities of
the Company substantially similar to the Securities (other than (i) the
Securities and (ii) commercial paper issued in the ordinary course of business),
without the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation.
(m) Not to voluntarily claim, and to actively resist any attempts to
claim, the benefit of any usury laws against the holders of the Securities.
(n) To use its best efforts to do and perform all things required or
necessary to be done and performed under this Agreement by the Company prior to
the Closing Date and to satisfy all conditions precedent to the delivery of the
Securities.
(o) If the Registration Statement at the time of the effectiveness of
this Agreement does not cover all of the Securities, to file a Rule 462(b)
Registration Statement with the Commission registering the Securities not so
covered in compliance with Rule 462(b) by 10:00 P.M., New York City time, on the
date of this Agreement and to pay to the Commission the filing fee for such Rule
462(b) Registration Statement at the time of the filing thereof or to give
irrevocable instructions for the payment of such fee pursuant to Rule 111(b)
under the Act.
7
<PAGE>
Section 6. Representations and Warranties of the Company. The Company
represents and warrants to each Underwriter that:
(a) The Registration Statement has become effective (other than any
Rule 462(b) Registration Statement to be filed by the Company after the
effectiveness of this Agreement); any Rule 462(b) Registration Statement filed
after the effectiveness of this Agreement will become effective no later than
10:00 P.M., New York City time, on the date of this Agreement; and no stop order
suspending the effectiveness of the Registration Statement is in effect, and no
proceedings for such purpose are pending before or threatened by the Commission.
(b)(i) The Registration Statement (other than any Rule 462(b)
Registration Statement to be filed by the Company after the effectiveness of
this Agreement), when it became effective, did not contain and, as amended, if
applicable, will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) the Registration Statement (other than
any Rule 462(b) Registration Statement to be filed by the Company after the
effectiveness of this Agreement) and the Prospectus comply and, as amended or
supplemented, if applicable, will comply in all material respects with the Act,
(iii) if the Company is required to file a Rule 462(b) Registration Statement
after the effectiveness of this Agreement, such Rule 462(b) Registration
Statement and any amendments thereto, when they become effective (A) will not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading and (B) will comply in all material respects with the Act and (iv)
the Prospectus does not contain and, as amended or supplemented, if applicable,
will not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that the
representations and warranties set forth in this paragraph do not apply to
statements or omissions in the Registration Statement or the Prospectus based
upon information relating to any Underwriter furnished to the Company in writing
by such Underwriter through you expressly for use therein.
(c) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Act, complied when so filed in all material
respects with the Act, and did not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in the light
8
<PAGE>
of the circumstances under which they were made, not misleading, except that the
representations and warranties set forth in this paragraph do not apply to
statements or omissions in any preliminary prospectus based upon information
relating to any Underwriter furnished to the Company in writing by such
Underwriter through you expressly for use therein.
(d) No relationship, direct or indirect, exists between or among the
Company or any of its subsidiaries on the one hand, and the directors, officers,
stockholders, customers or suppliers of the Company or any of its subsidiaries
on the other hand, which is required by the Act to be described in the
Registration Statement or Prospectus which is not so described.
(e) Each of the Company and its subsidiaries has been duly
incorporated, is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation and has the corporate power and
authority to carry on its business as described in the Prospectus and to own,
lease and operate its properties, and each is duly qualified and is in good
standing as a foreign corporation authorized to do business in each jurisdiction
in which the nature of its business or its ownership or leasing of property
requires such qualification, except where the failure to be so qualified would
not have a material adverse effect on the business, prospects, financial
condition or results of operations of the Company and its subsidiaries, taken as
a whole.
(f) All the outstanding shares of capital stock of the Company have
been duly authorized and validly issued and are fully paid, non-assessable and
not subject to any preemptive or similar rights.
(g) All of the outstanding shares of capital stock of each of the
Company's subsidiaries have been duly authorized and validly issued and are
fully paid and non-assessable, and are owned by the Company, directly or
indirectly through one or more subsidiaries, free and clear of any security
interest, claim, lien, encumbrance or adverse interest of any nature (each, a
"Lien").
(h) The Indenture has been duly qualified under the Trust Indenture Act
of 1939, as amended (the "Trust Indenture Act"), and has been duly authorized,
executed and delivered by the Company and is a valid and binding agreement of
the Company, enforceable in accordance with its terms except as (A) the
enforceability thereof may be limited by bankruptcy, insolvency or similar laws
affecting creditors' rights generally and (B) rights of acceleration and the
availability of equitable remedies may be limited by equitable principles of
general applicability.
9
<PAGE>
(i) The Securities have been duly authorized and, on the Closing Date,
will have been validly executed and delivered by the Company. When the
Securities have been executed and authenticated in accordance with the
provisions of the Indenture and delivered to and paid for by the Underwriters in
accordance with the terms of this Agreement, the Securities will be entitled to
the benefits of the Indenture and will be valid and binding obligations of the
Company, enforceable in accordance with their terms except as (A) the
enforceability thereof may be limited by bankruptcy, insolvency or similar laws
affecting creditors' rights generally and (B) rights of acceleration and the
availability of equitable remedies may be limited by equitable principles of
general applicability.
(j) The Securities conform as to legal matters to the description
thereof contained in the Prospectus.
(k) Neither the Company nor any of its subsidiaries is in violation of
its respective certificate of incorporation or by-laws or in default in the
performance of any obligation, agreement, covenant or condition contained in any
indenture, loan agreement, mortgage, lease or other agreement or instrument that
is material to the Company and its subsidiaries, taken as a whole, to which the
Company or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries or their respective property is bound.
(l) The execution, delivery and performance of this Agreement, the
Indenture and the Securities by the Company, the compliance by the Company with
all the provisions hereof and thereof and the consummation of the transactions
contemplated hereby and thereby will not (i) require any consent, approval,
authorization or other order of, or qualification with, any court or
governmental body or agency (except such as may be required under the securities
or Blue Sky laws of the various states), (ii) conflict with or constitute a
breach of any of the terms or provisions of, or a default under, the certificate
of incorporation or by-laws of the Company or any of its subsidiaries or any
indenture, loan agreement, mortgage, lease or other agreement or instrument that
is material to the Company and its subsidiaries, taken as a whole, to which the
Company or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries or their respective property is bound, (iii) violate or
conflict with any applicable law or any rule, regulation, judgment, order or
decree of any court or any governmental body or agency having jurisdiction over
the Company, any of its subsidiaries or their respective property, (iv) result
in the imposition or creation of (or the obligation to create or impose) a Lien
under any agreement or instrument to which the Company or any of its
subsidiaries is a party or
10
<PAGE>
by which the Company or any of its subsidiaries or their respective property is
bound or (v) result in the suspension, termination or revocation of any
Authorization (as defined below) of the Company or any of its subsidiaries or
any other impairment of the rights of the holder of any such Authorization.
(m) There are no legal or governmental proceedings pending or
threatened to which the Company or any of its subsidiaries is or could be a
party or to which any of their respective property is or could be subject that
are required to be described in the Registration Statement or the Prospectus and
are not so described; nor are there any statutes, regulations, contracts or
other documents that are required to be described in the Registration Statement
or the Prospectus or to be filed as exhibits to the Registration Statement that
are not so described or filed as required.
(n) Neither the Company nor any of its subsidiaries has violated any
foreign, federal, state or local law or regulation relating to the protection of
human health and safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants ("Environmental Laws"), any provisions of the
Employee Retirement Income Security Act of 1974, as amended, or any provisions
of the Foreign Corrupt Practices Act or the rules and regulations promulgated
thereunder, except for such violations which, singly or in the aggregate, would
not have a material adverse effect on the business, prospects, financial
condition or results of operation of the Company and its subsidiaries, taken as
a whole.
(o) Each of the Company and its subsidiaries has such permits,
licenses, consents, exemptions, franchises, authorizations and other approvals
(each, an "Authorization") of, and has made all filings with and notices to, all
governmental or regulatory authorities and self-regulatory organizations and all
courts and other tribunals, including, without limitation, under any applicable
Environmental Laws, as are necessary to own, lease, license and operate its
respective properties and to conduct its business, except where the failure to
have any such Authorization or to make any such filing or notice would not,
singly or in the aggregate, have a material adverse effect on the business,
prospects, financial condition or results of operations of the Company and its
subsidiaries, taken as a whole. Each such Authorization is valid and in full
force and effect and each of the Company and its subsidiaries is in compliance
with all the terms and conditions thereof and with the rules and regulations of
the authorities and governing bodies having jurisdiction with respect thereto;
and no event has occurred (including, without limitation, the receipt of any
notice from any authority or governing body) which allows or, after notice or
lapse of time or both, would allow, revocation, suspension or termination of any
such
11
<PAGE>
Authorization or results or, after notice or lapse of time or both, would result
in any other impairment of the rights of the holder of any such Authorization;
and such Authorizations contain no restrictions that are burdensome to the
Company or any of its subsidiaries; except where such failure to be valid and in
full force and effect or to be in compliance, the occurrence of any such event
or the presence of any such restriction would not, singly or in the aggregate,
have a material adverse effect on the business, prospects, financial condition
or results of operations of the Company and its subsidiaries, taken as a whole.
(p) There are no costs or liabilities associated with Environmental
Laws (including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with Environmental
Laws or any Authorization, any related constraints on operating activities and
any potential liabilities to third parties) which would, singly or in the
aggregate, have a material adverse effect on the business, prospects, financial
condition or results of operations of the Company and its subsidiaries, taken as
a whole.
(q) This Agreement has been duly authorized, executed and delivered by
the Company.
(r) KPMG LLP are independent public accountants with respect to the
Company and its subsidiaries as required by the Act.
(s) The consolidated financial statements included in the Registration
Statement and the Prospectus (and any amendment or supplement thereto), together
with related schedules and notes, present fairly the consolidated financial
position, results of operations and changes in financial position of the Company
and its subsidiaries on the basis stated therein at the respective dates or for
the respective periods to which they apply; such statements and related
schedules and notes have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved,
except as disclosed therein; the supporting schedules, if any, included in the
Registration Statement present fairly in accordance with generally accepted
accounting principles the information required to be stated therein; and the
other financial and statistical information and data set forth in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto) are, in all material respects, accurately presented and prepared on a
basis consistent with such financial statements and the books and records of the
Company.
(t) The Company is not and, after giving effect to the offering and
sale of the Securities and the application of the proceeds thereof as described
in the
12
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Prospectus, will not be, an "investment company" as such term is defined in the
Investment Company Act of 1940, as amended.
(u) Except as disclosed in the Registration Statement there are no
contracts, agreements or understandings between the Company and any person
granting such person the right to require the Company to file a registration
statement under the Act with respect to any securities of the Company or to
require the Company to include such securities with the Securities registered
pursuant to the Registration Statement.
(v) No "nationally recognized statistical rating organization" as such
term is defined for purposes of Rule 436(g)(2) under the Act has indicated to
the Company that it is considering (i) the downgrading, suspension or withdrawal
of, or any review for a possible change that does not indicate the direction of
the possible change in, any rating assigned to the Company or any securities of
the Company or (ii) any change in the outlook for any rating of the Company or
any securities of the Company.
(w) Since the respective dates as of which information is given in the
Prospectus other than as set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this Agreement), (i)
there has not occurred any material adverse change or any development involving
a prospective material adverse change in the condition, financial or otherwise,
or the earnings, business, management or operations of the Company and its
subsidiaries, taken as a whole, (ii) there has not been any material adverse
change or any development involving a prospective material adverse change in the
capital stock or in the long-term debt of the Company or any of its subsidiaries
and (iii) neither the Company nor any of its subsidiaries has incurred any
material liability or obligation, direct or contingent.
(x) The indebtedness represented by the Securities is being incurred
for proper purposes and in good faith, and, on the Closing Date (after giving
effect to the application of the proceeds from the issuance of the Securities),
the Company will be solvent, will have sufficient capital for carrying on its
business and will be able to pay its debts as they mature.
(y) The Company has provided the Underwriters and counsel for the
Underwriters a true and correct copy of the Consent and Agreement between Sprint
Spectrum L.P., SprintCom, Inc., Sprint Communications Company, L.P., the Trustee
(for the benefit of the holders of the Senior Subordinated Discount Notes) under
the
13
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indenture governing the Senior Subordinated Discount Notes and the Company,
including any amendments thereto and restatements thereof, as in effect on the
date hereof (the "Noteholder Consent and Agreement"); all documents and
correspondence relating to such Noteholder Consent and Agreement; and such other
documents as may be necessary to interpret such Noteholder Consent and
Agreement, documents and correspondence and to assess the impact thereof on the
business and financial condition of the Company.
(z) The Company has provided the Underwriters and counsel for the
Underwriters true and correct copies of each and every agreement (or, if an
agreement has not been reduced to writing, a written enumeration of the terms of
such agreement) between and among the Company and any Related Party (as such
term is defined below), on the one hand, and Sprint PCS and any Related Party on
the other, including in each case any amendments and addenda thereto and
restatements thereof, as in effect on the date hereof (collectively, including
the Noteholder Consent and Agreement, the "Sprint Agreements"); all documents
and correspondence relating to such agreements; and such other documents as may
be necessary to interpret such agreements, documents and correspondence and to
assess the impact thereof on the business and financial condition of the
Company. For purposes of this subparagraph and the immediately following
subparagraph, "Related Party" shall have the meaning given to such term in the
Schedule of Definitions incorporated by reference in that certain Sprint PCS
Management Agreement executed by the Company and Sprint PCS as of July 22, 1998
(the "Sprint PCS Management Agreement").
(aa) Each of the Sprint Agreements (A) has been duly authorized,
executed and delivered by, (B) constitutes the valid and binding obligation of
and (C) is enforceable in accordance with its terms against, the Company and any
Related Party, to the extent each is a party thereto.
(bb) The Company has provided the Underwriters and counsel for the
Underwriters a true and correct copy of the Consent and Agreement between Sprint
Spectrum L.P., SprintCom, Inc., Sprint Communications Company, L.P., the
Administrative Agent for the benefit of the lenders under the Vendor Financing
Documents and the Company, including any amendments thereto and restatements
thereof, as in effect on the date hereof (the "Lucent Consent and Agreement");
all documents and correspondence relating to such Lucent Consent and Agreement;
and such other documents as may be necessary to interpret such Lucent Consent
and
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Agreement, documents and correspondence and to assess the impact thereof on the
business and financial condition of the Company.
(cc) The Company has provided the Underwriters and counsel for the
Underwriters true and correct copies of each and every Vendor Financing Document
that is or may be required pursuant to the borrowing by the Company under the
Vendor Financing (or, if an agreement relating to the Vendor Financing has not
been reduced to writing, a written enumeration of the terms of such agreement),
including in each case any amendments thereto and restatements thereof, as in
effect on the date hereof (collectively, including the Lucent Consent and
Agreement, the "Vendor Financing Agreements"); all documents and correspondence
relating to such agreements; and such other documents as may be necessary to
interpret such agreements, documents and correspondence and to assess the impact
thereof on the business and financial condition of the Company.
(dd) Each of the Vendor Financing Agreements (A) has been duly
authorized, executed and delivered by, (B) constitutes the valid and binding
obligation of and (C) is enforceable in accordance with its terms against, the
Company and its affiliates, to the extent each is a party thereto.
(ee) The Company has heretofore received $[10] million under the Vendor
Financing Documents. The Vendor Financing Agreements constitute all of the
documentation and agreements necessary for the Company to receive further
disbursements under the Vendor Financing in accordance with the terms of the
Vendor Financing Agreements.
(ff) The execution, delivery and performance of the Sprint Agreements
and the Vendor Financing Agreements by the Company and any of its affiliates
that are a party thereto, the compliance by the Company and such affiliates with
all the provisions thereof and the consummation of the transactions contemplated
thereby do not (A) require any consent, approval, authorization or other order
of, or qualification with, any court or governmental body or agency (except such
as have already been obtained), (B) conflict with or constitute a breach of any
of the terms or provisions of, or a default under (or an event which with notice
or lapse of time, or both, would constitute a breach of or a default under), the
certificate of incorporation or by-laws of the Company or any of its
subsidiaries or any indenture, loan agreement, mortgage, lease or other
agreement or instrument that is material to the Company and its subsidiaries,
taken as a whole, to which the Company or any of its subsidiaries is a party or
by which the Company or any of its subsidiaries or their respective property is
bound, (C) violate or conflict with any applicable law or any
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rule, regulation, judgment, order or decree of any court or any governmental
body or agency having jurisdiction over the Company, any of its subsidiaries or
their respective property or (D) result in the suspension, termination or
revocation of any Authorization of the Company or any of its subsidiaries or any
other impairment of the rights of the holder of any such Authorization.
(gg) Each of the Sprint Agreements (including, without limitation, the
Sprint PCS Management Agreement) and each of the Vendor Financing Agreements
(collectively, the "PCS Agreements"), is, and the PCS Agreements viewed as a
whole are, consistent with the terms and conditions of the License (as such term
is defined in the Sprint PCS Management Agreement) as the Federal Communications
Commission (the "FCC") has construed the terms of such license, or similar
licenses, to date and, to the best of the Company's knowledge, is not otherwise
contrary to FCC policies, rules and regulations or other applicable law, rules
or regulations.
(hh) The Plan of Reorganization relating to AirGate PCS, Inc. and
AirGate Wireless, Inc., pursuant to which AirGate PCS, Inc. was to have been
merged with and into AirGate Wireless, Inc., and the surviving corporation was
to have been renamed AirGate PCS, Inc., has been duly authorized, executed and
delivered by the parties thereto and constitutes the legal, valid and binding
obligations of such parties, and the transactions contemplated by such Plan of
Reorganization have been consummated in all respects in accordance with the
terms of such Plan of Reorganization.
(ii) Each certificate signed by any officer of the Company and
delivered to the Underwriters or counsel for the Underwriters shall be deemed to
be a representation and warranty by the Company to the Underwriters as to the
matters covered thereby.
Section 7. Indemnification. (a) The Company agrees to indemnify and hold
harmless each Underwriter, its directors, its officers and each person, if any,
who controls any Underwriter within the meaning of Section 15 of the Act or
Section 20 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), from and against any and all losses, claims, damages, liabilities and
judgments (including, without limitation, any legal or other expenses reasonably
incurred in connection with investigating or defending any matter, including any
action, that could give rise to any such losses, claims, damages, liabilities or
judgments) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement (or any amendment
thereto), the Prospectus (or any amendment or supplement thereto) or any
preliminary prospectus, or caused by any omission or
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alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
such losses, claims, damages, liabilities or judgments are caused by any such
untrue statement or omission or alleged untrue statement or omission based upon
information relating to any Underwriter furnished in writing to the Company by
such Underwriter through you expressly for use therein; provided, however, that
the foregoing indemnity agreement with respect to any preliminary prospectus
shall not inure to the benefit of any Underwriter who failed to deliver a
Prospectus, as then amended or supplemented, (so long as the Prospectus and any
amendment or supplemented thereto was provided by the Company to the several
Underwriters in the requisite quantity and on a timely basis to permit proper
delivery on or prior to the Closing Date) to the person asserting any losses,
claims, damages, liabilities or judgements caused by any untrue statement or
alleged untrue statement of a material fact contained in the preliminary
prospectus, or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, if such material misstatement or omission or alleged
material misstatement or omission was cured in the Prospectus, as so amended or
supplemented, and such Prospectus was required by law to be delivered at or
prior to the written confirmation of sale to such person.
(b) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, its directors, its officers who sign the
Registration Statement and each person, if any, who controls the Company within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act, to the
same extent as the foregoing indemnity from the Company to such Underwriter but
only with reference to information relating to such Underwriter furnished in
writing to the Company by such Underwriter through you expressly for use in the
Registration Statement (or any amendment thereto), the Prospectus (or any
amendment or supplement thereto) or any preliminary prospectus.
(c) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 7(a) or 7(b) (the
"indemnified party"), the indemnified party shall promptly notify the person
against whom such indemnity may be sought (the "indemnifying party") in writing
and the indemnifying party shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all reasonably-incurred fees and expenses of such counsel, as
incurred (except that in the case of any action in respect of which indemnity
may be sought pursuant to both Sections 7(a) and 7(b), the Underwriter shall not
be required to
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assume the defense of such action pursuant to this Section 7(c), but may employ
separate counsel and participate in the defense thereof, but the fees and
expenses of such counsel, except as provided below, shall be at the expense of
such Underwriter). Any indemnified party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of the indemnified party
unless (i) the employment of such counsel shall have been specifically
authorized in writing by the indemnifying party, (ii) the indemnifying party
shall have failed to assume the defense of such action or employ counsel
reasonably satisfactory to the indemnified party or (iii) the named parties to
any such action (including any impleaded parties) include both the indemnified
party and the indemnifying party, and the indemnified party shall have been
advised by such counsel that there may be one or more legal defenses available
to it which are different from or additional to those available to the
indemnifying party (in which case the indemnifying party shall not have the
right to assume the defense of such action on behalf of the indemnified party).
In any such case, the indemnifying party shall not, in connection with any one
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) for all indemnified parties and all such
reasonably-incurred fees and expenses shall be reimbursed as they are incurred.
Such firm shall be designated in writing by Donaldson, Lufkin & Jenrette
Securities Corporation, in the case of parties indemnified pursuant to Section
7(a), and by the Company, in the case of parties indemnified pursuant to Section
7(b). The indemnifying party shall indemnify and hold harmless the indemnified
party from and against any and all losses, claims, damages, liabilities and
judgments by reason of any settlement of any action (i) effected with its
written consent or (ii) effected without its written consent if the settlement
is entered into more than twenty business days after the indemnifying party
shall have received a request from the indemnified party for reimbursement for
the fees and expenses of counsel (in any case where such fees and expenses are
at the expense of the indemnifying party) and, prior to the date of such
settlement, the indemnifying party shall have failed to comply with such
reimbursement request. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement or compromise of, or
consent to the entry of judgment with respect to, any pending or threatened
action in respect of which the indemnified party is or could have been a party
and indemnity or contribution may be or could have been sought hereunder by the
indemnified party, unless such settlement, compromise or judgment (i) includes
an unconditional release of the indemnified party from all liability on claims
that are or could have been the subject matter of such action and (ii) does not
include a
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statement as to or an admission of fault, culpability or a failure to act, by or
on behalf of the indemnified party.
(d) To the extent the indemnification provided for in this Section 7 is
unavailable to an indemnified party or insufficient in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriters on the other hand from the offering
of the Securities or (ii) if the allocation provided by clause 7(d)(i) above is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause 7(d)(i) above but also the
relative fault of the Company on the one hand and the Underwriters on the other
hand in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriters on the other hand shall be deemed to be in the
same proportion as the total net proceeds from the offering (after deducting
underwriting discounts and commissions but before deducting expenses) received
by the Company, and the total underwriting discounts and commissions received by
the Underwriters, bear to the total price to the public of the Securities, in
each case as set forth in the table on the cover page of the Prospectus. The
relative fault of the Company on the one hand and the Underwriters on the other
hand shall be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or the Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7(d) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with
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investigating or defending any matter, including any action, that could have
given rise to such losses, claims, damages, liabilities or judgments.
Notwithstanding the provisions of this Section 7, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 7(d) are several in proportion to the respective
principal amount of Securities purchased by each of the Underwriters hereunder
and not joint.
(e) The remedies provided for in this Section 7 are not exclusive and
shall not limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
Section 8. Conditions of Underwriters' Obligationsi. The several
obligations of the Underwriters to purchase the Securities under this Agreement
are subject to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company contained in
this Agreement shall be true and correct on the Closing Date with the same force
and effect as if made on and as of the Closing Date.
(b) If the Company is required to file a Rule 462(b) Registration
Statement after the effectiveness of this Agreement, such Rule 462(b)
Registration Statement shall have become effective by 10:00 P.M., New York City
time, on the date of this Agreement; and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been commenced or shall be pending
before or contemplated by the Commission.
(c) [On or after the date hereof, (i) there shall not have occurred any
downgrading, suspension or withdrawal of, nor shall any notice have been given
of any potential or intended downgrading, suspension or withdrawal of, or of any
review (or of any potential or intended review) for a possible change that does
not indicate the direction of the possible change in, any rating of the Company
or any securities of the Company (including, without limitation, the placing of
any of the foregoing ratings on credit watch with negative or developing
implications or under
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review with an uncertain direction) by any "nationally recognized statistical
rating organization" as such term is defined for purposes of Rule 436(g)(2)
under the Act, (ii) there shall not have occurred any change, nor shall any
notice have been given of any potential or intended change, in the outlook for
any rating of the Company or any securities of the Company by any such rating
organization and (iii) no such rating organization shall have given notice that
it has assigned (or is considering assigning) a lower rating to the Securities
than that on which the Securities were marketed.]
(d) You shall have received on the Closing Date a certificate dated the
Closing Date, signed by Thomas M. Dougherty in his capacity as President and
Chief Executive Officer of the Company and by Alan B. Catherall in his capacity
as Chief Financial Officer of the Company, confirming the matters set forth in
Sections 6(v), 8(a), 8(b) and 8(c) and that the Company has complied with all of
the agreements and satisfied all of the conditions herein contained and required
to be complied with or satisfied by the Company on or prior to the Closing Date.
(e) Since the respective dates as of which information is given in the
Prospectus other than as set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this Agreement), (i)
there shall not have occurred any change or any development involving a
prospective change in the condition, financial or otherwise, or the earnings,
business, management or operations of the Company and its subsidiaries, taken as
a whole, (ii) there shall not have been any change or any development involving
a prospective change in the capital stock or in the long-term debt of the
Company or any of its subsidiaries and (iii) neither the Company nor any of its
subsidiaries shall have incurred any liability or obligation, direct or
contingent, the effect of which, in any such case described in clause 8(e)(i),
8(e)(ii) or 8(e)(iii), in your judgment, is material and adverse and, in your
judgment, makes it impracticable to market the Securities on the terms and in
the manner contemplated in the Prospectus.
(f) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Underwriters), dated the Closing Date,
of Patton Boggs LLP counsel for the Company, to the effect that:
(i) each of the Company and its subsidiaries has been duly
incorporated, is validly existing as a corporation in good standing under
the laws of its jurisdiction of incorporation and has the corporate power
and authority to carry on its business as described in the Prospectus and
to own, lease and operate its properties;
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(ii) each of the Company and its subsidiaries is duly qualified and
is in good standing as a foreign corporation authorized to do business in
each jurisdiction in which the nature of its business or its ownership or
leasing of property requires such qualification, except where the failure
to be so qualified would not have a material adverse effect on the
business, prospects, financial condition or results of operations of the
Company and its subsidiaries, taken as a whole;
(iii) all the outstanding shares of capital stock of the Company have
been duly authorized and validly issued and are fully paid, non-assessable
and not subject to any preemptive or similar rights;
(iv) all of the outstanding shares of capital stock of each of the
Company's subsidiaries have been duly authorized and validly issued and are
fully paid and non-assessable, and are owned by the Company, directly or
indirectly through one or more subsidiaries, free and clear of any Lien;
(v) the Securities have been duly authorized and, when executed and
authenticated in accordance with the provisions of the Indenture and
delivered to and paid for by the Underwriters in accordance with the terms
of this Agreement, will be entitled to the benefits of the Indenture and
will be valid and binding obligations of the Company, enforceable in
accordance with their terms except as (A) the enforceability thereof may
be limited by bankruptcy, insolvency or similar laws affecting creditors'
rights generally and (B) rights of acceleration and the availability of
equitable remedies may be limited by equitable principles of general
applicability;
(vi) the Indenture has been duly qualified under the Trust Indenture
Act and has been duly authorized, executed and delivered by the Company and
is a valid and binding agreement of the Company, enforceable in accordance
with its terms except as (A) the enforceability thereof may be limited by
bankruptcy, insolvency or similar laws affecting creditors' rights
generally and (B) rights of acceleration and the availability of equitable
remedies may be limited by equitable principles of general applicability;
(vii) this Agreement has been duly authorized, executed and delivered
by the Company;
(viii) the Registration Statement has become effective under the Act,
no stop order suspending its effectiveness has been issued and no
proceedings
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for that purpose are, to the best of such counsel's knowledge after due
inquiry, pending before or contemplated by the Commission;
(ix) the statements under the captions "The Sprint PCS Agreements",
"Description of Certain Indebtedness", "Principal Stockholders", "Certain
Transactions", "Description of Notes" and "Underwriting" in the Prospectus
and Items 14 and 15 of Part II of the Registration Statement, insofar as
such statements constitute a summary of the legal matters, documents or
proceedings referred to therein, fairly present the information called for
with respect to such legal matters, documents and proceedings;
(x) such counsel is of the opinion ascribed to it in the Prospectus
under the caption "Taxation";
(xi) neither the Company nor any of its subsidiaries is in violation
of its respective certificate of incorporation or by-laws and, to the best
of such counsel's knowledge after due inquiry, neither the Company nor any
of its subsidiaries is in default in the performance of any obligation,
agreement, covenant or condition contained in any indenture, loan
agreement, mortgage, lease or other agreement or instrument that is
material to the Company and its subsidiaries, taken as a whole, to which
the Company or any of its subsidiaries is a party or by which the Company
or any of its subsidiaries or their respective property is bound;
(xii) the execution, delivery and performance of this Agreement, the
Indenture and the Securities by the Company, the compliance by the Company
with all the provisions hereof and thereof and the consummation of the
transactions contemplated hereby and thereby will not (A) require any
consent, approval, authorization or other order of, or qualification with,
any court or governmental body or agency (except such as may be required
under the securities or Blue Sky laws of the various states), (B) conflict
with or constitute a breach of any of the terms or provisions of, or a
default under, the certificate of incorporation or by-laws of the Company
or any of its subsidiaries or any indenture, loan agreement, mortgage,
lease or other agreement or instrument that is material to the Company and
its subsidiaries, taken as a whole, to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries
or their respective property is bound, (C) violate or conflict with any
applicable law or any rule, regulation, judgment, order or decree of any
court or any governmental body
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or agency having jurisdiction over the Company, any of its subsidiaries or
their respective property, (D) result in the imposition or creation of (or
the obligation to create or impose) a Lien under any agreement or
instrument to which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries or their respective property
is bound or (E) result in the suspension, termination or revocation of any
Authorization of the Company or any of its subsidiaries or any other
impairment of the rights of the holder of any such Authorization;
(xiii) after due inquiry, such counsel does not know of any legal or
governmental proceedings pending or threatened to which the Company or any
of its subsidiaries is or could be a party or to which any of their
respective property is or could be subject that are required to be
described in the Registration Statement or the Prospectus and are not so
described, or of any statutes, regulations, contracts or other documents
that are required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement that
are not so described or filed as required;
(xiv) to the best of such counsel's knowledge, neither the Company nor
any of its subsidiaries has violated any Environmental Law, any provisions
of the Employee Retirement Income Security Act of 1974, as amended, or any
provisions of the Foreign Corrupt Practices Act or the rules and
regulations promulgated thereunder, except for such violations which,
singly or in the aggregate, would not have a material adverse effect on the
business, prospects, financial condition or results of operation of the
Company and its subsidiaries, taken as a whole;
(xv) to the best of such counsel's knowledge: (A) each of the Company
and its subsidiaries has such Authorizations of, and has made all filings
with and notices to, all governmental or regulatory authorities and self-
regulatory organizations and all courts and other tribunals, including,
without limitation, under any applicable Environmental Laws, as are
necessary to own, lease, license and operate its respective properties and
to conduct its business, except where the failure to have any such
Authorization or to make any such filing or notice would not, singly or in
the aggregate, have a material adverse effect on the business, prospects,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole; (B) each such Authorization is valid and
in full force and effect and each of
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the Company and its subsidiaries is in compliance with all the terms and
conditions thereof and with the rules and regulations of the authorities
and governing bodies having jurisdiction with respect thereto; (C) no event
has occurred (including, without limitation, the receipt of any notice from
any authority or governing body) which allows or, after notice or lapse of
time or both, would allow, revocation, suspension or termination of any
such Authorization or results or, after notice or lapse of time or both,
would result in any other impairment of the rights of the holder of any
such Authorization; and (D) such Authorizations contain no restrictions
that are burdensome to the Company or any of its subsidiaries; except where
such failure to be valid and in full force and effect or to be in
compliance, the occurrence of any such event or the presence of any such
restriction would not, singly or in the aggregate, have a material adverse
effect on the business, prospects, financial condition or results of
operations of the Company and its subsidiaries, taken as a whole;
(xvi) the Company is not and, after giving effect to the offering and
sale of the Securities and the application of the proceeds thereof as
described in the Prospectus, will not be, an "investment company" as such
term is defined in the Investment Company Act of 1940, as amended;
(xvii) to the best of such counsel's knowledge after due inquiry,
there are no contracts, agreements or understandings between the Company
and any person granting such person the right to require the Company to
file a registration statement under the Act with respect to any securities
of the Company or to require the Company to include such securities with
the Securities registered pursuant to the Registration Statement;
(xviii) the Registration Statement and the Prospectus and any
supplement or amendment thereto (except for the financial statements and
other financial data included therein as to which no opinion need be
expressed) comply as to form with the Act;
(xix) each of the Sprint Agreements (A) has been duly authorized,
executed and delivered by, (B) constitutes the valid and binding obligation
of and (C) is enforceable in accordance with its terms against, the Company
and any Related Party, to the extent each is a party thereto;
(xx) each of the Vendor Financing Agreements (A) has been duly
authorized, executed and delivered by, (B) constitutes the valid and
binding
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obligation of and (C) is enforceable in accordance with its terms against,
the Company and its affiliates, to the extent each is a party thereto;
(xxi) the Vendor Financing Agreements constitute all of the
documentation and agreements necessary for the Company to receive further
disbursements under the Vendor Financing Documents in accordance with the
terms of the Vendor Financing Agreements; and
(xxii) the execution, delivery and performance of the Sprint
Agreements and the Vendor Financing Agreements by the Company and any of
its affiliates that are a party thereto, the compliance by the Company and
such affiliates with all the provisions thereof and the consummation of the
transactions contemplated thereby do not (A) require any consent, approval,
authorization or other order of, or qualification with, any court or
governmental body or agency (except such as have already been obtained),
(B) conflict with or constitute a breach of any of the terms or provisions
of, or a default under (or an event which with notice or lapse of time, or
both, would constitute a breach of or a default under), the certificate of
incorporation or by-laws of the Company or any of its subsidiaries or any
indenture, loan agreement, mortgage, lease or other agreement or instrument
that is material to the Company and its subsidiaries, taken as a whole, to
which the Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries or their respective property is bound,
(C) violate or conflict with any applicable law or any rule, regulation,
judgment, order or decree of any court or any governmental body or agency
having jurisdiction over the Company, any of its subsidiaries or their
respective property or (D) result in the suspension, termination or
revocation of any Authorization of the Company or any of its subsidiaries
or any other impairment of the rights of the holder of any such
Authorization.
In rendering such opinions, such counsel may rely on (A) as to matters
involving the application of laws other than the laws of the United States and
the State of New York and the General Corporation Law of the State of Delaware,
to the extent such counsel deems proper and to the extent specified in such
opinion, if at all, upon an opinion or opinions (in form and substance
reasonably satisfactory to Underwriters' counsel) of other counsel reasonably
acceptable to the Underwriters' counsel, familiar with the applicable laws; (B)
as to matters of fact, to the extent such counsel deems proper, on certificates
of responsible officers of the Company and certificates or other written
statements of officials of jurisdictions having custody of
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documents respecting the corporate existence or good standing of the Company.
The opinion of such counsel for the Company shall state that the opinion of any
such other counsel upon which they relied is in form satisfactory to such
counsel and, in such counsel's opinion, the Underwriters and they are justified
in relying thereon. With respect to the matters to be covered in subparagraph [
] and [ ] above counsel may state their opinion and belief is based upon their
participation in the preparation of the Registration Statement and the
Prospectus and any amendment or supplement thereto and review and discussion of
the contents thereof but is without independent check or verification except as
specified.
The opinion of Patton Boggs LLP described in Section 8(f) above shall be
rendered to you at the request of the Company and shall so state therein.
(g) You shall have received on the Closing Date a letter (satisfactory
to you and counsel for the Underwriters) dated the Closing Date, of Patton Boggs
LLP, counsel for the Company, to the effect that they have participated in
conferences with directors, officers and other representatives of the Company,
representatives of the independent public accountants for the Company, the
Representatives and counsel for the Underwriters, at which conferences the
contents of the Registration Statement, the Prospectus and related matters were
discussed, and, although such counsel have not independently verified and are
not passing upon and assume no responsibility for the accuracy, completeness or
fairness of the statements contained in the Registration Statement or the
Prospectus, nothing has come to their attention that would lead them to believe
that the Registration Statement, or any amendment or supplement thereto (other
than the financial statements, the notes thereto, and other tabular, financial
and statistical appraisal data included therein or omitted therefrom as to which
no statement need be made), as of the date of its effectiveness, contained an
untrue statement of material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and the Prospectus, as of its date and as of the Closing Date, contained an
untrue statement of a material fact or omitted to state and material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
The letter of Patton Boggs LLP described in this Section 8(g) shall be
rendered to you at the request of the Company and shall so state therein.
(h) You shall have received on the Closing Date an opinion, dated the
Closing Date, of Skadden, Arps, Slate, Meagher & Flom (Illinois), counsel for
the Underwriters, as to the matters referred to in Sections 8(f)(v), 8(f)(vi),
8(f)(vii),
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8(f)(ix) (but only with respect to the statements under the caption "Description
of Notes" and "Underwriting"), 8(f)(xviii) and 8(g).
In giving such opinion with respect to the matters covered by Section
8(f)(xviii) and Section 8(g), counsel for the Underwriters may state that their
opinion and belief are based upon their participation in the preparation of the
Registration Statement and Prospectus and any amendments or supplements thereto
and review and discussion of the contents thereof, but are without independent
check or verification except as specified.
(i) You shall have received, on each of the date hereof and the Closing
Date, a letter dated the date hereof or the Closing Date, as the case may be, in
form and substance satisfactory to you, from KPMG LLP, independent public
accountants, containing the information and statements of the type ordinarily
included in accountants' "comfort letters" to Underwriters with respect to the
financial statements and certain financial information contained in the
Registration Statement and the Prospectus.
(j) The Securities shall have been rated " " by [Standard & Poor's
Corporation] and " " by [Moody's Investors Service, Inc.]
(k) The Underwriters shall have received a counterpart, conformed as
executed, of the Indenture which shall have been entered into by the Company and
the Trustee.
(l) The Company shall not have failed on or prior to the Closing Date
to perform or comply with any of the agreements herein contained and required to
be performed or complied with by the Company on or prior to the Closing Date.
(m) The Company's concurrent offering of shares of
Common Stock shall have been consummated simultaneously with the consummation of
the transactions contemplated by this Agreement.
(n) The Company shall have received $_____ under the Vendor Financing
Documents.
(o) The Company shall have delivered evidence reasonably satisfactory
to you and counsel for the Underwriters that the transactions contemplated by
the Plan of Reorganization have been consummated in all respects in accordance
with the terms of such Plan of Reorganization.
28
<PAGE>
Section 9. Effectiveness of Agreement and Termination. This Agreement
shall become effective upon the execution and delivery of this Agreement by the
parties hereto.
This Agreement may be terminated at any time on or prior to the Closing
Date by you by written notice to the Company if any of the following has
occurred: (i) any outbreak or escalation of hostilities or other national or
international calamity or crisis or change in economic conditions or in the
financial markets of the United States or elsewhere that, in your judgment, is
material and adverse and, in your judgment, makes it impracticable to market the
Securities on the terms and in the manner contemplated in the Prospectus, (ii)
the suspension or material limitation of trading in securities or other
instruments on the New York Stock Exchange, the American Stock Exchange, the
Chicago Board of Options Exchange, the Chicago Mercantile Exchange, the Chicago
Board of Trade or the Nasdaq National Market or limitation on prices for
securities or other instruments on any such exchange or the Nasdaq National
Market, (iii) the suspension of trading of any securities of the Company on any
exchange or in the over-the-counter market, (iv) the enactment, publication,
decree or other promulgation of any federal or state statute, regulation, rule
or order of any court or other governmental authority which in your opinion
materially and adversely affects, or will materially and adversely affect, the
business, prospects, financial condition or results of operations of the Company
and its subsidiaries, taken as a whole, (v) the declaration of a banking
moratorium by either federal or New York State authorities or (vi) the taking of
any action by any federal, state or local government or agency in respect of its
monetary or fiscal affairs which in your opinion has a material adverse effect
on the financial markets in the United States.
If on the Closing Date any one or more of the Underwriters shall fail or
refuse to purchase the Securities which it or they have agreed to purchase
hereunder on such date and the aggregate principal amount of Securities which
such defaulting Underwriter or Underwriters agreed but failed or refused to
purchase is not more than one-tenth of the aggregate principal amount of
Securities to be purchased on such date by all Underwriters, each non-defaulting
Underwriter shall be obligated severally, in the proportion which the principal
amount of Securities set forth opposite its name in Schedule I bears to the
aggregate principal amount of Securities which all the non-defaulting
Underwriters have agreed to purchase, or in such other proportion as you may
specify, to purchase the Securities which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date; provided
that in no event shall the aggregate principal amount of Securities which
29
<PAGE>
any Underwriter has agreed to purchase pursuant to Section 2 hereof be increased
pursuant to this Section 9 by an amount in excess of one-ninth of such principal
amount of Securities without the written consent of such Underwriter. If on the
Closing Date any Underwriter or Underwriters shall fail or refuse to purchase
Securities and the aggregate principal amount of Securities with respect to
which such default occurs is more than one-tenth of the aggregate principal
amount of Securities to be purchased by all Underwriters and arrangements
satisfactory to you and the Company for purchase of such Securities are not made
within 48 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter and the Company. In any
such case which does not result in termination of this Agreement, either you or
the Company shall have the right to postpone the Closing Date, but in no event
for longer than seven days, in order that the required changes, if any, in the
Registration Statement and the Prospectus or any other documents or arrangements
may be effected. Any action taken under this paragraph shall not relieve any
defaulting Underwriter from liability in respect of any default of any such
Underwriter under this Agreement.
Section 10. Miscellaneous. Notices given pursuant to any provision of
this Agreement shall be addressed as follows: (i) if to the Company, to AirGate
PCS, Inc., Harris Tower, Suite 1700, 233 Peachtree Street, N.W., Atlanta,
Georgia 30303, Attention: Thomas M. Dougherty and (ii) if to any Underwriter or
to you, to you c/o Donaldson, Lufkin & Jenrette Securities Corporation, 277 Park
Avenue, New York, New York 10172, Attention: Syndicate Department, or in any
case to such other address as the person to be notified may have requested in
writing.
The respective indemnities, contribution agreements, representations,
warranties and other statements of the Company and the several Underwriters set
forth in or made pursuant to this Agreement shall remain operative and in full
force and effect, and will survive delivery of and payment for the Securities,
regardless of (i) any investigation, or statement as to the results thereof,
made by or on behalf of any Underwriter, the officers or directors of any
Underwriter, any person controlling any Underwriter, the Company, the officers
or directors of the Company or any person controlling the Company, (ii)
acceptance of the Securities and payment for them hereunder and (iii)
termination of this Agreement.
If for any reason the Securities are not delivered by or on behalf of the
Company as provided herein (other than as a result of any termination of this
Agreement pursuant to Section 9), the Company agrees to reimburse the several
Underwriters for all reasonable out-of-pocket expenses (including the reasonable
fees
30
<PAGE>
and disbursements of counsel) incurred by them. Notwithstanding any termination
of this Agreement, the Company shall be liable for all expenses which it has
agreed to pay pursuant to Section 5(j) hereof. The Company also agrees to
reimburse the several Underwriters, their directors and officers and any persons
controlling any of the Underwriters for any and all reasonable fees and expenses
(including, without limitation, the fees disbursements of counsel) incurred by
them in connection with enforcing their rights hereunder (including, without
limitation, pursuant to Section 7 hereof).
Except as otherwise provided, this Agreement has been and is made solely
for the benefit of and shall be binding upon the Company, the Underwriters, the
Underwriters' directors and officers, any controlling persons referred to
herein, the Company's directors and the Company's officers who sign the
Registration Statement and their respective successors and assigns, all as and
to the extent provided in this Agreement, and no other person shall acquire or
have any right under or by virtue of this Agreement. The term "successors and
assigns" shall not include a purchaser of any of the Securities from any of the
several Underwriters merely because of such purchase.
This Agreement shall be governed and construed in accordance with the laws
of the State of New York.
This Agreement may be signed in various counterparts which together shall
constitute one and the same instrument.
31
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
between the Company and the several Underwriters.
Very truly yours,
AIRGATE PCS, INC.
By:
------------------------------
Title:
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
PARIBAS CORPORATION
Acting severally on behalf of
themselves and the several
Underwriters named in
Schedule I hereto
By DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By
------------------------------
32
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SCHEDULE I
----------
Number of Firm Shares
Underwriters to be Purchased
- ----------------------------------------- ---------------------
bonaldson, Lufkin & Jenrette Securities
Corporation
Paribas Corporation
---------------
Total
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
AIRGATE PCS, INC.
(ORIGINALLY INCORPORATED OCTOBER 14, 1998 UNDER THE NAME
AIRGATE WIRELESS, INC.)
FIRST: THE NAME OF THE CORPORATION IS AIRGATE PCS, INC. (HEREINAFTER
SOMETIMES REFERRED TO AS THE "CORPORATION").
SECOND: THE ADDRESS OF THE REGISTERED OFFICE OF THE CORPORATION IN THE
STATE OF DELAWARE IS CORPORATION TRUST CENTER, 1209 ORANGE STREET, IN THE CITY
OF WILMINGTON, COUNTY OF NEW CASTLE. THE NAME OF THE REGISTERED AGENT AT THAT
ADDRESS IS THE CORPORATION TRUST COMPANY.
THIRD: THE PURPOSE OF THE CORPORATION IS TO ENGAGE IN ANY LAWFUL ACT OR
ACTIVITY FOR WHICH A CORPORATION MAY BE ORGANIZED UNDER THE GENERAL CORPORATION
LAW OF THE STATE OF DELAWARE.
FOURTH:
A. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is thirty million (30,000,000) of
stock consisting of:
1. twenty-five million (25,000,000) shares of Common Stock, par value
one cent ($.01) per share.
2. five million (5,000,000) shares of Preferred Stock, par value one
cent ($.01) per share.
B. The Board of Directors is authorized, subject to any limitations
prescribed by law, to provide for the issuance of the shares of Preferred
Stock in series, and by filing a certificate pursuant to the applicable law
of the State of Delaware (such certificate being hereinafter referred to as
a "Preferred Stock Designation"), to establish from time to time the number
of shares to be included in each such series, and to fix the designation
powers, preferences, and rights of the shares of each such series and any
qualifications, limitations or restrictions thereof. The number of
authorized shares of Preferred Stock may be increased or decreased (but not
below the number of shares thereof then outstanding) by the affirmative
vote of the holders of a majority of the Common Stock, without a vote of
the holders of the Preferred Stock, or of any series thereof, unless a vote
of any such holders is required pursuant to the terms of any Preferred
Stock Designation.
<PAGE>
FIFTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its Directors and stockholders:
A. The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. In addition to the powers
and authority expressly conferred upon them by statute or by this Amended
and Restated Certificate of Incorporation or the Bylaws of the Corporation,
the Directors are hereby empowered to exercise all such powers and do all
such acts and things as may be exercised or done by the Corporation.
B. The Directors of the Corporation need not be elected by written
ballot unless the Bylaws so provide.
C. So long as there is more than one shareholder of the Corporation,
no action required to be taken or which may be taken at any annual or
special meeting of stockholders of the Corporation may be taken without a
meeting, and the power of stockholders to consent in writing, without a
meeting, to the taking of any action is specifically denied.
D. Special meetings of stockholders of the Corporation may be called
only by the Board of Directors pursuant to a resolution adopted by a
majority of the Whole Board or as otherwise provided in the Bylaws. The
term "Whole Board" shall mean the total number of authorized directorships
(whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board for
adoption).
E. The holders of the Common Stock shall have no preemptive rights to
subscribe for any shares of any class of stock of the Corporation whether
now or hereafter authorized.
SIXTH:
A. The number of Directors shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by a
majority of the Whole Board. The Directors shall be divided into three
classes, as nearly equal in numbers as the then total number of directors
constituting the entire Board permits with the term of office of one class
expiring each year. At the annual meeting of stockholders in 1999
directors of the first class shall be elected to hold office for a term
expiring at the next succeeding annual meeting, directors of the second
class shall be elected to hold office for a term expiring at the second
succeeding annual meeting, and directors of the third class shall be
elected to hold office for a term expiring at the third succeeding annual
meeting. Notwithstanding the foregoing, and except as otherwise required
by law, whenever the holders of any one or more series of Preferred Stock
shall have the right, voting separately as a class, to elect one or more
directors of the
2
<PAGE>
Corporation, the terms of the director or directors elected by such holders
shall expire at the next succeeding annual meeting of stockholders. At each
annual meeting of stockholders following such initial classification and
election, Directors elected to succeed those Directors whose terms expire
shall be elected for a term of office to expire at the third succeeding
annual meeting of stockholders after their election with each Director to
hold office until his or her successor shall have been duly elected and
qualified.
B. Subject to the rights of holders of any series of Preferred Stock
outstanding, the newly created directorships resulting from any increase in
the authorized number of Directors or any vacancies in the Board of
Directors resulting from death, resignation, retirement, disqualification,
removal from office or other cause may be filled only by a majority vote of
the Directors then in office, though less than a quorum, and Directors so
chosen shall hold office for a term expiring at the annual meeting of
stockholders at which the term of office of the class to which they have
been chosen expires. No decrease in the number of Directors constituting
the Board of Directors shall shorten the term of any incumbent Director.
C. Advance notice of stockholder nominations for the election of
Directors and of business to be brought by stockholders before any meeting
of the stockholders of the Corporation shall be given in the manner
provided in the Bylaws of the Corporation.
D. Notwithstanding any other provisions of this Amended and Restated
Certificate of Incorporation or the Bylaws of the Corporation, any
Director, or the entire Board of Directors, may be removed from office at
any time, but only for cause and only by the affirmative vote of the
holders of at least 80 percent of the voting power of all of the then-
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of Directors, voting together as a single class.
Notwithstanding the foregoing, and except as otherwise required by law,
whenever the holders of any one or more series of Preferred Stock shall
have the right, voting separately as a class, to elect one or more
directors of the Corporation, the provisions of section D of this Article
shall not apply with respect to the Director or Directors elected by such
holders of Preferred Stock.
SEVENTH: The Board of Directors is expressly empowered to adopt,
amend or repeal Bylaws of the Corporation. Any adoption, amendment or repeal of
the Bylaws of the Corporation by the Board of Directors shall require the
approval of a majority of the Whole Board. The term "Whole Board" shall mean
the total number of authorized directorships (whether or not there exist any
vacancies in previously authorized directorships at the time such resolution is
presented to the Board of Directors for adoption). The stockholders shall also
have power to adopt, amend or repeal the Bylaws of the Corporation provided,
however, that, in addition to any vote of the holders of any class or series of
stock of this Corporation required by law or by this Certificate of
3
<PAGE>
Incorporation, the affirmative vote of the holders of at least 80 percent of the
voting power of all of the then-outstanding shares of the capital stock of the
Corporation entitled to vote generally in the election of Directors, voting
together as a single class, shall be required to adopt, amend or repeal any
provisions of the Bylaws of the Corporation.
EIGHTH:
A. In addition to any affirmative vote required by law or this
Certificate of Incorporation, and except as otherwise expressly provided in
this Article EIGHTH:
1. any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with: (i) any
Interested Stockholder (as hereinafter defined); or (ii) any
other corporation (whether or not itself an Interested
Stockholder) which is, or after such merger or consolidation
would be, an Affiliate (as hereinafter defined) of an
Interested Stockholder; or
2. any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of
transactions) to or with any Interested Stockholder, or any
Affiliate of any Interested Stockholder, of any assets of
the Corporation or any Subsidiary having an aggregate Fair
Market Value (as hereinafter defined) equaling or exceeding
25% or more of the combined assets of the Corporation and
its Subsidiaries; or
3. the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of transactions)
of any securities of the Corporation or any Subsidiary to
any Interested Stockholder or any Affiliate of any
Interested Stockholder in exchange for cash, securities or
other property (or a combination thereof) having an
aggregate Fair Market Value (as hereinafter defined)
equaling or exceeding 25% of the combined Fair Market Value
of the outstanding common stock of the Corporation and its
Subsidiaries, except for any issuance or transfer pursuant
to an employee benefit plan of the Corporation or any
Subsidiary thereof; or
4. the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of
an Interested Stockholder or any Affiliate of any Interested
Stockholder; or
4
<PAGE>
5. any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any
merger or consolidation of the Corporation with any of its
Subsidiaries or any other transaction (whether or not with
or into or otherwise involving an Interested Stockholder)
which has the effect, directly or indirectly, of increasing
the proportionate share of the outstanding shares of any
class of equity or convertible securities of the Corporation
or any Subsidiary which is directly or indirectly owned by
any Interested Stockholder or any Affiliate of any
Interested Stockholder;
shall require the affirmative vote of the holders of at least 80% of the
voting power of the then-outstanding shares of stock of the Corporation
entitled to vote in the election of Directors (the "Voting Stock") (after
giving effect to the provisions of Article FOURTH), voting together as a
single class. Such affirmative vote shall be required notwithstanding the
fact that no vote may be required, or that a lesser percentage may be
specified, by law or by any other provisions of this Certificate of
Incorporation or any Preferred Stock Designation or in any agreement with
any national securities exchange or otherwise.
The term "Business Combination" as used in this Article EIGHTH shall
mean any transaction which is referred to in any one or more of paragraphs
1 through 5 of Section A of this Article EIGHTH.
B. The provisions of Section A of this Article EIGHTH shall not be
applicable to any particular Business Combination, and such Business
Combination shall require only the affirmative vote of the majority of the
outstanding shares of capital stock entitled to vote after giving effect to
the provisions of Article FOURTH, or such vote (if any), as is required by
law or by this Certificate of Incorporation, if, in the case of any
Business Combination that does not involve any cash or other consideration
being received by the stockholders of the Corporation solely in their
capacity as stockholders of the Corporation, the condition specified in the
following paragraph 1 is met or, in the case of any other Business
Combination, all of the conditions specified in either of the following
paragraphs 1 or 2 are met:
1. The Business Combination shall have been approved by a majority
of the Disinterested Directors (as hereinafter defined).
2. All of the following conditions shall have been met:
a. The aggregate amount of the cash and the Fair Market Value
as of the date of the consummation of the Business
Combination of consideration other than cash to be received
per share by the holders of Common Stock in such
5
<PAGE>
Business Combination shall at least be equal to the higher
of the following:
(1) (if applicable) the Highest Per Share Price (as
hereinafter defined), including any brokerage
commissions, transfer taxes and soliciting dealers'
fees, paid by the Interested Stockholder or any of its
Affiliates for any shares of Common Stock acquired by
it: (i) within the two-year period immediately prior
to the first public announcement of the proposal of the
Business Combination (the "Announcement Date"); or (ii)
in the transaction in which it became an Interested
Stockholder, whichever is higher; or
(2) the Fair Market Value per share of Common Stock on the
Announcement Date or on the date on which the
Interested Stockholder became an Interested Stockholder
(such latter date is referred to in this Article EIGHTH
as the "Determination Date"), whichever is higher.
b. The aggregate amount of the cash and the Fair Market Value
as of the date of the consummation of the Business
Combination of consideration other than cash to be received
per share by holders of shares of any class of outstanding
Voting Stock other than Common Stock shall be at least equal
to the highest of the following (it being intended that the
requirements of this subparagraph (b) shall be required to
be met with respect to every such class of outstanding
Voting Stock, whether or not the Interested Stockholder has
previously acquired any shares of a particular class of
Voting Stock):
(1) (if applicable) the Highest Per Share Price (as
hereinafter defined), including any brokerage
commissions, transfer taxes and soliciting dealers'
fees, paid by the Interested Stockholder for any shares
of such class of Voting Stock acquired by it: (i)
within the two-year period immediately prior to the
Announcement Date; or (ii) in the transaction in which
it became an Interested Stockholder, whichever is
higher; or
6
<PAGE>
(2) (if applicable) the highest preferential amount per
share to which the holders of shares of such class of
Voting Stock are entitled in the event of any voluntary
or involuntary liquidation, dissolution or winding up
of the Corporation; or
(3) the Fair Market Value per share of such class of Voting
Stock on the Announcement Date or on the Determination
Date, whichever is higher.
c. The consideration to be received by holders of a particular
class of outstanding Voting Stock (including Common Stock)
shall be in cash or in the same form as the Interested
Stockholder has previously paid for shares of such class of
Voting Stock. If the Interested Stockholder has paid for
shares of any class of Voting Stock with varying forms of
consideration, the form of consideration to be received per
share by holders of shares of such class of Voting Stock
shall be either cash or the form used to acquire the largest
number of shares of such class of Voting Stock previously
acquired by the Interested Stockholder. The price
determined in accordance with subparagraph B.2 of this
Article EIGHTH shall be subject to appropriate adjustment in
the event of any stock dividend, stock split, combination of
shares or similar event.
d. After such Interested Stockholder has become an Interested
Stockholder and prior to the consummation of such Business
Combination: (1) except as approved by a majority of the
Disinterested Directors (as hereinafter defined), there
shall have been no failure to declare and pay at the regular
date therefor any full quarterly dividends (whether or not
cumulative) on any outstanding stock having preference over
the Common Stock as to dividends or liquidation; (2) there
shall have been: (i) no reduction in the annual rate of
dividends paid on the Common Stock (except as necessary to
reflect any subdivision of the Common Stock), except as
approved by a majority of the Disinterested Directors; and
(ii) an increase in such annual rate of dividends as
necessary to reflect any reclassification (including any
reverse stock split), recapitalization, reorganization or
any similar transaction which has the effect of reducing the
number of outstanding shares of the Common Stock, unless the
failure to so increase such annual rate is approved by a
majority of the Disinterested Directors, and (3) neither
such Interested Stockholder or
7
<PAGE>
any of its Affiliates shall have become the beneficial owner
of any additional shares of Voting Stock except as part of
the transaction which results in such Interested Stockholder
becoming an Interested Stockholder.
e. After such Interested Stockholder has become an Interested
Stockholder, such Interested Stockholder shall not have
received the benefit, directly or indirectly (except
proportionately as a stockholder), of any loans, advances,
guarantees, pledges or other financial assistance or any tax
credits or other tax advantages provided, directly or
indirectly, by the Corporation, whether in anticipation of
or in connection with such Business Combination or
otherwise.
f. A proxy or information statement describing the proposed
Business Combination and complying with the requirements of
the Securities Exchange Act of 1934, as amended, and the
rules and regulations thereunder (or any subsequent
provisions replacing such Act, and the rules or regulations
thereunder) shall be mailed to stockholders of the
Corporation at least 30 days prior to the consummation of
such Business Combination (whether or not such proxy or
information statement is required to be mailed pursuant to
such Act or subsequent provisions).
C. For the purposes of this Article EIGHTH:
1. A "Person" shall include an individual, a firm, a group
acting in concert, a corporation, a partnership, an
association, a joint venture, a pool, a joint stock company,
a trust, an unincorporated organization or similar company,
a syndicate or any other group formed for the purpose of
acquiring, holding or disposing of securities or any other
entity.
2. "Interested Stockholder" shall mean any person (other than
the Corporation or any Holding Company or Subsidiary
thereof) who or which:
a. is the beneficial owner, directly or indirectly, of
more than 10% of the voting power of the outstanding
Voting Stock; or
b. is an Affiliate of the Corporation and at any time
within the two-year period immediately prior to the
8
<PAGE>
date in question was the beneficial owner, directly or
indirectly, of 10% or more of the voting power of the
then outstanding Voting Stock; or
c. is an assignee of or has otherwise succeeded to any
shares of Voting Stock which were at any time within
the two-year period immediately prior to the date in
question beneficially owned by any Interested
Stockholder, if such assignment or succession shall
have occurred in the course of a transaction or series
of transactions not involving a public offering within
the meaning of the Securities Act of 1933, as amended.
3. For purposes of this Article EIGHTH, "beneficial ownership"
shall be determined in the manner provided in Section C of
Article FOURTH hereof.
4. "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General
Rules and Regulations under the Securities Exchange Act of
1934, as in effect on the date of filing of this Certificate
of Incorporation.
5. "Subsidiary" means any corporation of which a majority of
any class of equity security is owned, directly or
indirectly, by the Corporation; provided, however, that for
the purposes of the definition of Interested Stockholder set
forth in Paragraph 2 of this Section C, the term
"Subsidiary" shall mean only a corporation of which a
majority of each class of equity security is owned, directly
or indirectly, by the Corporation.
6. "Disinterested Director" means any member of the Board of
Directors who is unaffiliated with the Interested
Stockholder and was a member of the Board of Directors prior
to the time that the Interested Stockholder became an
Interested Stockholder, and any Director who is thereafter
chosen to fill any vacancy of the Board of Directors or who
is elected and who, in either event, is unaffiliated with
the Interested Stockholder and in connection with his or her
initial assumption of office is recommended for appointment
or election by a majority of Disinterested Directors then on
the Board of Directors.
9
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7. "Fair Market Value" means:
a. in the case of stock, the highest closing sales price
of the stock during the 30-day period immediately
preceding the date in question of a share of such stock
on the National Association of Securities Dealers
Automated Quotation System or any system then in use,
or, if such stock is admitted to trading on a principal
United States securities exchange registered under the
Securities Exchange Act of 1934, as amended, Fair
Market Value shall be the highest sale price reported
during the 30-day period preceding the date in
question, or, if no such quotations are available, the
Fair Market Value on the date in question of a share of
such stock as determined by the Board of Directors in
good faith, in each case with respect to any class of
stock, appropriately adjusted for any dividend or
distribution in shares of such stock or any stock split
or reclassification of outstanding shares of such stock
into a greater number of shares of such stock or any
combination or reclassification of outstanding shares
of such stock into a smaller number of shares of such
stock; and
b. in the case of property other than cash or stock, the
Fair Market Value of such property on the date in
question as determined by the Board of Directors in
good faith.
8. Reference to "Highest Per Share Price" shall in each case
with respect to any class of stock reflect an appropriate
adjustment for any dividend or distribution in shares of
such stock or any stock split or reclassification of
outstanding shares of such stock into a greater number of
shares of such stock or any combination or reclassification
of outstanding shares of such stock into a smaller number of
shares of such stock.
9. In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other than
cash to be received" as used in Subparagraphs (a) and (b) of
Paragraph 2 of Section B of this Article EIGHTH shall
include the shares of Common Stock and/or the shares of
10
<PAGE>
any other class of outstanding Voting Stock retained by the
holders of such shares.
D. A majority of the Disinterested Directors of the Corporation shall
have the power and duty to determine for the purposes of this Article
EIGHTH, on the basis of information known to them after reasonable inquiry:
(a) whether a person is an Interested Stockholder; (b) the number of shares
of Voting Stock beneficially owned by any person; (c) whether a person is
an Affiliate or Associate of another; and (d) whether the assets which are
the subject of any Business Combination have, or the consideration to be
received for the issuance or transfer of securities by the Corporation or
any Subsidiary in any Business Combination has an aggregate Fair Market
Value equaling or exceeding 25% of the combined Fair Market Value of the
Common Stock of the Corporation and its Subsidiaries. A majority of the
Disinterested Directors shall have the further power to interpret all of
the terms and provisions of this Article EIGHTH.
E. Nothing contained in this Article EIGHTH shall be construed to
relieve any Interested Stockholder from any fiduciary obligation imposed by
law.
F. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser
vote or no vote, but in addition to any affirmative vote of the holders of
any particular class or series of the Voting Stock required by law, this
Certificate of Incorporation or any Preferred Stock Designation, the
affirmative vote of the holders of at least 80 percent of the voting power
of all of the then-outstanding shares of the Voting Stock (after giving
effect to the provisions of Article FOURTH), voting together as a single
class, shall be required to alter, amend or repeal this Article EIGHTH.
NINTH: The Board of Directors of the Corporation, when evaluating any
offer of another person to (A) make a tender or exchange offer for any equity
security of the Corporation, (B) merge or consolidate the Corporation with
another corporation or entity or (C) purchase or otherwise acquire all or
substantially all of the properties and assets of the Corporation, may, in
connection with the exercise of its judgment in determining what is in the best
interest of the Corporation and its stockholders, give due consideration to all
relevant factors, including, without limitation, those factors that Directors of
any subsidiary of the Corporation may consider in evaluating any action that may
result in a change or potential change in the control of the subsidiary, and the
social and economic effect of acceptance of such offer on the Corporation's
present and future customers and employees and on the communities in which the
Corporation operates or is located and the ability of the Corporation to fulfill
its corporate objective under applicable laws and regulations.
11
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TENTH:
A. Each person who was or is made a party or is threatened to be made
a party to or is otherwise involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she is or was a Director or
an Officer of the Corporation or is or was serving at the request of the
Corporation as a Director, Officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to an employee benefit plan (hereinafter an
"indemnitee"), whether the basis of such proceeding is alleged action in an
official capacity as a Director, Officer, employee or agent or in any other
capacity while serving as a Director, Officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to
the extent that such amendment permits the Corporation to provide broader
indemnification rights than such law permitted the Corporation to provide
prior to such amendment), against all expense, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid in settlement) reasonably incurred or suffered
by such indemnitee in connection therewith; provided, however, that, except
as provided in Section C hereof with respect to proceedings to enforce
rights to indemnification, the Corporation shall indemnify any such
indemnitee in connection with a proceeding (or part thereof) initiated by
such indemnitee only if such proceeding (or part thereof) was authorized by
the Board of Directors of the Corporation.
B. The right to indemnification conferred in Section A of this
Article TENTH shall include the right to be paid by the Corporation the
expenses incurred in defending any such proceeding in advance of its final
disposition (hereinafter an "advancement of expenses"); provided, however,
that, if the Delaware General Corporation Law requires, an advancement of
expenses incurred by an indemnitee in his or her capacity as a Director or
Officer (and not in any other capacity in which service was or is rendered
by such indemnitee, including, without limitation, services to an employee
benefit plan) shall be made only upon delivery to the Corporation of an
undertaking (hereinafter an "undertaking"), by or on behalf of such
indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right
to appeal (hereinafter a "final adjudication") that such indemnitee is not
entitled to be indemnified for such expenses under this Section or
otherwise. The rights to indemnification and to the advancement of
expenses conferred in Sections A and B of this Article TENTH shall be
contract rights and such rights shall continue as to an indemnitee who has
ceased to be a Director, Officer, employee or agent and shall inure to the
benefit of the indemnitee's heirs, executors and administrators.
12
<PAGE>
C. If a claim under Section A or B of this Article TENTH is not paid
in full by the Corporation within sixty days after a written claim has been
received by the Corporation, except in the case of a claim for an
advancement of expenses, in which case the applicable period shall be
twenty days, the indemnitee may at any time thereafter bring suit against
the Corporation to recover the unpaid amount of the claim. If successful
in whole or in part in any such suit, or in a suit brought by the
Corporation to recover an advancement of expenses pursuant to the terms of
an undertaking, the indemnitee shall be entitled to be paid also the
expenses of prosecuting or defending such suit. In (i) any suit brought by
the indemnitee to enforce a right to indemnification hereunder (but not in
a suit brought by the indemnitee to enforce a right to an advancement of
expenses) it shall be a defense that, and (ii) in any suit by the
Corporation to recover an advancement of expenses pursuant to the terms of
an undertaking the Corporation shall be entitled to recover such expenses
upon a final adjudication that, the indemnitee has not met any applicable
standard for indemnification set forth in the Delaware General Corporation
Law. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such suit that indemnification
of the indemnitee is proper in the circumstances because the indemnitee has
met the applicable standard of conduct set forth in the Delaware General
Corporation Law, nor an actual determination by the Corporation (including
its Board of Directors, independent legal counsel, or its stockholders)
that the indemnitee has not met such applicable standard of conduct, shall
create a presumption that the indemnitee has not met the applicable
standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the
indemnitee to enforce a right to indemnification or to an advancement of
expenses hereunder, or by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the burden of proving
that the indemnitee is not entitled to be indemnified, or to such
advancement of expenses, under this Article TENTH or otherwise shall be on
the Corporation.
D. The rights to indemnification and to the advancement of expenses
conferred in this Article TENTH shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, the
Corporation's Certificate of Incorporation, Bylaws, agreement, vote of
stockholders or Directors or otherwise.
E. The Corporation may maintain insurance, at its expense, to protect
itself and any Director, Officer, employee or agent of the Corporation or
subsidiary or Affiliate or another corporation, partnership, joint venture,
trust or other enterprise against any expense, liability or loss, whether
or not the Corporation would have the power to indemnify such person
against such expense, liability or loss under the Delaware General
Corporation Law.
13
<PAGE>
F. The Corporation may, to the extent authorized from time to time by
the Board of Directors, grant rights to indemnification and to the
advancement of expenses to any employee or agent of the Corporation to the
fullest extent of the provisions of this Article TENTH with respect to the
indemnification and advancement of expenses of Directors and Officers of
the Corporation.
ELEVENTH: A Director of this Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except for liability (i) for any breach of the Director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the Director derived an improper
personal benefit. If the Delaware General Corporation Law is amended to
authorize corporate action further eliminating or limiting the personal
liability of Directors, then the liability of a Director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the Delaware
General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders
of the Corporation shall not adversely affect any right or protection of a
Director of the Corporation existing at the time of such repeal or modification.
TWELFTH: The provisions set forth in this Article and in Articles 5(C),
5(D), 5(E), 6, 7, 8, 10 and 11 herein may not be repealed or amended in any
respect, and no article imposing cumulative voting in the election of directors
may be added, unless such action is approved by the affirmative vote of the
holders of not less than eighty percent (80%) of the outstanding shares of
Common Stock of this Corporation, subject to the provisions of any series of
Preferred Stock which may at the time be outstanding; provided, however, that if
there is a related person (as defined in Article 8) such amendment shall also
require the affirmative vote of at least 50% of the outstanding shares of Common
Stock held by stockholders other than the related person.
14
<PAGE>
IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation,
which restates and integrates and does further amend the provisions of the
Corporation's Certificate of Incorporation and having been duly adopted by the
Board of Directors of the Corporation and approved by the stockholders of the
Corporation in accordance with the provisions of Sections 242 and 245 of the
General Corporation Laws of the State of Delaware, has been executed this 9th
day of July, 1999 by Shelley Spencer, its authorized officer.
AirGate PCS, Inc.
By: /s/ Shelley Spencer
---------------------------
Shelley Spencer
Title: Vice President and Secretary
15
<PAGE>
Exhibit 3.2
AIRGATE PCS, INC.
(Originally incorporated October 14, 1998 under the name
AirGate Wireless, Inc.)
AMENDED AND RESTATED BYLAWS
ARTICLE I - STOCKHOLDERS
------------------------
Section 1. Annual Meeting.
--------- --------------
An annual meeting of the stockholders, for the election of Directors to
succeed those whose terms expire and for the transaction of such other business
as may properly come before the meeting, shall be held at such place, on such
date, and at such time as may be designated by resolution of the Board of
Directors.
Section 2. Special Meetings.
--------- ----------------
Special meetings of stockholders of the Corporation may be called only by
the Board of Directors pursuant to a resolution adopted by a majority of the
total number of Directors which the Corporation would have if there were no
vacancies on the Board of Directors (hereinafter the "Whole Board").
Section 3. Notice of Meetings.
--------- ------------------
Written notice of the place, date, and time of all meetings of the
stockholders, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called, shall be given, not less than ten (10) nor more
than sixty (60) days before the date on which the meeting is to be held, to each
stockholder entitled to vote at such meeting, except as otherwise provided
herein or required by law (meaning, here and hereinafter, as required from time
to time by the Delaware General Corporation Law or the Certificate of
Incorporation of the Corporation).
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; provided,
however, that if the date of any adjourned meeting is more than thirty (30) days
after the date for which the meeting was originally noticed, or if a new record
date is fixed for the adjourned meeting, written notice of the place, date, and
time of the adjourned meeting shall be given in conformity herewith. At any
adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 4. Quorum.
--------- ------
At any meeting of the stockholders, the holders of a majority of all of the
shares of the stock entitled to vote at the meeting, present in person or by
proxy shall constitute
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a quorum for all purposes, unless or except to the extent that the presence of a
larger number may be required by law or the Corporation's Certificate of
Incorporation.
If a quorum shall fail to attend any meeting, the chairman of the meeting
or the holders of a majority of the shares of stock entitled to vote who are
present, in person or by proxy, may adjourn the meeting to another place, date,
or time.
If a notice of any adjourned special meeting of stockholders is sent to all
stockholders entitled to vote thereat, stating that it will be held with those
present in person or by proxy constituting a quorum, then except as otherwise
required by law, those present in person or by proxy at such adjourned meeting
shall constitute a quorum, and all matters shall be determined by a majority of
the votes cast at such meeting.
Section 5. Organization.
--------- ------------
Such person as the Board of Directors may have designated or, in the
absence of such a person, the Chairman of the Board of the Corporation or, in
his or her absence, such person as may be chosen by the holders of a majority of
the shares entitled to vote who are present, in person or by proxy, shall call
to order any meeting of the stockholders and act as chairman of the meeting. In
the absence of the Secretary of the Corporation, the secretary of the meeting
shall be such person as the chairman appoints.
Section 6. Conduct of Business.
--------- -------------------
(a) The chairman of any meeting of stockholders shall determine the order
of business and the procedures at the meeting, including such regulation of the
manner of voting and the conduct of discussion as seem to him or her in order.
The date and time of the opening and closing of the polls for each matter upon
which the stockholders will vote at the meeting shall be announced at the
meeting by the chairman.
(b) At any annual meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting (i) by or at the
direction of the Board of Directors or (ii) by any stockholder of the
Corporation who is entitled to vote with respect thereto and who complies with
the notice procedures set forth in this Section 6(b). For business to be
properly brought before an annual meeting by a stockholder, the business must
relate to a proper subject matter for stockholder action and the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice must be delivered or mailed
to and received at the principal executive offices of the Corporation not less
than ninety (90) days prior to the date of the annual meeting; provided,
however, that in the event that less than one hundred (100) days' notice or
prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be received not later
than the close of business on the 10th day following the day on which such
notice of the date of the annual meeting was mailed or such public disclosure
was made. A stockholder's notice to the Secretary shall set forth as to each
matter such stockholder proposes to bring before the annual meeting: (i) a
brief description of the business
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<PAGE>
desired to be brought before the annual meeting and the reasons for conducting
such business at the annual meeting, (ii) the name and address, as they appear
on the Corporation's books, of the stockholder proposing such business, (iii)
the class and number of shares of the Corporation's capital stock that are
beneficially owned by such stockholder and, (iv) any material interest of such
stockholder in such business. Notwithstanding anything in these Bylaws to the
contrary, no business shall be brought before or conducted at an annual meeting
except in accordance with the provisions of this Section 6(b). The Officer of
the Corporation or other person presiding over the annual meeting shall, if the
facts so warrant, determine and declare to the meeting that business was not
properly brought before the meeting in accordance with the provisions of this
Section 6(b) and, if he should so determine, he shall so declare to the meeting
and any such business so determined to be not properly brought before the
meeting shall not be transacted.
At any special meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting by or at the direction
of the Board of Directors.
(c) Only persons who are nominated in accordance with the procedures set
forth in these Bylaws shall be eligible for election as Directors. Nominations
of persons for election to the Board of Directors of the Corporation may be made
at a meeting of stockholders at which directors are to be elected only: (i) by
or at the direction of the Board of Directors or, (ii) by any stockholder of the
Corporation entitled to vote for the election of Directors at the meeting who
complies with the notice procedures set forth in this Section 6(c). Such
nominations, other than those made by or at the direction of the Board of
Directors, shall be made by timely notice in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice shall be delivered or mailed
to and received at the principal executive offices of the Corporation not less
than ninety (90) days prior to the date of the meeting; provided, however, that
in the event that less than one hundred (100) days' notice or prior disclosure
of the date of the meeting is given or made to stockholders, notice by the
stockholder to be timely must be so received not later than the close of
business on the 10th day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made. Such stockholder's
notice shall set forth: (i) as to each person whom such stockholder proposes to
nominate for election or re-election as a Director, all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (including
such person's written consent to being named in the proxy statement as a nominee
and to serving as a director if elected); and (ii) as to the stockholder giving
the notice (x) the name and address, as they appear on the Corporation's books,
of such stockholder and (y) the class and number of shares of the Corporation's
capital stock that are beneficially owned by such stockholder. At the request
of the Board of Directors any person nominated by the Board of Directors for
election as a Director shall furnish to the Secretary of the Corporation that
information required to be set forth in a stockholder's notice of nomination
which pertains to the nominee. No person shall be eligible for election as a
Director of the Corporation unless
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<PAGE>
nominated in accordance with the provisions of this Section 6(c). The Officer of
the Corporation or other person presiding at the meeting shall, if the facts so
warrant, determine that a nomination was not made in accordance with such
provisions and, if he or she shall so determine, he or she shall so declare to
the meeting and the defective nomination shall be disregarded.
Section 7. Proxies and Voting.
--------- ------------------
At any meeting of the stockholders, every stockholder entitled to vote may
vote in person or by proxy authorized by an instrument in writing filed in
accordance with the procedure established for the meeting. Any facsimile
telecommunication or other reliable reproduction of the writing or transmission
created pursuant to this paragraph may be substituted or used in lieu of the
original writing or transmission for any and all purposes for which the original
writing or transmission could be used, provided that such copy, facsimile
telecommunication or other reproduction shall be a complete reproduction of the
entire original writing or transmission.
All voting, including on the election of Directors but excepting where
otherwise required by law or by the governing documents of the Corporation, may
be made by a voice vote; provided, however, that upon demand therefor by a
stockholder entitled to vote or his or her proxy, a stock vote shall be taken.
Every stock vote shall be taken by ballot, each of which shall state the name of
the stockholder or proxy voting and such other information as may be required
under the procedures established for the meeting. The Corporation shall, in
advance of any meeting of stockholders, appoint one or more inspectors to act at
the meeting and make a written report thereof. The Corporation may designate
one or more persons as alternate inspectors to replace any inspector who fails
to act. If no inspector or alternate is able to act at a meeting of
stockholders, the person presiding at the meeting shall appoint one or more
inspectors to act at the meeting. Each inspector, before entering upon the
discharge of his duties, shall take and sign an oath faithfully to execute the
duties of inspector with strict impartiality and according to the best of his
ability.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law or the Certificate of Incorporation, all
other matters shall be determined by a majority of the shares present in person
or represented by proxy at the meeting and entitled to vote on the subject
matter.
Section 8. Stock List.
--------- ----------
A complete list of stockholders entitled to vote at any meeting of
stockholders, arranged in alphabetical order for each class of stock and showing
the address of each such stockholder and the number of shares registered in his
or her name, shall be open to the examination of any such stockholder, for any
purpose germane to the meeting, during ordinary business hours for a period of
at least ten (10) days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in
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<PAGE>
the notice of the meeting, or if not so specified, at the place where the
meeting is to be held.
The stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such stockholder
who is present. This list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.
Section 9. Consent of Stockholders in Lieu of Meeting.
--------- ------------------------------------------
Any action required or permitted to be taken by the stockholders of the
Corporation must be effected at an annual or special meeting of stockholders of
the Corporation and may not be effected by any consent in writing by such
stockholders unless there shall be only one stockholder of the Corporation.
ARTICLE II - BOARD OF DIRECTORS
Section 1. General Powers, Number and Term of Office.
--------- -----------------------------------------
The business and affairs of the Corporation shall be under the direction of
its Board of Directors. The number of Directors who shall constitute the Whole
Board shall be seven. The Board of Directors shall annually elect a Chairman of
the Board from among its members who shall, when present, preside at its
meetings.
The Directors, other than those who may be elected by the holders of any
class or series of Preferred Stock, shall be divided, with respect to the time
for which they severally hold office, into three classes. At the annual meeting
of stockholders in 1999 Directors of the first class shall be elected to hold
office for a term expiring at the next succeeding annual meeting, Directors of
the second class shall be elected to hold office for a term expiring at the
second succeeding annual meeting, and Directors of the third class shall be
elected to hold office for a term expiring at the third succeeding annual
meeting. Each Director shall hold office until his or her successor shall have
been duly elected and qualified. At each annual meeting of stockholders,
Directors elected to succeed those Directors whose terms then expire shall be
elected for a term of office to expire at the third succeeding annual meeting of
stockholders after their election, with each Director to hold office until his
or her successor shall have been duly elected and qualified.
Section 2. Vacancies and Newly Created Directorships.
--------- -----------------------------------------
Unless the Board of Directors otherwise determines, newly created
directorships resulting from any increase in the authorized number of directors
or any vacancies in the Board of Directors resulting from death, resignation,
retirement, disqualification, removal from office or other cause may be filled
only by a majority vote of the Directors then in office, though less than a
quorum, and Directors so chosen shall hold office for a term expiring at the
annual meeting of stockholders at which the term of office of the class to
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<PAGE>
which they have been elected expires and until such Director's successor shall
have been duly elected and qualified. No decrease in the number of authorized
directors constituting the Board shall shorten the term of any incumbent
Director.
Section 3. Regular Meetings.
--------- ----------------
Regular meetings of the Board of Directors shall be held at such place or
places, on such date or dates, and at such time or times as shall have been
established by the Board of Directors and publicized among all Directors. A
notice of each regular meeting shall not be required.
Section 4. Special Meetings.
--------- ----------------
Special meetings of the Board of Directors may be called by one-third (1/3)
of the Directors then in office (rounded up to the nearest whole number), by the
Chairman of the Board or the President and shall be held at such place, on such
date, and at such time as they, or he or she, shall fix. Notice of the place,
date, and time of each such special meeting shall be given each Director by whom
it is not waived not less than twenty-four (24) hours before the meeting.
Unless otherwise indicated in the notice thereof, any and all business may be
transacted at a special meeting.
Section 5. Quorum.
--------- ------
At any meeting of the Board of Directors, a majority of the Whole Board
shall constitute a quorum for all purposes. If a quorum shall fail to attend
any meeting, a majority of those present may adjourn the meeting to another
place, date, or time, without further notice or waiver thereof.
Section 6. Participation in Meetings By Conference Telephone.
--------- -------------------------------------------------
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation shall
constitute presence in person at such meeting.
Section 7. Conduct of Business.
--------- -------------------
At any meeting of the Board of Directors, business shall be transacted in
such order and manner as the Board may from time to time determine, and all
matters shall be determined by the vote of a majority of the Directors present,
except as otherwise provided herein, in the Certificate of Incorporation or
required by law. Action may be taken by the Board of Directors without a
meeting if all members thereof consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors.
-6-
<PAGE>
Section 8. Powers.
--------- ------
The Board of Directors may, except as otherwise required by law, exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation, including, without limiting the generality of the foregoing,
the unqualified power:
(1) To declare dividends from time to time in accordance with law;
(2) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
(3) To authorize the creation, making and issuance, in such form as it
may determine, of written obligations of every kind, negotiable or non-
negotiable, secured or unsecured, and to do all things necessary in
connection therewith;
(4) To remove any Officer of the Corporation with or without cause,
and from time to time to devolve the powers and duties of any Officer upon
any other person for the time being;
(5) To confer upon any Officer of the Corporation the power to
appoint, remove and suspend subordinate Officers, employees and agents;
(6) To adopt from time to time such stock, option, stock purchase,
bonus or other compensation plans for Directors, Officers, employees and
agents of the Corporation and its subsidiaries as it may determine;
(7) To adopt from time to time such insurance, retirement, and other
benefit plans for Directors, Officers, employees and agents of the
Corporation and its subsidiaries as it may determine; and,
(8) To adopt from time to time regulations, not inconsistent with these
Bylaws, for the management of the Corporation's business and affairs.
-7-
<PAGE>
Section 9. Compensation of Directors.
- --------- -------------------------
Directors, as such, may receive, pursuant to resolution of the Board of
Directors, fixed fees and other compensation for their services as Directors,
including, without limitation, their services as members of committees of the
Board of Directors.
ARTICLE III - COMMITTEES
Section 1. Committees of the Board of Directors.
--------- ------------------------------------
The Board of Directors, by a vote of a majority of the Board of Directors,
may from time to time designate committees of the Board, with such lawfully
delegable powers and duties as it thereby confers, to serve at the pleasure of
the Board and shall, for these committees and any others provided for herein,
elect a Director or Directors to serve as the member or members, designating, if
it desires, other Directors as alternate members who may replace any absent or
disqualified member at any meeting of the committee. Any committee so
designated may exercise the power and authority of the Board of Directors to
declare a dividend, to authorize the issuance of stock or to adopt a certificate
of ownership and merger pursuant to Section 253 of the Delaware General
Corporation Law if the resolution which designates the committee or a
supplemental resolution of the Board of Directors shall so provide. In the
absence or disqualification of any member of any committee and any alternate
member in his or her place, the member or members of the committee present at
the meeting and not disqualified from voting, whether or not he or she or they
constitute a quorum, may by unanimous vote appoint another member of the Board
of Directors to act at the meeting in the place of the absent or disqualified
member.
Section 2. Conduct of Business.
--------- -------------------
Each committee may determine the procedural rules for meeting and
conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by law. Adequate provision shall be made
for notice to members of all meetings; one-third (1/3) of the members shall
constitute a quorum unless the committee shall consist of one (1) or two (2)
members, in which event one (1) member shall constitute a quorum; and all
matters shall be determined by a majority vote of the members present. Action
may be taken by any committee without a meeting if all members thereof consent
thereto in writing, and the writing or writings are filed with the minutes of
the proceedings of such committee.
Section 3. Nominating Committee.
--------- --------------------
The Board of Directors shall appoint a Nominating Committee of the Board.
The Nominating Committee shall have authority: (a) to review any nominations
for election to the Board of Directors made by a stockholder of the Corporation
pursuant to Section 6(c)(ii) of Article I of these Bylaws in order to determine
compliance with such Bylaw, and (b) to recommend to the Whole Board nominees for
election to the Board of
-8-
<PAGE>
Directors to replace those Directors whose terms expire at the annual meeting of
stockholders next ensuing.
ARTICLE IV - OFFICERS
Section 1. Generally.
--------- ---------
(a) The Board of Directors as soon as may be practicable after the
annual meeting of stockholders shall choose a Chairman of the Board, Chief
Executive Officer, a President, one or more Vice Presidents, a Secretary, one or
more Assistant Secretaries and a Chief Financial Officer and/or Treasurer and
one or more Assistant Treasurers, and from time to time may choose such other
officers as it may deem proper. The Chairman of the Board shall be chosen from
among the Directors. Any number of offices may be held by the same person.
(b) The term of office of all Officers shall be until the next annual
election of Officers and until their respective successors are chosen but any
Officer may be removed from office at any time by the affirmative vote of a
majority of the authorized number of Directors then constituting the Board of
Directors. Any vacancy occurring in any office of the Corporation by death,
resignation, removal or otherwise may be filled for the unexpired portion of the
term by the Board of Directors at any regular of special meeting.
(c) All Officers chosen by the Board of Directors shall have such
powers and duties as generally pertain to their respective Offices, subject to
the specific provisions of this ARTICLE IV. Such officers shall also have such
powers and duties as from time to time may be conferred by the Board of
Directors or by any committee thereof.
Section 2. Chairman of the Board of Directors.
--------- ----------------------------------
The Chairman of the Board shall, subject to the provisions of these Bylaws
and to the direction of the Board of Directors, unless the Board has designated
another person, when present, preside at all meetings of the stockholders of the
Corporation. The Chairman of the Board shall perform all duties and have all
powers which are commonly incident to the office of Chairman of the Board or
which are delegated to him or her by the Board of Directors. He or she shall
have power to sign all stock certificates, contracts and other instruments of
the Corporation which are authorized.
Section 3. President and Chief Executive Officer.
--------- -------------------------------------
The President and Chief Executive Officer (the "President") shall have
general responsibility for the management and control of the business and
affairs of the Corporation and shall perform all duties and have all powers
which are commonly incident to the offices of President and Chief Executive
Officer or which are delegated to him or her by the Board of Directors. Subject
to the direction of the Board of Directors,
-9-
<PAGE>
the President and Chief Executive Officer shall have power to sign all stock
certificates, contracts and other instruments of the Corporation which are
authorized and shall have general supervision of all of the other Officers
(other than the Chairman of the Board), employees and agents of the Corporation.
Section 4. Vice President.
--------- --------------
The Vice President or Vice Presidents shall perform the duties of the
President in his or her absence or during his or her inability to act. In
addition, the Vice Presidents shall perform the duties and exercise the powers
usually incident to their respective offices and/or such other duties and powers
as may be properly assigned to them by the Board of Directors, the Chairman of
the Board or the President. A Vice President or Vice Presidents may be
designated as Executive Vice President or Senior Vice President.
Section 5. Secretary.
--------- ---------
The Secretary or Assistant Secretary shall issue notices of meetings, shall
keep their minutes, shall have charge of the seal and the corporate books, shall
perform such other duties and exercise such other powers as are usually incident
to such office and/or such other duties and powers as are properly assigned
thereto by the Board of Directors, the Chairman of the Board or the President.
Subject to the direction of the Board of Directors, the Secretary shall have the
power to sign all stock certificates.
Section 6. Chief Financial Officer/Treasurer.
--------- ---------------------------------
The Chief Financial Officer/Treasurer shall be the Comptroller of the
Corporation and shall have the responsibility for maintaining the financial
records of the Corporation. He or she shall make such disbursements of the
funds of the Corporation as are authorized and shall render from time to time an
account of all such transactions and of the financial condition of the
Corporation. The Chief Financial Officer/Treasurer shall also perform such
other duties as the Board of Directors may from time to time prescribe. Subject
to the direction of the Board of Directors, the Chief Financial
Officer/Treasurer shall have the power to sign all stock certificates.
Section 7. Assistant Secretaries and Other Officers.
--------- ----------------------------------------
The Board of Directors may appoint one or more Assistant Secretaries and
such other Officers who shall have such powers and shall perform such duties as
are provided in these Bylaws or as may be assigned to them by the Board of
Directors, the Chairman of the Board or the President.
Section 8. Action with Respect to Securities of Other Corporations.
--------- -------------------------------------------------------
Unless otherwise directed by the Board of Directors, the Chief Executive
Officer or any Officer of the Corporation authorized by the Chief Executive
Officer shall have power to vote and otherwise act on behalf of the Corporation,
in person or by proxy, at
-10-
<PAGE>
any meeting of stockholders of or with respect to any action of stockholders of
any other corporation in which this Corporation may hold securities and
otherwise to exercise any and all rights and powers which this Corporation may
possess by reason of its ownership of securities in such other corporation.
ARTICLE V - STOCK
Section 1. Certificates of Stock.
--------- ---------------------
Each stockholder shall be entitled to a certificate signed by, or in the
name of the Corporation by, the Chairman of the Board or the Chief Executive
Officer, and by the Secretary, or an Assistant Secretary, or any Treasurer or
Assistant Treasurer, certifying the number of shares owned by him or her. Any
or all of the signatures on the certificate may be by facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the Corporation with the same effect as if he or she were such officer,
transfer agent or registrar at the date of issue.
Section 2. Transfers of Stock.
--------- ------------------
Transfers of stock shall be made only upon the transfer books of the
Corporation kept at an office of the Corporation or by transfer agents
designated to transfer shares of the stock of the Corporation. Except where a
certificate is issued in accordance with Section 4 of Article V of these Bylaws,
an outstanding certificate for the number of shares involved shall be
surrendered for cancellation before a new certificate is issued therefor.
Section 3. Record Date.
--------- -----------
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders, or to receive payment of
any dividend or other distribution or allotment of any rights or to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date on which the resolution
fixing the record date is adopted and which record date shall not be more than
sixty (60) nor less than ten (10) days before the date of any meeting of
stockholders, nor more than sixty (60) days prior to the time for such other
action as hereinbefore described; provided, however, that if no record date is
fixed by the Board of Directors, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the next day preceding the day
on which the meeting is held, and, for determining stockholders entitled to
receive payment of any dividend or other distribution or allotment or rights or
to exercise any rights of change, conversion or exchange of stock or for any
other
-11-
<PAGE>
purpose, the record date shall be at the close of business on the day on
which the Board of Directors adopts a resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 4. Lost, Stolen or Destroyed Certificates.
--------- --------------------------------------
In the event of the loss, theft or destruction of any certificate of stock,
another may be issued in its place pursuant to such regulations as the Board of
Directors may establish concerning proof of such loss, theft or destruction and
concerning the giving of a satisfactory bond or bonds of indemnity.
Section 5. Regulations.
--------- -----------
The issue, transfer, conversion and registration of certificates of stock
shall be governed by such other regulations as the Board of Directors may
establish.
ARTICLE VI - NOTICES
Section 1. Notices.
--------- -------
Except as otherwise specifically provided herein or required by law, all
notices required to be given to any stockholder, Director, Officer, employee or
agent shall be in writing and may in every instance be effectively given by hand
delivery to the recipient thereof, by depositing such notice in the mails,
postage paid, or by sending such notice by prepaid telegram or mailgram or other
courier. Any such notice shall be addressed to such stockholder, Director,
Officer, employee or agent at his or her last known address as the same appears
on the books of the Corporation. The time when such notice is received, if hand
delivered, or dispatched, if delivered through the mails or by telegram or
mailgram or other courier, shall be the time of the giving of the notice.
Section 2. Waivers.
--------- -------
A written waiver of any notice, signed by a stockholder, Director, Officer,
employee or agent, whether before or after the time of the event for which
notice is to be given, shall be deemed equivalent to the notice required to be
given to such stockholder, Director, Officer, employee or agent. Attendance of
a person at a meeting shall constitute a waiver of notice of such meeting,
except when the person attends a meeting for the express purpose of objecting,
at the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business nor the
purpose of any meeting need be specified in such a waiver.
-12-
<PAGE>
ARTICLE VII - MISCELLANEOUS
Section 1. Facsimile Signatures.
--------- --------------------
In addition to the provisions for use of facsimile signatures elsewhere
specifically authorized in these Bylaws, facsimile signatures of any officer or
officers of the Corporation may be used whenever and as authorized by the Board
of Directors or a committee thereof.
Section 2. Corporate Seal.
--------- --------------
The Board of Directors may provide a suitable seal, containing the name of
the Corporation, which seal shall be in the charge of the Secretary. If and
when so directed by the Board of Directors or a committee thereof, duplicates of
the seal may be kept and used by the Secretary.
Section 3. Reliance Upon Books, Reports and Records.
--------- ----------------------------------------
Each Director, each member of any committee designated by the Board of
Directors, and each Officer of the Corporation shall, in the performance of his
or her duties, be fully protected in relying in good faith upon the books of
account or other records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its Officers or
employees, or committees of the Board of Directors so designated, or by any
other person as to matters which such Director or committee member reasonably
believes are within such other person's professional or expert competence and
who has been selected with reasonable care by or on behalf of the Corporation.
Section 4. Fiscal Year.
--------- -----------
The fiscal year of the Corporation shall be as fixed by the Board of
Directors.
Section 5. Time Periods.
--------- ------------
In applying any provision of these Bylaws which requires that an act be
done or not be done a specified number of days prior to an event or that an act
be done during a period of a specified number of days prior to an event,
calendar days shall be used, the day of the doing of the act shall be excluded,
and the day of the event shall be included.
ARTICLE VIII - AMENDMENTS
The Board of Directors may amend, alter or repeal these Bylaws at any
meeting of the Board, provided notice of the proposed change was given not less
than two days prior to the meeting. The stockholders shall also have power to
amend, alter or repeal these Bylaws at any meeting of stockholders provided
notice of the proposed change was given in the notice of the meeting provided,
however, that, notwithstanding any other
-13-
<PAGE>
provisions of the Bylaws or any provision of law which might otherwise permit a
lesser vote or no vote, but in addition to any affirmative vote of the holders
of any particular class or series of the voting stock required by law, the
Certificate of Incorporation, any Preferred Stock Designation or these Bylaws,
the affirmative vote of the holders of at least 80% of the voting power of all
the then-outstanding shares of the Voting Stock, voting together as a single
class, shall be required to alter, amend or repeal any provisions of these
Bylaws.
The above Amended and Restated Bylaws are effective as of July 9, 1999, the
date of adoption by the Board of Directors of AirGate PCS, Inc.
-14-
<PAGE>
EXHIBIT 5.1
August 2, 1999
AirGate PCS, Inc.
Harris Tower
233 Peachtree Street, N.W.
Suite 1700
Atlanta, Georgia 30303
Re: AirGate PCS, Inc.
Registration Statement on Form S-1
Ladies and Gentlemen:
We have acted as special counsel to AirGate PCS, Inc., a Delaware
corporation, originally incorporated under the name AirGate Wireless, Inc. (the
"Company") in connection with a Registration Statement on Form S-1 (the
"Registration Statement") pertaining to the registration of $106.7 million of
the Company's common stock, par value $0.01 per share (the "Common Stock"), and
$150 million of the Company's Senior Subordinated Discount Notes (the "Notes")
due 2009 being offered by the Company or such additional amounts of Common Stock
and Notes as may be registered in connection with this offering and pursuant to
an abbreviated registration statement filed pursuant to Rule 462(b) under the
Securities Act of 1933 (the "Securities Act").
We have examined such documents and records as we deemed appropriate,
including the following:
(i) The Company's Amended and Restated Certificate of Incorporation.
(ii) The Company's Amended and Restated Bylaws.
(iii) Resolutions duly adopted by the Board of Directors of the Company
authorizing the filing of the Registration Statement.
In the course of our examination, we have assumed the legal capacity of all
natural persons, the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such latter documents. In making our
examination of documents executed by parties other than the Company, we have
assumed that such parties had the power, corporate or other, to enter into and
perform all obligations thereunder and have also assumed the due authorization
by all requisite action, corporate or other, and execution and delivery by such
parties of such documents and the validity, binding effect and enforceability
thereof on such parties.
<PAGE>
AirGate PCS, Inc.
August 2, 1999
Page 2
Based upon the foregoing, we are of the opinion that:
The shares of Common Stock have been duly authorized, and when issued
subject to effectiveness of the Registration Statements, will be validly issued
by the Company, fully paid and nonassessable.
We express no opinion as to the laws of any jurisdiction other than the
State of Delaware and the federal laws of the United States of America. We
hereby consent to the filing of this opinion as an exhibit to the Registration
Statement, to the incorporation by reference of this opinion in any abbreviated
registration statement, in connection with the offering covered by the
Registration Statement, filed pursuant to Rule 462(b) under the Securities Act
and to the reference to our firm under the caption "Legal Matters" contained in
the Prospectus included therein.
Very truly yours,
PATTON BOGGS LLP
By: /s/ Mary M. Sjoquist
-------------------------------------
Mary M. Sjoquist
<PAGE>
EXHIBIT 5.2
August 2, 1999
AirGate PCS, Inc.
Harris Tower
233 Peachtree Street, N.W.
Suite 1700
Atlanta, Georgia 30303
Re: AirGate PCS, Inc.
Registration Statement on Form S-1
Ladies and Gentlemen:
We have acted as special counsel to AirGate PCS, Inc., a Delaware
corporation, originally incorporated under the name AirGate Wireless, Inc. (the
"Company") in connection with a Registration Statement on Form S-1 (the
"Registration Statement") pertaining to the registration of $106.7 million of
the Company's common stock, par value $0.01 per share (the "Common Stock"), and
$150 million of the Company's Senior Subordinated Discount Notes (the "Notes")
due 2009, being offered by the Company or such additional amounts of Common
Stock and Notes as may be registered in connection with this offering and
pursuant to an abbreviated registration statement filed pursuant to Rule 462(b)
under the Securities Act of 1933 (the "Securities Act").
We have examined such documents and records as we deemed appropriate,
including the following:
(i) The Company's Amended and Restated Certificate of Incorporation.
(ii) The Company's Amended and Restated Bylaws.
(iii) Resolutions duly adopted by the Board of Directors of the Company
authorizing the filing of the Registration Statement.
In the course of our examination, we have assumed the legal capacity of all
natural persons, the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such latter documents. In making our
examination of documents executed by parties other than the Company, we have
assumed that such parties had the power, corporate or other, to enter into and
perform all obligations thereunder and have also assumed the due authorization
by all requisite action, corporate or other, and execution and delivery by such
parties of such documents and the validity, binding effect and enforceability
thereof on such parties.
<PAGE>
AirGate PCS, Inc.
August 2, 1999
Page 2
Based upon the foregoing, we are of the opinion that:
The Notes have been duly authorized, and when issued subject to
effectiveness of the Registration Statement, will be binding obligations of
the Company.
We express no opinion as to the laws of any jurisdiction other than the
State of Delaware and the federal laws of the United States of America. We
hereby consent to the filing of this opinion as an exhibit to the Registration
Statement, to the incorporation by reference of this opinion in any abbreviated
registration statement, in connection with the offering covered by the
Registration Statement, filed pursuant to Rule 462(b) under the Securities Act
and to the reference to our firm under the caption "Legal Matters" contained in
the Prospectus included therein.
Very truly yours,
PATTON BOGGS LLP
By: /s/ Mary M. Sjoquist
-----------------------------------
Mary M. Sjoquist
<PAGE>
EXHIBIT 23.1
Independent Accountants' Consent
The Board of Directors
AirGate PCS, Inc.:
We consent to the use of our report dated April 28, 1999, except for notes 12(g)
and 12(h), which are as of July 9, 1999 and July 29, 1999, respectively, related
to the consolidated financial statements of AirGate PCS, Inc. and subsidiaries
and predecessors included herein, and to the reference to our firm under the
headings "Experts" and "Selected Financial Data" in this Registration
Statement and the related prospectuses.
Our report dated April 28, 1999, except for notes 12(g) and 12(h), which are as
of July 9, 1999 and July 29, 1999, respectively, contains an explanatory
paragraph that states the Company has incurred recurring losses from operations
and has a working capital and an accumulated deficit that raise substantial
doubt about its ability to continue as a going concern. The consolidated
financial statements do not include any adjustments that might result from the
outcome of that uncertainty.
/s/ KPMG LLP
Atlanta, Georgia
July 29, 1999
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<PAGE>
<ARTICLE> 5
<NAME> AIRGATE PCS, INC.
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 JUN-30-1999
<CASH> 2,295,614 2,909,561
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<RECEIVABLES> 478,593 750,998
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<CURRENT-ASSETS> 2,774,207 3,660,559
<PP&E> 12,937,399 17,327,198
<DEPRECIATION> (392,034) (795,308)
<TOTAL-ASSETS> 15,450,487 21,190,244
<CURRENT-LIABILITIES> 16,481,485 13,382,338
<BONDS> 4,319,477 12,234,003
0 0
0 0
<COMMON> 1 38,983
<OTHER-SE> (5,350,475) (4,426,097)
<TOTAL-LIABILITY-AND-EQUITY> 15,450,487 21,190,244
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 3,800,479 2,207,841
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,392,013 6,469,903
<INCOME-PRETAX> (5,192,492) (8,677,744)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (5,192,492) (8,677,744)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (5,192,492) (8,677,744)
<EPS-BASIC> (1.33) (2.23)
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