Registration Statement
Table of Contents

As filed with the Securities and Exchange Commission on September 26, 2003
Registration No. 333-               


SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


Form S-4

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933


AirGate PCS, Inc.

(Exact name of registrant as specified in its charter)
         
Delaware   4812   58-2422929
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer Identification No.)

Harris Tower

233 Peachtree St. NE, Suite 1700
Atlanta, Georgia 30303
(404) 525-7272
(Address, including zip code, and telephone number,
including area code, of registrant’s principal executive offices)

Barbara L. Blackford

Vice President, General Counsel,
and Corporate Secretary
Harris Tower
233 Peachtree Street NE, Suite 1700
Atlanta, Georgia 30303
(404) 525-7272
(Name, address, including zip code, and telephone number,
including area code, of agent for service)


Robert F. Wall, Esq.

R. Cabell Morris, Jr., Esq.
Winston & Strawn LLP
35 West Wacker Drive
Chicago, Illinois 60601
(312) 558-5600


         Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement. If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.    o

         If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) 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.    o
         If this 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.    o

CALCULATION OF REGISTRATION FEE

                 


Proposed Maximum Proposed Maximum
Title of Each Class of Amount to be Offering Price Aggregate Amount of
Securities to be Registered Registered Per Share Offering Price Registration Fee(3)

Common Stock, par value $0.01 per share
  33,000,000(1)   N/A   N/A   N/A

9 3/8% Senior Subordinated Secured Notes due 2009
  $160,000,000(2)   N/A   N/A   $8,090


(1)  Maximum number of shares of common stock issuable pursuant to the exchange offer described herein.
(2)  Maximum aggregate principal amount of 9 3/8% Senior Subordinated Secured Notes due 2009 issuable pursuant to the exchange offer described herein.
(3)  Pursuant to Rule 457(f)(2) of the Securities Act of 1933, as amended, the registration fee has been calculated based on one-third of the principal amount of the registrant’s outstanding 13.5% Senior Subordinated Discount Notes due 2009.

    The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment that specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.




Table of Contents

The information contained in this Prospectus and Solicitation Statement is not complete and may be changed. Airgate may not sell these securities until the Registration Statement filed with the SEC is effective. This Prospectus and Solicitation Statement is not an offer to sell these securities, and it is not soliciting an offer to buy these securities, in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION — SEPTEMBER 26, 2003

PROSPECTUS AND SOLICITATION STATEMENT

(AIRGATE LOGO)

Offer to Exchange

13.5% Senior Subordinated Discount Notes due 2009
for
Common Stock
and
9 3/8% Senior Subordinated Secured Notes due 2009,
Consent Solicitation
and
Solicitation of Acceptances of Prepackaged Plan of Reorganization

        AirGate PCS, Inc. has proposed a financial restructuring through the recapitalization plan described in this prospectus and solicitation statement. The recapitalization plan consists of the exchange offer and consent solicitation and the other related transactions described herein. Pursuant to a support agreement, and subject to certain conditions, holders representing more than two-thirds of the principal amount of our currently outstanding notes have agreed to tender their notes in the exchange offer. If we do not meet the minimum tender condition to complete the recapitalization plan, we may pursue a prepackaged plan of reorganization of AirGate. We are therefore also soliciting acceptances of a prepackaged plan of reorganization under Chapter 11 of the United States Bankruptcy Code. The recapitalization plan and the prepackaged plan are collectively referred to as the “restructuring.” For a description of the recapitalization plan, see “The Recapitalization Plan”, beginning on page 139, and for a description of the prepackaged plan, see “The Prepackaged Plan”, beginning on page 153.

      Each holder of our 13.5% Senior Subordinated Discount Notes due 2009, which we refer to as our “old notes,” will receive, for each $1,000 of aggregate principal amount due at maturity that is exchanged in the exchange offer, 110 shares of our common stock, without giving effect to the reverse stock split described herein, and $533.33 in principal amount of our new 9 3/8% Senior Subordinated Secured Notes due 2009, which we refer to as our “new notes.” For a description of the terms and conditions of the exchange offer, see “The Exchange Offer and Consent Solicitation”, beginning on page 142.

      The exchange offer, consent solicitation and the solicitation period for acceptance of the prepackaged plan will expire at 5:00 p.m., New York City time, on,                     , 2003, unless we extend it.

      Our common stock trades on the OTC Bulletin Board under the symbol “PCSA.OB”.

       See “Risk Factors” beginning on page 17 for a discussion of factors that you should consider in determining whether to tender your old notes and deliver your consent under the exchange offer and consent solicitation and to vote to accept the prepackaged plan.

       Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus and solicitation statement is accurate or complete. Any representation to the contrary is a criminal offense.

Dealer Manager

[                                      ]

The date of this Prospectus and Solicitation Statement is                     , 2003.


TABLE OF CONTENTS

TABLE OF CONTENTS

SUMMARY
RISK FACTORS
USE OF PROCEEDS
MARKET FOR OUR COMMON STOCK AND THE OLD NOTES
CAPITALIZATION
ACCOUNTING TREATMENT OF THE RESTRUCTURING
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOOTNOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
AIRGATE
MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND OFFICERS
THE RESTRUCTURING
THE RECAPITALIZATION PLAN
THE EXCHANGE OFFER AND CONSENT SOLICITATION
THE PREPACKAGED PLAN
DESCRIPTION OF OUR CAPITAL STOCK
DESCRIPTION OF THE NEW NOTES
DESCRIPTION OF OUR CREDIT FACILITY
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
LEGAL MATTERS
TAX MATTERS
EXPERTS
DELIVERY OF LETTERS OF TRANSMITTAL AND CONSENTS
DELIVERY OF BALLOTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF AIRGATE PCS, INC. AND ITS SUBSIDIARIES
ANNEX A
ANNEX B
ANNEX C
SIGNATURES
INDEX TO EXHIBITS
Opinion and Consent of Winston & Strawn LLP
Opinion of KPMG LLP
Computation of Ratio of Earnings to Fixed Charges
Consent of KPMG LLP
Power of Attorney
Form of Letter of Transmittal and Consent
Form of Notice of Guaranteed Delivery
Form of Ballot
Form of Master Ballot
Consent of Broadview International, LLC


Table of Contents

         
Questions and Answers Regarding Procedural Aspects of the Exchange Offer and Consent Solicitation and Regarding the Disclosure Statement and Prepackaged Plan of Reorganization
    iii  
Summary
    1  
Risk Factors
    17  
Use of Proceeds
    50  
Market for Old Notes and Our Common Stock
    50  
Capitalization
    51  
Accounting Treatment of the Restructuring
    52  
Selected Consolidated Historical Financial Data
    53  
Unaudited Pro Forma Consolidated Financial Statements
    56  
Management’s Discussion and Analysis of Financial Condition and Results of Operations
    62  
AirGate
    84  
Management
    112  
Security Ownership of Certain Beneficial Owners, Directors and Officers
    121  
The Restructuring
    124  
The Recapitalization Plan
    139  
The Exchange Offer and Consent Solicitation
    142  
The Prepackaged Plan
    153  
Description of Our Capital Stock
    192  
Description of the New Notes
    195  
Description of Our Credit Facility
    235  
Material United States Federal Income Tax Consequences
    239  
Legal Matters
    250  
Tax Matters
    250  
Experts
    250  
Delivery of Letters of Transmittal and Consents
    251  
Delivery of Ballots
    251  
Index to Consolidated Financial Statements
    F-1  
Annex A — Support Agreement
    A-1  
Annex B — Opinion of Financial Advisor
    B-1  
Annex C — The Prepackaged Plan
    C-1  

WHERE YOU CAN FIND MORE INFORMATION

      We file annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission (the “SEC”). You may read and copy any document we file at the SEC’s public reference room located at 450 5th Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Our SEC filings are also available to the public from commercial document retrieval services and at the web site maintained by the SEC at: http://www.sec.gov.

      We filed a registration statement on Form S-4 on September 26, 2003 to register with the SEC the common stock and new notes to be issued in the exchange offer. This prospectus and solicitation statement is a part of that registration statement and constitutes our prospectus in addition to being a solicitation statement. As allowed by SEC rules, this prospectus and solicitation statement does not contain all of the information you can find in our registration statement on Form S-4 or the exhibits to the registration statement.


Table of Contents

      You should rely only on the information or representations provided in this prospectus and solicitation statement or any prospectus supplement. We have not authorized anyone else to provide you with different information. We may not make an offer of the common stock or new notes in any state where the offer is not permitted. The delivery of this prospectus and solicitation statement does not, under any circumstances, mean that there has not been a change in our affairs since the date of this prospectus and solicitation statement. It also does not mean that the information in this prospectus and solicitation statement is correct after this date.

      Our address on the world wide web is http://www.airgatepcsa.com. The information on our web site is not a part of this document.

      We have not authorized anyone to give any information or make any representation about the restructuring or us that is different from, or in addition to, the information contained in this document. Therefore, if anyone does give you information of this sort, you should not rely on it. The information contained in this document speaks only as of the date of this document unless the information specifically indicates that another date applies.

FORWARD-LOOKING STATEMENTS

      This prospectus and solicitation statement contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (which is codified in Section 21E of the Exchange Act and Section 27A of the Securities Act of 1933, as amended, which we refer to in this prospectus and solicitation statement as the Securities Act). Forward-looking statements in this prospectus and solicitation statement and the incorporated documents are based on current expectations, estimates, forecasts and projections about us, our future performance, our liquidity, the wireless industry, our beliefs and management’s assumptions. In addition, other written and oral statements that constitute forward-looking statements may be made by us or on our behalf. Such forward-looking statements include statements regarding expected financial results and other planned events, including but not limited to, anticipated liquidity, churn rates, ARPU, CPGA and CCPU (all as defined in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Key Operating Metrics”), roaming rates, EBITDA (as defined in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Key Operating Metrics”), and capital expenditures. Words such as “anticipate,” “assume,” “believe,” “estimate,” “expect,” “intend,” “plan,” “seek”, “project,” “target,” “goal,” variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual future events or results may differ materially from these statements. These risks and uncertainties include:

  •  our ability to consummate the restructuring;
 
  •  the impact and outcome of the iPCS bankruptcy filing and related proceedings;
 
  •  the impact of a prepackaged or other plan of reorganization for AirGate;
 
  •  intense competition in the wireless market and the unsettled nature of the wireless market;
 
  •  the competitiveness and impact of Sprint’s pricing plans and PCS products and services;
 
  •  subscriber credit quality;
 
  •  the potential to experience a continued high rate of subscriber turnover;
 
  •  the ability of Sprint to provide back office billing, subscriber care and other services and the quality and costs of such services or, alternatively, our ability to outsource all or a portion of these services;
 
  •  the ability to successfully leverage 3G products and services;
 
  •  inaccuracies in financial information provided by Sprint;

i


Table of Contents

  •  new charges and fees, or increased charges and fees, imposed by Sprint;
 
  •  the impact and outcome of disputes with Sprint;
 
  •  our ability to predict future customer growth, as well as other key operating metrics;
 
  •  rates of penetration in the wireless industry;
 
  •  our significant level of indebtedness;
 
  •  the impact and outcome of legal proceedings between other Sprint network partners and Sprint;
 
  •  adequacy of bad debt and other allowances;
 
  •  the potential need for additional sources of capital and liquidity;
 
  •  risks related to our ability to compete with larger, more established businesses;
 
  •  anticipated future losses;
 
  •  rapid technological and market change;
 
  •  subscriber purchasing patterns;
 
  •  customer satisfaction with our network and operations and our ability to retain customers;
 
  •  potential fluctuations in quarterly results;
 
  •  an adequate supply of subscriber equipment;
 
  •  the impact of spending cuts on network quality, customer retention and customer growth;
 
  •  risks related to future growth and expansion;
 
  •  the current economic slowdown; and
 
  •  the volatility of the market price of our common stock.

      These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Forward-looking statements should, therefore, be considered in light of various important factors, including those set forth in this prospectus and solicitation statement under the caption “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this prospectus and solicitation statement and the incorporated reports. Moreover, we caution you not to place undue reliance on these forward-looking statements, which speak only as of the date they were made. We do not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events. All subsequent forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this prospectus and solicitation statement.

ii


Table of Contents

QUESTIONS AND ANSWERS REGARDING PROCEDURAL ASPECTS

OF THE EXCHANGE OFFER AND CONSENT SOLICITATION AND REGARDING THE
DISCLOSURE STATEMENT AND PREPACKAGED PLAN OF REORGANIZATION
 
Q: How do I tender my old notes in the exchange offer, and to whom should I send my old notes?
 
A: If you hold old notes through a broker, dealer, bank, trust company or other nominee, you should instruct your nominee to tender your old notes for you.
 
If you hold old notes in your own name, you should complete the letter of transmittal included with this prospectus and solicitation statement and deliver the completed letter of transmittal with the old notes to the exchange agent, [                    ]. The address and telephone number for [                    ] is on the back cover of this prospectus and solicitation statement.
 
Q: How long will the exchange offer and consent solicitation remain open?
 
A: The exchange offer and consent solicitation will each expire at 5:00 p.m., New York City time, on                     , 2003, unless we extend it.
 
Q: If I tender my old notes, when will I receive my shares of common stock and new notes?
 
A: Holders who validly tender their old notes in the exchange offer will receive shares of common stock and new notes promptly after the expiration of the exchange offer.
 
Q: How do I consent to the amendments to the old notes indenture and waive any defaults under the old notes indenture that occur in connection with the restructuring?
 
A: By tendering your old notes you also consent to the amendments to the old notes indenture and agree to waive any defaults under the old notes indenture that occur in connection with the restructuring. You cannot tender your old notes without also consenting to the amendments to the old notes indenture and agreeing to waive any defaults under the old notes indenture that occur in connection with the restructuring.
 
Q: When is the deadline for consenting to the amendment to the old notes indenture and agreeing to waive any defaults under the old notes indenture that occur in connection with the restructuring?
 
A: The consent solicitation will expire at the same time as the exchange offer, 5:00 p.m., New York City time, on                     , 2003, unless we extend it.
 
Q: How do I vote on the prepackaged plan of reorganization?
 
A: If you hold old notes through a broker, dealer, bank, trust company or other nominee, you should complete the ballot included with this prospectus and solicitation statement and deliver the completed ballot to your broker, dealer, bank, trust company or other nominee with instructions to deliver your ballot for you.
 
If you hold old notes in your own name, you should complete the ballot included with this prospectus and solicitation statement and deliver it to the ballot agent, [                    ]. The address and telephone number for [                    ] is on the back cover of this prospectus and solicitation statement.
 
Q: Who is eligible to vote on the prepackaged plan of reorganization?
 
A: The holders of all claims against, or equity interests in, us that are impaired by the prepackaged plan of reorganization will be entitled to vote on the prepackaged plan of reorganization, except for the class of holders of impaired equity interests consisting of “below market” warrants and stock options that are not eligible to receive any distributions under the prepackaged plan of reorganization. As more fully explained in this prospectus and solicitation statement, a claim or equity interest is impaired, generally speaking, if its treatment under the prepackaged plan of reorganization alters the terms of or rights associated with that claim or interest. The rights in respect of the old notes would be altered by the prepackaged plan of reorganization and consequently holders of old notes may vote on the prepackaged plan of reorganization. For the purposes of voting upon and receiving distributions or other treatment under the prepackaged plan of reorganization, we have organized the various claims against, and equity interests in, us into different classes.

iii


Table of Contents

 
Holders of claims and equity interests impaired by the prepackaged plan of reorganization that are entitled to vote on the prepackaged plan of reorganization will vote on the prepackaged plan of reorganization by class. The claims of our old noteholders are classified under the prepackaged plan of reorganization as Class 3 claims. Members of the same class are treated similarly under the prepackaged plan of reorganization. See “Summary — The Prepackaged Plan — Summary of Classification and Treatment of Claims and Equity Interests under the Prepackaged Plan of Reorganization” and “The Prepackaged Plan — Description of Classes of Claims and Equity Interests and their Treatment,” for a description of the various classes of claims and equity interests under the prepackaged plan of reorganization and their treatment.
 
Q: How long do I have to vote on the prepackaged plan of reorganization?
 
A: The solicitation of acceptances for the prepackaged plan of reorganization will expire at the same time as the exchange offer and consent solicitation, 5:00 p.m., New York City time, on                     , 2003, unless we extend it.
 
Q: May I revoke my tender of old notes, and the related consent, at any time?
 
A: If you hold old notes through a broker, dealer, bank, trust company or other nominee, you can revoke the tender of your old notes, and related consent to amendments to the old notes indenture, prior to the expiration of the exchange offer by directing your nominee to contact the exchange agent, [                    ], at its address on the back cover of this prospectus and solicitation statement.
 
If you hold old notes in your own name, you can revoke the tender of your old notes, and the related consent, prior to the expiration of the exchange offer by sending a written notice of withdrawal to the exchange agent, [                    ], at its address on the back cover of this prospectus and solicitation statement.
 
Q: May I change my vote on the prepackaged plan of reorganization at any time?
 
A: If you hold old notes through a broker, dealer, bank, trust company or other nominee, you can change your vote in favor of or against the prepackaged plan of reorganization prior to the close of business on the solicitation expiration date by directing your nominee to contact the ballot agent, [                    ], at its address on the back cover of this prospectus and solicitation statement.
 
If you hold old notes in your own name, you can change your vote in favor or against the prepackaged plan of reorganization prior to the close of business in New York on the solicitation expiration date by contacting the ballot agent, [                    ], at its address on the back cover of this prospectus and solicitation statement.
 
Q: Whom should I call if I have questions or need additional copies of this prospectus and solicitation statement, the letter of transmittal, ballots or other documents?
 
A: You may obtain additional copies of this prospectus and solicitation statement, the letter of transmittal, ballots and other related documents from the information agent, [                    ]. The address and telephone number for [                    ] is on the back cover of this prospectus and solicitation statement.

For further information about the procedures for tendering your old notes, consenting to amendments to the old notes indenture and voting on the prepackaged plan of reorganization, see “The Exchange Offer and Consent Solicitation — Procedures for Tendering Old Notes and Delivering Consents” and “The Prepackaged Plan — Solicitations of Acceptances of the Prepackaged Plan.”

iv


Table of Contents

SUMMARY

      This Summary highlights selected information from this prospectus and solicitation statement and may not contain all of the information that is important to you. To understand the exchange offer, consent solicitation and prepackaged plan fully and for a more complete description of the legal terms and conditions of the exchange offer, consent solicitation and prepackaged plan, you should carefully read this entire prospectus and solicitation statement, including the exhibits and the other documents to which we have referred you. Unless the context otherwise requires, all references in this prospectus and solicitation statement to “Company” refer to AirGate and its consolidated subsidiaries and references to “AirGate”, “we”, “us” and “our” refer only to AirGate and its consolidated subsidiaries excluding iPCS and its consolidated subsidiaries.

About Our Company

      AirGate PCS, Inc. and its subsidiaries were created for the purpose of providing wireless Personal Communication Services, or “PCS”. We are a network partner of Sprint PCS with the exclusive right to market and provide Sprint PCS products and services in a defined network territory. We are licensed to use the Sprint brand names in our original 21 markets located in the Southeastern United States.

      On November 30, 2001, AirGate acquired iPCS, Inc., another Sprint network partner with 37 markets in the Midwestern United States.

      AirGate offers PCS products and services in a territory covering portions of South Carolina, North Carolina and Georgia with attractive demographic characteristics. AirGate’s territory has many vacation destinations, covers substantial highway mileage and includes a large student population, with at least 60 colleges and universities. As of June 30, 2003, AirGate had 364,157 subscribers and total network coverage of approximately 6.0 million residents, representing approximately 83% of the residents in its territory. For the nine months ended June 30, 2003, AirGate generated revenue of approximately $226.1 million.

      Subsequent to November 30, 2001 (the date of the iPCS acquisition), the results of operations and accounts of iPCS were consolidated with AirGate in accordance with generally accepted accounting principles. On February 23, 2003, iPCS, Inc. filed a Chapter 11 bankruptcy petition in the United States Bankruptcy Court for the Northern District of Georgia for the purpose of effecting a court-administered reorganization. In accordance with accounting literature, subsequent to February 23, 2003, AirGate no longer consolidates the accounts and results of operations of iPCS, Inc. and its subsidiaries and the accounts of iPCS, Inc. and its subsidiaries are recorded as an investment using the cost method of accounting. In addition, AirGate no longer controls the management of iPCS, Inc.

      “Sprint PCS” is a group of wholly-owned subsidiaries of Sprint Corporation, a diversified telecommunications service provider, that operate and manage Sprint’s PCS products and services. Sprint operates a 100% digital PCS wireless network in the United States and holds the licenses to provide PCS nationwide using a single frequency band and a single technology. Sprint, directly and indirectly through network partners such as us, provides wireless services in more than 4,000 cities and communities across the country. Sprint directly operates its PCS network in major metropolitan markets throughout the United States. Sprint has also entered into independent agreements with various network partners, such as us, under which the network partners have agreed to construct and manage PCS networks in smaller metropolitan areas and along major highways.

      Our principal executive offices are located at Harris Tower, 233 Peachtree Street NE, Suite 1700, Atlanta, Georgia 30303. Our website is located at www.airgatepcsa.com. Information contained on our website does not constitute a part of this prospectus and solicitation statement.

1


Table of Contents

The Financial Restructuring

Reasons for the Financial Restructuring

      As more fully described herein, the wireless communications industry, including us, has experienced a weaker operating environment due to slower growth, intense competition and other factors. In addition, as a result of our dependence on Sprint, we have confronted additional factors that have had a negative impact on our business. These factors and the lack of additional sources of capital led us to revise our business plan to, among other things, provide for slower growth and reduce our operating costs, with a focus on cash conservation. These factors and a revised business plan also led us to examine alternatives for a capital restructuring.

      As a result of our business strategy, for the nine months ended June 30, 2003, AirGate has produced $24.7 million of EBITDA. As of June 30, 2003, AirGate had working capital of $2.6 million and cash and cash equivalents of approximately $30.8 million, up from $(54.5) million and $0.9 million, respectively, at December 31, 2002. After drawing the remaining available $9.0 million credit under our $153.5 million credit facility in August, 2003, we are completely dependent on available cash and operating cash flow to operate our business and fund our capital needs. Based on our current business plan and assuming that we meet our debt covenants, we believe that we will have sufficient cash flow to cover our debt service and other capital needs through March 2005. After that time, our ability to generate operating cash flow to pay debt service and meet our other capital needs is much less certain. In addition, based on current assumptions, we anticipate that we will meet our covenant obligations under our credit facility through March 2005. However, if actual results differ significantly from these assumptions and/or if the recapitalization plan is not completed and the credit facility is not further amended, then the costs incurred in connection with the recapitalization plan will make it challenging to meet certain covenants under our credit facility at March 31, 2004. Further, under our current business plan, we believe that we will not be in compliance with certain covenants under our credit facility at April 1, 2005. We have significant cash principal and interest payments under our indebtedness coming due during the period from 2005 through 2009. Unless the financial restructuring occurs, we will be required to make the following approximate principal and interest payments on our credit facility and old notes: $25.8 million during fiscal 2004; $71.0 million in fiscal 2005; $75.9 million in fiscal 2006; $83.8 million in fiscal 2007; $81.7 million in fiscal 2008; and $340.5 million in fiscal 2009. As of September 4, 2003, the interest rate on our credit facility was 5.13%. This assumes an interest rate on our credit facility of 5.5%.

      We expect that the completion of the financial restructuring will improve our capital structure and reduce the financial risk in our business plan by substantially reducing the required payments under our outstanding indebtedness.

Two Alternative Plans for Completing the Financial Restructuring

      The following summary highlights selected information from this prospectus and solicitation statement and may not contain all the information that noteholders will need to make a decision regarding whether to tender their old notes in the exchange offer. This prospectus and solicitation statement includes specific terms of the exchange offer, including descriptions of the new notes and our common stock, and descriptions of amendments to our credit facility, as well as information regarding our business and financial data. We encourage noteholders to read this prospectus and solicitation statement and the documents to which we refer them carefully, including the discussion of risks and uncertainties affecting our business included in the section of this prospectus and solicitation statement captioned “Risk Factors.”

      The recapitalization plan includes: (1) the exchange offer and related consent solicitation; (2) the amendment of our credit facility; and (3) stockholder approval of certain aspects of the recapitalization plan. We do not intend to file a petition for relief under Chapter 11 of the Bankruptcy Code and seek confirmation of the prepackaged plan if the conditions to the recapitalization plan are satisfied or waived, including the exchange offer minimum tender condition and related consents.

2


Table of Contents

      If we are not able to complete the recapitalization plan for any reason, but we receive sufficient acceptances of the prepackaged plan, our board of directors may decide to achieve our financial restructuring goals through seeking confirmation of the prepackaged plan in a Chapter 11 bankruptcy case.

The Recapitalization Plan

General

      The exchange offer and consent solicitation are part of the recapitalization plan for achieving our financial restructuring goals. Consummation of the recapitalization plan will result in a reduction of more than $255 million in the principal and interest payments due under the old notes. The recapitalization plan consists of several concurrent transactions described below. Consummation of each of those transactions is conditioned upon the consummation of the others as set forth below.

      We have entered into a support agreement with the holders of approximately 67% of the aggregate principal amount due at maturity of the outstanding old notes. The support agreement sets forth the terms and conditions of, and commitments of the parties with respect to, the financial restructuring. The support agreement provides, among other things, that, subject to the terms thereof, the noteholders party thereto will support the recapitalization plan and, if applicable, the prepackaged plan. Pursuant to the support agreement, holders of approximately 67% in aggregate principal amount due at maturity of the old notes agreed, subject to the terms thereof, to tender their old notes in the exchange offer and consent to certain changes to the old notes indenture. We believe that the acceptance of the prepackaged plan by the old noteholders who have executed the support agreement, subject to certain conditions, makes it likely that we will have the acceptances necessary to confirm the prepackaged plan in the event it becomes necessary to seek confirmation of the financial restructuring by means of the prepackaged plan. See “The Prepackaged Plan of Reorganization — Vote Required for Class Acceptance of the Prepackaged Plan of Reorganization” and “— Confirmation of the Prepackaged Plan of Reorganization Without Acceptance by All Classes of Impaired Claims and Interests.” A copy of the form of support agreement is attached to this prospectus and solicitation statement as Annex A. For a description of the support agreement, see “The Restructuring — Description of Support Agreement.”

The Exchange Offer and Consent Solicitation

     The Exchange Offer

      Subject to the terms and conditions set forth in this prospectus and solicitation statement, we are offering to exchange our outstanding old notes for an aggregate of (1) 33,000,000 shares of our common stock, representing 56% of the shares of our common stock to be issued and outstanding immediately after the financial restructuring, prior to the reverse stock split, and (2) $160,000,000 in aggregate principal amount of our new notes, in each case assuming the exchange of all outstanding old notes. We will issue approximately 110 shares of our pre-reverse split common stock and $533.33 in aggregate principal amount of our new notes in exchange for each $1,000 of principal amount due at maturity of our old notes properly tendered in the exchange offer and not withdrawn. The percentages appearing above do not give effect to any shares of our common stock that may be issued pursuant to options and warrants currently outstanding.

      Minimum Tender Condition. The completion of the exchange offer is conditioned upon, among other things, our receipt of valid tenders, which are not withdrawn, from not less than 98% in aggregate principal amount due at maturity of old notes outstanding immediately prior to the expiration of the exchange offer. We reserve the right to waive the minimum tender condition, which, under the terms of the support agreement, we would be able to do only with the prior approval of our board of directors and holders of a majority of old notes who are signatories to the support agreement. See “The Restructuring — Description of Support Agreement.”

3


Table of Contents

      Other Conditions. The completion of the exchange offer is also conditioned upon:

  •  the approval by our stockholders of certain aspects of the recapitalization plan;
 
  •  the approval by the bankruptcy court overseeing the iPCS bankruptcy proceeding of our transfer of iPCS common stock to a trust for the benefit of our stockholders, as more fully described under “iPCS Stock Trust;”
 
  •  there being no action or proceeding by a court or regulatory authority which enjoins, restricts or prohibits the consummation of the exchange offer;
 
  •  satisfaction of the conditions set forth in the support agreement, as more fully described under “The Restructuring — Description of Support Agreement;”
 
  •  receipt of any consents or approvals from governmental and regulatory authorities, if required; and
 
  •  other conditions set forth in this prospectus and solicitation statement under “The Exchange Offer — Conditions to the Exchange Offer.”

      Expiration Date. The exchange offer will expire at 5:00 p.m., New York City time, on                     , 2003, unless we extend it. In the event we extend the exchange offer, notice will be published by 9:00 a.m., New York City time, on the next business day after the scheduled expiration date of the offer. See “The Exchange Offer — Tender Expiration Date; Extension; Amendment and Termination.”

      Federal Income Tax Consequences. We will receive an opinion from KPMG LLP that the exchange of our common stock and new notes for the old notes more likely than not will constitute a recapitalization for United States Federal income tax purposes and, if so, will not be taxable to tendering holders, except to the extent that the common stock and new notes issued in the exchange is attributable to accrued but unpaid interest. Holders of the notes who do not participate in the exchange offer should consult their own tax advisors as to the applicable tax consequences. As a result of the recapitalization plan, for tax reporting purposes we will realize income from the cancellation of indebtedness, or COD, and will use some of our existing net operating losses to offset this income. To the extent the discharge of our old notes occurs in a Chapter 11 bankruptcy case pursuant to the prepackaged plan, COD income will be excluded and a corresponding amount of tax attributes will be reduced. We may also be limited in our ability to use our existing tax attributes following the financial restructuring. For a further description of United States Federal income tax consequences of the financial restructuring, see “Material United States Federal Income Tax Consequences.”

     The Consent Solicitation

      Concurrently with the exchange offer, we are soliciting the consent of each holder of old notes to (1) the adoption of certain amendments to the old notes indenture to eliminate substantially all of the restrictive covenants contained in the old notes indenture, (2) the release of all collateral securing our obligations under the old notes indenture and (3) the waiver of any defaults and events of default under the old notes indenture that may occur in connection with the recapitalization plan.

      If the proposed amendments become operative, they will eliminate substantially all of the restrictive covenants contained in the old notes indenture. The proposed amendments to the old notes indenture will delete the provisions of the old notes indenture that limit indebtedness, restricted payments, permitted investments, issuance and sale of capital stock of subsidiaries, transactions with affiliates, sale and leaseback transactions, liens, dividends, our and our subsidiaries’ business activities and other payment restrictions affecting subsidiaries and will also eliminate certain events of default. The proposed amendments also will release the collateral that secures our obligations under the old notes indenture.

      Consents from holders of a majority in principal amount of the old notes are necessary to effect the proposed amendments and waivers, and consents from holders of 75% in aggregate principal amount due at maturity of the old notes are necessary to effect the proposed release of collateral.

4


Table of Contents

     Acceptance of the Prepackaged Plan

      In the event that the conditions to the recapitalization plan are not satisfied and assuming that we receive sufficient acceptances, we may elect to seek as an alternative to the recapitalization plan the confirmation of the prepackaged plan. The requirements to approve the prepackaged plan are summarized below under “— The Prepackaged Plan”.

     Dealer Manager, Information Agent and Exchange Agent

                          is the dealer manager,                     is the information agent and                     is the exchange agent for the exchange offer. Their addresses and telephone numbers are set forth on the back cover of this prospectus and solicitation statement.

Reverse Stock Split

      As part of the recapitalization plan, we are proposing to implement an approximate                     reverse split of our common stock. The reverse stock split, by itself, will not have any effect on the stockholders’ proportionate equity interests in our company. The reverse stock split will not have any economic impact on the aggregate capital represented by the shares of common stock for financial statement purposes, nor will adoption of the reverse stock split reduce the number of shares of common stock authorized for issuance. The rights and privileges of holders of shares of common stock will remain the same after the reverse stock split. All of our outstanding options and warrants will be proportionately adjusted to reflect the reverse stock split.

Amendments to Our Credit Facility

      We have negotiated certain amendments to our credit facility with the lenders thereunder. Such amendments will become effective concurrently with the consummation of the recapitalization plan. For details regarding the specific amendments to the credit facility, see “Description of Our Credit Facility — The Amendment of Our Credit Facility”.

Proxy Solicitation

      Concurrently with the exchange offer and consent solicitation, we are soliciting proxies from our existing stockholders for approval of certain aspects of the recapitalization plan by means of a separate proxy statement filed with the SEC.

 
Amendment and Restatement of Our Certificate of Incorporation

      The proxy statement will request our stockholders to approve an amendment and restatement of our certificate of incorporation to implement the reverse split of our common stock. Stockholder approval of the amendment and restatement of our certificate of incorporation requires the affirmative vote of holders of a majority of our outstanding shares of common stock.

 
Approval of Recapitalization and Other Matters

      The proxy statement will also request our stockholders to approve (1) the issuance of shares of our common stock pursuant to the recapitalization plan and (2) an increase in the number of shares available for issuance under our 2002 AirGate PCS, Inc. Incentive Plan to approximately  million shares, which may not be more than 10% of our outstanding shares, excluding currently outstanding options with a strike price in excess of $5.00. Any shares issued under the Plan will proportionately dilute existing AirGate shareholders and tendering old noteholders. The amounts and terms of any equity awards for executives established by the board of directors are subject to approval by a majority of the noteholders that are parties to the support agreement. Stockholder approval of the items discussed above requires the affirmative vote of stockholders holding a majority of the shares of common stock that are held by

5


Table of Contents

stockholders voting in person or by proxy at the special stockholders’ meeting, provided that a quorum exists.
 
Requirements for Stockholder Approval

      The consummation of the transactions contemplated by the recapitalization plan is conditioned upon our receiving the required stockholder approval with respect to the reverse stock split and the issuance of our common stock. Under our bylaws, holders of at least 50% of the outstanding shares of our common stock entitled to vote at the meeting must be present at the meeting, in person or by proxy, to constitute a quorum.

      We also are soliciting stockholder acceptances of the prepackaged plan from our stockholders pursuant to the proxy solicitation.

iPCS Stock Trust

      In connection with the issuance of common stock in the exchange offer described in this prospectus and solicitation statement, we will undergo an ownership change for tax purposes. An ownership change of AirGate would also cause an ownership change of our wholly-owned subsidiary, iPCS, Inc. This ownership change could have a detrimental effect on the value of certain net operating losses (“NOLs”) of iPCS and, consequently, could subject the restructuring to the automatic stay protection of the iPCS bankruptcy court. In order to prevent such an effect, we will, before the consummation of the exchange offer, transfer all of our shares of iPCS common stock into a trust organized under Delaware law. Our shareholders on the date of transfer to the trust will be the trust’s sole beneficiaries. Such shareholders’ interest in the trust will be equal to their current percentage ownership of AirGate. We have requested the bankruptcy court overseeing iPCS’s bankruptcy to approve (i) the transfer of the iPCS shares to the trust, (ii) the documentation governing the trust and (iii) upon confirmation of iPCS’s plan of reorganization by the bankruptcy court, the distribution to the trust’s beneficiaries of the iPCS shares if the plan of reorganization for iPCS approved by the iPCS bankruptcy court provides for such distribution. It is likely that the iPCS bankruptcy court will ascribe little to no value to the iPCS stock. Under the documentation governing the trust, the trustee will administer the trust and we will have no ability to direct the trustee in its administration of the trust.

The Prepackaged Plan

      Although our board of directors has made no decision to file a petition for relief under Chapter 11 of the Bankruptcy Code, we have prepared the prepackaged plan as a possible alternative to the recapitalization plan for effecting the restructuring if the conditions to the completion of the exchange offer, including the minimum tender condition, are not satisfied or waived but we do receive the required acceptances to seek confirmation of the prepackaged plan. We are therefore soliciting the vote of each holder of our old notes in favor of the prepackaged plan by soliciting ballots with this prospectus and solicitation statement. We are also soliciting acceptances of the prepackaged plan from our stockholders pursuant to the proxy solicitation. We do not intend to file a petition for relief under Chapter 11 of the Bankruptcy Code and seek confirmation of the prepackaged plan if the conditions to the recapitalization plan are satisfied or waived, including the exchange offer minimum tender condition and related consents.

      The prepackaged plan consists of a plan of reorganization under Chapter 11 of the Bankruptcy Code that would effect the same transactions contemplated by the recapitalization plan, including the issuance of common stock and new notes in exchange for our old notes. Under the prepackaged plan, except for holders of “below market” warrants and stock options (whose interests will be cancelled under the prepackaged plan), the holders of our debt and equity securities (as well as the holders of all other claims) will receive the same consideration in exchange for their claims and interests as they would receive in the recapitalization plan.

6


Table of Contents

Voting on the Prepackaged Plan

      We are seeking acceptances of the prepackaged plan from all impaired classes of claims and equity interests, including holders of the old notes, that are entitled to vote on the prepackaged plan. Under the prepackaged plan, creditors and stockholders who hold substantially similar legal claims or interests with respect to the distribution of the value of our assets are divided into separate “classes” of claims or interests. Under the Bankruptcy Code, the separate classes of claims and interests must be designated either as “impaired” (affected by the plan) or “unimpaired” (unaffected by the plan). For the prepackaged plan to be confirmed by the bankruptcy court without invoking the “cram down” provisions, each class of claims or interests that is impaired must vote to accept the prepackaged plan. An impaired class of claims (such as the holders of our old notes (Class 3)) is deemed to accept a plan of reorganization under the provisions of the Bankruptcy Code if holders of at least two-thirds in dollar amount and more than one-half in number of the holders of claims who actually cast ballots vote to accept the prepackaged plan. An impaired class of interests (such as our common stock (Class 7)) is deemed to accept a plan of reorganization if the holders of at least two-thirds in amount of the interests in such class who actually cast ballots vote to accept the prepackaged plan.

      Under the prepackaged plan, the following constitute impaired classes: the claims held by holders of our old notes (Class 3), the interests held by holders of our common stock (Class 7), and other interests, primarily “below market” warrants and stock options (Class 9).

      For the purposes of the prepackaged plan, Class 3 claims, which we anticipate will consist solely of the claims of old noteholders, are treated as impaired and, therefore, are entitled to vote upon the prepackaged plan. See “The Prepackaged Plan of Reorganization — Description of Classes of Claims and Equity Interests and their Treatment.” We anticipate that it would not be possible to confirm the prepackaged plan without an affirmative vote by the holders of Class 3 claims. We believe it is highly likely that Class 3 claim holders will approve the prepackaged plan because holders of old notes representing over two-thirds of aggregate principal amount due at maturity of old notes agreed with us that they, subject to certain conditions, would accept the prepackaged plan, and that the old notes held by those old noteholders constitute approximately 67% of the claims represented by all Class 3 claims known to us as of the date of this prospectus and solicitation statement. See “The Restructuring — Description of Support Agreement.”

      We have elected to treat the holders of our common stock, which are classified as Class 7 equity under the prepackaged plan, as impaired and will be soliciting, through a separate proxy statement filed with the SEC, their acceptance of the prepackaged plan. We have elected to treat the holders of “above market” warrants and stock options, which are classified as Class 8 equity under the prepackaged plan, as unimpaired. Under the prepackaged plan, above market warrants and stock options are those outstanding warrants and stock options that have an exercise price that is less than or equal to the market price of our common stock as of                     , 2003, the voting record date for the prepackaged plan. Approval by holders of Class 7 equity interests would require the affirmative vote to accept the prepackaged plan from holders of at least two-thirds in amount of the equity interests in the class who actually cast ballots. In the event that Class 3 claims approve the prepackaged plan, we anticipate that we would be in a position to consider a “cram down” of the Class 7 equity interests pursuant to Section 1129 of the Bankruptcy Code, which permits the confirmation of a plan of reorganization even if the plan of reorganization is not accepted by all impaired classes, so long as at least one impaired class of claims has accepted the plan of reorganization and as long as no class of claims or interests junior to the dissenting class receives any distributions. See “The Prepackaged Plan — Holders of Claims Entitled to Vote; Record Date for Voting” and “The Prepackaged Plan — Confirmation of the Prepackaged Plan of Reorganization Without Acceptance by All Classes of Impaired Claims and Interests.”

      Since some of our equity interest holders, consisting of below market warrants and stock options, which are classified as Class 9 equity, will not be entitled to receive any distribution pursuant to the prepackaged plan, that class of equity interests will be deemed to have not accepted the prepackaged plan. Below market warrants and stock options are those outstanding warrants and stock options which have an

7


Table of Contents

exercise price in excess of the market price of our common stock on the voting record date for the prepackaged plan. Consequently, if our board of directors decides to file the prepackaged plan we will seek to take advantage of the “cram down” provisions of Section 1129 of the Bankruptcy Code, at least with respect to this class of equity interests. We believe that it is highly likely that we will be able to obtain approval for the prepackaged plan from at least one class of claims and, because there are no classes of equity interests ranking junior to the classes of “below market” warrants and stock options, we expect that we will be in a position to “cram down” that class of equity interests. Holders of interests or claims in any class affected by the “cram down” will receive the same treatment as they would have received had the class approved the prepackaged plan.

      See “The Prepackaged Plan — Confirmation of the Prepackaged Plan Without Acceptance by All Classes of Impaired Claims and Interests.”

Voting Record Date

      The “voting record date” for determining the holders of claims or interests for purposes of voting on the prepackaged plan is the close of business on                     ,                     .

Solicitation Expiration Date

      The ballots must be received by the voting agent by 5:00 p.m., New York City time, on                     ,                     (unless we extend the prepackaged plan solicitation period, in which case ballots must be received by the voting agent by the last date to which we extend the prepackaged plan solicitation period). We will notify the voting agent of any extension by oral or written notice and will make a public announcement thereof, before 9:00 a.m., New York City time, on the next business day after the previously scheduled solicitation expiration date.

Our Common Stock

Authorized and Outstanding Amounts

      As of June 30, 2003, there were authorized 155,000,000 shares of capital stock, including 150,000,000 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 June 30, 2003, we had outstanding 25,939,836 shares of common stock (including 37,000 shares of restricted stock), no shares of preferred stock, options exercisable for 2,191,209 shares of common stock and warrants to acquire 709,280 shares of common stock. As part of the financial restructuring, we are proposing that our stockholders approve a reverse split of our common stock. Prior to giving effect to the reverse stock split, as of June 30, 2003, there would have been issued and outstanding approximately 58,939,836 shares of our common stock (or approximately 61,840,325 shares, assuming exercise of all options and warrants issued and outstanding as of that date).

      The following table presents certain information regarding our equity capitalization as of June 30, 2003 on a historical basis and on a pro forma basis to reflect the consummation of our recapitalization (without giving effect to the reverse stock split).

8


Table of Contents

                   
As of June 30, 2003

Historical Pro Forma


Common Stock:
               
Existing AirGate shareholders(1)
    25,939,836       25,939,836  
Tendering holders of old notes
          33,000,000 (2)
     
     
 
 
Total shares outstanding
    25,939,836       58,939,836  
     
     
 
Stock Options:
               
Shares reserved for issuance pursuant to outstanding options(3)(4)
    2,191,209       2,191,209  
Shares available for issuance pursuant to future option grants
    897,311       5,400,783  
     
     
 
 
Total shares reserved and available for issuance under stock incentive plans(3)(4)
    3,088,520       7,591,992  
Warrants:
               
 
Total shares reserved for issuance pursuant to outstanding warrants(5)
    709,280       709,280  


(1)  Includes 806,280 shares “beneficially” owned by executive officers and directors as of September 30, 2003. See “Security Ownership of Certain Beneficial Owners, Directors And Officers.”
 
(2)  Assumes 100% of the old notes are validly tendered in the exchange offer and not withdrawn.
 
(3)  Includes 1,698,009 shares reserved for issuance pursuant to outstanding options having an exercise price in excess of $5 per share.
 
(4)  Excludes 751,756 shares subject to “underwater” options surrendered and cancelled without consideration by executive officers on September 3, 2003.
 
(5)  Includes 669,110 shares reserved for issuance pursuant to outstanding warrants having an exercise price of $20.40 or more per share.

Dividends

      We have never declared or paid any cash dividends on our capital stock. We intend to retain any future earnings for use in our business and do not anticipate paying any cash dividends in the foreseeable future. In addition, both our credit facility and the indenture governing the new notes will severely limit our ability to declare and pay dividends.

Voting Rights

      The holders of our common stock are entitled to one vote per share on all matters to which stockholders are entitled to vote pursuant to the Delaware General Corporation Law.

Trading Market

      Our common stock is traded on the Over-The-Counter Bulletin Board under the symbol “PCSA.OB”. On September 25, 2003, the closing bid price of our common stock was $2.70 per share.

Our New Notes

 
Issuer AirGate PCS, Inc..
 
Notes Offered $160.0 million principal amount of 9 3/8% Senior Subordinated Secured Notes due 2009.
 
Maturity Date September 1, 2009.
 
Interest Payment Dates                     and                     , commencing                     , 2004.

9


Table of Contents

 
Ranking The new notes will be our senior subordinated secured obligations and will rank junior in right of payment to all of our senior indebtedness. As of June 30, 2003, after giving effect to the restructuring, we would have had approximately $          million of outstanding indebtedness, $          million of which would have been senior to the new notes.
 
Collateral The new notes will be secured by second-priority liens, subject to certain exceptions and permitted liens, on substantially all of our and our domestic subsidiaries’ existing and after-acquired assets for which a first-priority lien has been granted to the lenders under our credit facility, which we refer to in this prospectus and solicitation statement as the “collateral.”
 
The indenture and the security documents relating to the new notes permit us to incur additional debt and other obligations that may also be secured by liens on the collateral that are senior to or pari passu with the second-priority lien securing the new notes, subject to certain restrictions. No appraisals of any collateral have been prepared by us or on our behalf in connection with this exchange offer. The value of the collateral at any time will depend on market and other economic conditions, including the availability of suitable buyers for the collateral.
 
The first-priority liens on all or a portion of the collateral may be released as more fully provided under the security documents governing the credit facility, whereupon under certain circumstances the second-priority lien that secures the new notes on such released collateral shall automatically be released without the consent of the holders of the new notes. In addition, the lenders under the credit facility will have the sole ability to control the exercise of remedies with respect to the collateral. In the event of a liquidation of the collateral, the proceeds may not be sufficient to satisfy the obligations under the credit facility or the new notes. See “Risk Factors — Risks Relating to the New Notes — The value of the collateral securing the new notes may not be sufficient to satisfy obligations under the new notes and the collateral securing the new notes may be reduced or diluted under certain circumstances” and “— The lenders under our credit facility will have the sole right to exercise remedies against the collateral for so long as the credit facility is outstanding, including releasing the collateral securing the new notes.” You should read “Description of the New Notes — Security” for a more complete description of the security granted to the holders of the new notes.
 
Optional Redemption At any time on or after January 1, 2006, we may redeem the new notes in whole or in part, at redemption prices set forth in the section entitled “Description of the New Notes — Redemption,” plus accrued and unpaid interest, if any, to the redemption date.
 
Change of Control Upon a change of control, as defined under the section entitled “Description of the New Notes — Repurchase at the Option of

10


Table of Contents

Holders — Change of Control,” you will have the right, as a holder of new notes, to require us to repurchase all or part of your new notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase.
 
Guarantee AirGate’s obligations under the new notes will be guaranteed on a senior subordinated secured basis by all of its restricted subsidiaries, which we collectively refer to as the guarantors. The guarantees will be senior subordinated secured obligations of the guarantors and will rank junior to all existing and future senior indebtedness of the guarantors. See “Description of the New Notes — Guarantees.”
 
Restrictive Covenants The indenture governing the new notes limits our ability and the ability of our restricted subsidiaries to:
 
• incur more debt;
 
• create liens;
 
• repurchase stock and make certain investments;
 
• pay dividends, make loans or transfer property or assets;
 
• enter into sale and leaseback transactions;
 
• transfer or dispose of substantially all of our assets; and
 
• engage in transactions with affiliates.
 
These covenants are subject to a number of important exceptions and limitations that are described under the heading “Description of the New Notes.”
 
Risk Factors You should consider carefully all of the information set forth in this prospectus and solicitation statement and, in particular, you should evaluate the specific factors set forth under “Risk Factors” in deciding whether to invest in the new notes.

11


Table of Contents

Summary Selected Historical Financial Data

Market Price Information

      Shares of our common stock began trading on The Nasdaq National Market on September 28, 1999, under the symbol “PCSA”. Before that date, there was no public market for our common stock. Beginning on April 8, 2003, after being de-listed from The Nasdaq National Market, our common stock began trading on the OTC Bulletin Board under the symbol “PCSA.OB”. On September 25, 2003, the last trading day before the date of this prospectus and solicitation statement, the last reported sales price per share of our common stock on the OTC Bulletin Board was $2.70. On September 19, 2003, there were 201 registered holders of record of our common stock.

      The old notes are not currently traded or listed on any securities exchange.

AirGate PCS, Inc. and Subsidiaries Selected Financial Data

      The summary statement of operations and balance sheet data presented below is derived from our audited consolidated financial statements as of and for the year ended December 31, 1998, the nine months ended September 30, 1999, and the years ended September 30, 2000, 2001 and 2002 and our unaudited consolidated financial statements as of June 30, 2003 and for the nine months ended June 30, 2002 and 2003. Such data includes the results of operations of iPCS subsequent to November 30, 2001, its date of acquisition, but as a result of iPCS’ Chapter 11 bankruptcy filing, does not include the results of operations of iPCS subsequent to February 23, 2003. iPCS filed for Chapter 11 bankruptcy on February 23, 2003.

      In accordance with generally accepted accounting principles, iPCS’ results of operations are not consolidated with AirGate’s results subsequent to February 23, 2003 and the accounts of iPCS are recorded as an investment using the cost method of accounting. AirGate results include the effects of purchase accounting related to the iPCS acquisition. The comparability of our results for the nine months ended June 30, 2003 to the same period for 2002 are affected by the exclusion of the results of iPCS for the periods prior to November 30, 2001 and after February 23, 2003. As a result, the exclusion of iPCS results after February 23, 2003 has the effect of lowering revenues and expenses in the nine months ended June 30, 2003 compared to the same period in 2002, which is partially offset by the exclusion of results for iPCS prior to November 30, 2001.

      The unaudited financial statements include all adjustments, consisting of normal recurring accruals, that management considers necessary to fairly present the Company’s financial position and results of operations. Operating results for the nine-month period ended June 30, 2003 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2003.

12


Table of Contents

      The data set forth below should be read in conjunction with our consolidated financial statements and accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus and solicitation statement.

                                                             
For the For the Nine Nine Months Ended
Year Ended Months Ended For the Year Ended September 30, June 30,
December 31, September 30,

1998 1999 2000 2001 2002(1) 2002(1) 2003(4)







(In thousands, except per share subscriber data) (Unaudited)
Statement of Operations Data:
                                                       
Revenues:
                                                       
 
Service revenue
  $     $     $ 9,746     $ 105,976     $ 327,365     $ 230,422     $ 242,928  
 
Roaming revenue
                12,338       55,329       111,162       75,458       67,019  
 
Equipment revenue
                2,981       10,782       18,030       13,523       10,773  
     
     
     
     
     
     
     
 
 
Total revenues
                25,065       172,087       456,557       319,403       320,720  
     
     
     
     
     
     
     
 
Operating expenses:
                                                       
 
Cost of services and roaming (exclusive of depreciation as shown separately below)
                (27,770 )     (116,732 )     (311,135 )     (216,698 )     (193,956 )
 
Cost of equipment
                (5,685 )     (20,218 )     (43,592 )     (29,982 )     (22,400 )
 
Selling and marketing
                (28,357 )     (71,617 )     (116,521 )     (85,568 )     (57,280 )
 
General and administrative
    (2,597 )     (5,294 )     (14,078 )     (15,742 )     (25,339 )     (18,277 )     (21,910 )
 
Non-cash stock compensation
          (325 )     (1,665 )     (1,665 )     (769 )     (597 )     (530 )
 
Depreciation
    (1,204 )     (622 )     (12,034 )     (30,621 )     (70,197 )     (47,864 )     (48,967 )
 
Amortization of intangible assets
                      (46 )     (39,332 )     (29,377 )     (6,855 )
 
Loss on disposal of property and equipment
                            (1,074 )            
     
     
     
     
     
     
     
 
 
Operating expenses before impairments
    (3,801 )     (6,241 )     (89,589 )     (256,641 )     (607,959 )     (428,363 )     (351,898 )
 
Impairment of goodwill(3)
                            (460,920 )     (261,212 )      
 
Impairment of property and equipment(3)
                            (44,450 )            
 
Impairment of intangible assets(3)
                            (312,043 )            
     
     
     
     
     
     
     
 
   
Total operating expenses
    (3,801 )     (6,241 )     (89,589 )     (256,641 )     (1,425,372 )     (689,575 )     (351,898 )
     
     
     
     
     
     
     
 
 
Operating loss
    (3,801 )     (6,241 )     (64,524 )     (84,554 )     (968,815 )     (370,172 )     (31,178 )
 
Interest income
                    9,321       2,463       590       530       94  
 
Interest expense
    (1,392 )     (9,358 )     (26,120 )     (28,899 )     (57,153 )     (40,732 )     (45,869 )
 
Other
                                  (20 )     11  
 
Income tax benefit
                            28,761       28,761        
     
     
     
     
     
     
     
 
 
Net loss
  $ (5,193 )   $ (15,599 )   $ (81,323 )   $ (110,990 )   $ (996,617 )   $ (381,633 )   $ (76,942 )
     
     
     
     
     
     
     
 
 
Basic and diluted net loss per share of common stock
  $ (1.54 )   $ (4.57 )   $ (6.60 )   $ (8.48 )   $ (41.96 )   $ (16.55 )   $ (2.97 )
 
Basic and diluted weighted-average outstanding common shares
    3,382,518       3,414,276       12,329,149       13,089,285       23,751,507       23,059,151       25,897,415  
Other Data:
                                                       
 
Number of subscribers at end of period
                56,689       235,025       554,833       532,446       364,157  
 
Ratio of earnings to fixed charges(5)
                                         
Statement of Cash Flow Data:
                                                       
 
Cash used in operating activities
  $ (989 )   $ (2,473 )   $ (41,609 )   $ (40,850 )   $ (45,242 )   $ (48,797 )   $ 20,650  
 
Cash used in investing activities
    (2,432 )     (15,706 )     (152,397 )     (71,772 )     (78,716 )     (59,061 )     (28,869 )
 
Cash provided by (used in) financing activities
    5,200       274,783       (6,510 )     68,528       142,143       23,880       30,793  

13


Table of Contents

                                                   
As of As of September 30, As of
December 31,
June 30,
1998 1999 2000 2001 2002(1) 2003






(unaudited)
Balance Sheet Data (at period end):
                                               
 
Cash and cash equivalents
  $ 2,296     $ 258,900     $ 58,384     $ 14,290     $ 32,475     $ 30,793  
 
Total current assets
    2,774       261,247       74,315       56,446       129,773       74,810  
 
Property and equipment, net
    12,545       44,206       183,581       209,326       399,155       184,493  
 
Total assets
    15,450       317,320       268,948       281,010       574,294       272,036  
 
Total current liabilities(2)
    16,481       31,507       37,677       61,998       494,173       72,257  
 
Long-term debt and capital lease obligations
    7,700       165,667       180,727       266,326       354,828       375,400  
 
Stockholders’ equity (deficit)
    (5,350 )     127,846       49,873       (52,724 )     (292,947 )     (369,302 )


(1)  On November 30, 2001, AirGate acquired iPCS, Inc. (together with its subsidiaries “iPCS”). The accounts of iPCS are included as of September 30, 2002, and the results of operations subsequent to November 30, 2001.
 
(2)  As a result of an event of default, the iPCS credit facility and iPCS notes have been classified as a current liability.
 
(3)  As a result of fair value assessments performed by a nationally recognized valuation expert, the Company recorded total impairment charges of $817,413 associated with the impairment of goodwill and tangible and intangible assets related to iPCS.
 
(4)  On February 23, 2003, iPCS, Inc. filed for Chapter 11 bankruptcy. Prior to February 23, 2003, the accounts and results of operations of iPCS were consolidated. Subsequent to filing bankruptcy, iPCS is accounted for on the cost basis.
 
(5)  Earnings were inadequate to cover fixed charges for the year ended December 31, 1998, the nine months ended September 30, 1999, the years ended September 30, 2000, 2001, and 2002, and the nine months ended September 30, 2002 and 2003 by $5,193, $15,599, $81,323, $110,990, $1,025,378, $335,276 and $76,942, respectively.

14


Table of Contents

Unaudited Pro Forma Summary Consolidated Financial Data

      The following unaudited pro forma summary consolidated financial data shows the effects of the exchange offer on the historical consolidated balance sheets and consolidated statements of operations of AirGate PCS, Inc. and its subsidiaries. The pro forma summary consolidated financial data assumes 100% of our old notes are exchanged for common stock and new notes under the terms described herein. To aid you in your analysis of the financial aspects of this transaction, we have presented this set of unaudited pro forma summary consolidated financial data to demonstrate the significant financial aspects of the transaction.

      We derived this information from the unaudited consolidated financial statements of the Company for the nine months ended June 30, 2003 and the audited consolidated financial statements of the Company for the year ended September 30, 2002. These historical financial statements used in preparing the pro forma financial statements are summarized and should be read in conjunction with our complete historical financial statements and related notes contained elsewhere in this prospectus and solicitation statement. See “Pro Forma Condensed Consolidated Financial Statements” for additional pro forma information.

      The unaudited pro forma condensed consolidated statement of operations data for the nine months ended June 30, 2003 and for the year ended September 30, 2002 give effect to the exchange offer as if it had been consummated at the beginning of the earliest period presented. The unaudited pro forma summary consolidated balance sheet data as of June 30, 2003 gives effect to the exchange offer as if it took place June 30, 2003.

      The Company is providing the unaudited pro forma summary consolidated financial information for illustrative purposes only. The pro forma consolidated financial data does not purport to represent what our interim consolidated financial position or results of operations would have actually been had the recapitalization plan in fact been completed on that date, or to project our results of operations for any future period. You should not rely on the unaudited pro forma summary consolidated financial information as being indicative of the historical results that would have been achieved had the companies been combined during the periods presented or the future results that the combined company will experience.

15


Table of Contents

                     
Year Ended Nine Months Ended
September 30, 2002 June 30, 2003


(In thousands, except for per share data)
(Unaudited)
Statement of Operations Data:
               
Revenues:
               
 
Service revenue
  $ 327,365     $ 242,928  
 
Roaming revenue
    111,162       67,019  
 
Equipment and other revenue
    18,030       10,773  
     
     
 
   
Total revenues
    456,557       320,720  
Operating expenses:
               
 
Cost of service and roaming
    (311,135 )     (193,956 )
 
Cost of equipment
    (43,592 )     (22,400 )
 
Selling and marketing
    (116,521 )     (57,280 )
 
General and administrative
    (25,339 )     (21,910 )
 
Noncash stock option compensation
    (769 )     (530 )
 
Depreciation
    (70,197 )     (48,967 )
 
Amortization of intangible assets
    (39,332 )     (6,855 )
 
Loss on disposal of property and equipment
    (1,074 )      
     
     
 
   
Operating expenses before impairments
    (607,959 )     (351,898 )
 
Impairment of goodwill
    (460,920 )      
 
Impairment of property and equipment
    (44,450 )      
 
Impairment of intangible assets
    (312,043 )      
     
     
 
   
Total operating expenses
    (1,425,372 )     (351,898 )
     
     
 
 
Operating Loss
    (968,815 )     (31,178 )
 
Interest income
    590       94  
 
Interest expense
    (36,534 )     (28,661 )
 
Other income (expense)
          11  
 
Income tax benefit
    28,761        
     
     
 
   
Net loss
  $ (975,998 )   $ (59,734 )
     
     
 
 
Basic and diluted net loss per share of common stock
  $ (17.20 )   $ (1.01 )
     
     
 
           
As of June 30, 2003

(In thousands)
(Unaudited)
Balance Sheet Data:
       
 
Cash and cash equivalents
  $ 20,835  
 
Property and equipment, net
    184,493  
 
Total assets
    258,412  
 
Long-term debt
    331,607  
 
Total stockholders’ equity (deficit)
  $ (339,133 )

16


Table of Contents

RISK FACTORS

      You should carefully consider the following risk factors before you decide to tender your old notes in the exchange offer, deliver a consent in the consent solicitation and vote to accept or reject the prepackaged plan. These risks are not intended to represent a complete list of the general or specific risks that may affect holders in connection with the restructuring or that relate to us.

Risks Related to the Restructuring

 
If we do not complete the restructuring, we may not have sufficient operating cash flow to fund our capital needs.

      At June 30, 2003, we had working capital of $2.6 million and approximately $30.8 million of available cash and cash equivalents. After drawing the remaining $9.0 million available under our credit facility in August, we are completely dependent on available cash and operating cash flow to operate our business and fund our capital needs. Based on our current business plan and assuming that we meet our debt covenants, we believe that we will have sufficient cash flow to cover our debt service and other capital needs through March 2005. After that time, our ability to generate operating cash flow to pay debt service and meet our other capital needs is much less certain. In addition, based on current assumptions, we anticipate that we will meet our covenant obligations under our credit facility through March 2005. However, if actual results differ significantly from these assumptions and/or if the recapitalization plan is not completed and the credit facility is not further amended, then the costs incurred in connection with the recapitalization will make it challenging to meet certain covenants under our credit facility at March 31, 2004. Further, under our current business plan, we believe that we will not be in compliance with certain covenants under our credit facility at April 1, 2005.

      If we do not consummate the restructuring, we will likely consider other alternatives to adjust our capital structure, which may include seeking protection under Chapter 11 of the Bankruptcy Code. The expenses of any such proceeding would reduce the assets available for payment or distribution to our creditors, including holders of the old notes. In addition, we believe that the filing by us or against us of a bankruptcy petition would not increase the amount of any payment or distribution that holders of the old notes would receive, could reduce such amount, and in any event would delay receipt of any such payment or distribution by such holders.

 
If we do not complete the restructuring before March 31, 2004, we may default under the EBITDA related covenants in our credit facility.

      We will incur substantial expenses in connection with the restructuring. If the restructuring is not completed and the amendment to our credit facility is not effective, most of these expenses will reduce “EBITDA” as defined in our credit facility. A significant reduction in our EBITDA could cause us to fail to meet certain financial covenants in our credit facility, thus triggering an event of default.

 
We may need additional financing after the restructuring, which may be unavailable.

      The restructuring will restructure our old notes and reduce required debt service payments. While we currently anticipate that funds currently available and operating cash flow will be sufficient to fund our capital needs, our actual funding requirements could vary materially from our current estimates.

      We base our financial projections on assumptions that we believe are reasonable but which contain significant uncertainties that could affect our business, our future performance and our liquidity. Our ability to achieve and sustain operating profitability will depend on many factors, including our ability to market Sprint PCS products and services, manage churn, sustain monthly average revenues per user, and reduce operating expenses and maintain a moderate level of capital expenditures. In addition, our business, our future performance and our liquidity would be affected by general industry and market conditions and

17


Table of Contents

growth rates and general economic and political conditions, including the global economy and other future events.

      Consequently, we may have to raise additional funds to operate our business and provide other needed capital and we may be unable to do so.

 
An alternative to the restructuring may not be available, or if available and completed, may be less financially attractive to our creditors than the restructuring.

      We believe that the completion of the restructuring will improve our capital structure and reduce the financial risk in our business plan by substantially reducing the required payments under our old notes. If we do not complete the restructuring, either through the recapitalization plan or the prepackaged plan, we may seek an alternative restructuring of our capitalization and our obligations to our creditors and obtain their consent to any such restructuring plan with or without a pre-approved plan of reorganization or otherwise. An alternative restructuring arrangement or plan may not be available, or if available, may result in an unsuccessful reorganization or be on terms less favorable to our creditors and equity holders than the terms of the restructuring. In addition, there is a risk that distributions to our creditors under a liquidation or under a protracted and non-orderly reorganization would be substantially delayed and diminished.

 
If the economic terms of the restructuring are materially altered, the noteholders who are parties to the support agreement may be released from their obligations and we may have to further amend the terms of our credit facility.

      Under the terms of the support agreement, we have agreed not to effect a restructuring unless it is in accordance with the terms of the support agreement and the related restructuring term sheet, a form of which are attached to this prospectus and solicitation statement as Annex A. An alteration of any economic terms would release any noteholders not consenting to such alteration from their obligations under the support agreement. As a result, some or all of the noteholders could attempt to take the position that they are not bound by an amended support agreement or term sheet. If we are unable to reach agreement on a modified support agreement, and some or all of the noteholders do not support the proposed restructuring, we may need to pursue an alternative plan of restructuring. In addition, because we entered into the amendment to our credit facility well in advance of the contemplated consummation of the restructuring, further amendments to our credit facility will likely be required by the noteholders that signed the support agreement. The failure to obtain a necessary further credit facility amendment could prohibit us from completing the restructuring.

 
A long and protracted restructuring could adversely affect our business.

      If not enough holders tender their old notes and, as a result, we do not successfully consummate the recapitalization plan, we will be required to consider other restructuring alternatives, including possibly seeking protection under Chapter 11 of the Bankruptcy Code. Any such alternatives may take substantially longer to consummate than the recapitalization plan. A protracted restructuring could disrupt our business and could divert the attention of our management from operation of our business and implementation of our business plan. The uncertainty surrounding a prolonged restructuring could also have other adverse effects on us. For example, it could adversely affect:

  •  our ability to raise additional capital;
 
  •  our ability to capitalize on business opportunities and react to competitive pressures;
 
  •  our ability to attract and retain key employees;
 
  •  our liquidity;
 
  •  our relationships with key suppliers;
 
  •  our ability to enter into long-term contracts with customers;

18


Table of Contents

  •  how our business is viewed by regulators, investors, lenders or credit rating agencies;
 
  •  the amount of collateral required in the transaction of our business; and
 
  •  our enterprise value.

      If we determine that we are unable to, or, that it is more advantageous or expeditious not to complete the restructuring, we will consider all financial alternatives available to us at such time, which may include implementing an alternative restructuring arrangement outside of bankruptcy. Any reorganization that may result could be on terms less favorable to the holders of the old notes or our shareholders than the terms of the recapitalization plan or the prepackaged plan. If a protracted and non-orderly restructuring were to occur, there is a risk that the ability of the holders of the old notes and our shareholders to recover their investments would be substantially delayed and more impaired than under the recapitalization plan or the prepackaged plan.

 
We cannot complete the recapitalization plan if we do not obtain stockholder approval, in which case we may complete the restructuring by means of the prepackaged plan or another proceeding under Chapter 11 of the Bankruptcy Code.

      The consummation of the transactions contemplated by the recapitalization plan is conditioned upon our receiving the approval of our existing stockholders to (1) the issuance of our common stock in the exchange offer, and (2) an amendment and restatement of our certificate of incorporation to effectuate a reverse stock split. Therefore, even if the minimum tender condition and each of the other conditions to the exchange offer are met or waived, the failure to obtain such stockholder approval, unless waived by our board of directors, will prevent us from consummating the recapitalization plan.

      If we fail to implement the recapitalization plan, we may seek confirmation of the prepackaged plan. If we cannot find an out-of-court solution, the prepackaged plan may be the best means of effecting the goals of the recapitalization plan. However, even an expedited, prepackaged plan approach to bankruptcy can have adverse effects on our business, our creditors, shareholders and interest holders. Although in the event of a Chapter 11 proceeding we would seek to pay vendors in the ordinary course, a bankruptcy proceeding could threaten the trade vendor credit support to us and could cause us to lose subscribers and revenues and increase expenses because of concerns about our operations. We can give no assurance that the prepackaged plan will be confirmed or that the bankruptcy proceeding will be short or that objections to the prepackaged plan will not diminish the likelihood, or the value to us, of its confirmation. If a protracted and non-orderly restructuring were to occur, there is a risk that the ability of the noteholders to recover their investments would be substantially delayed and more impaired than under the proposed recapitalization plan.

 
If the minimum tender condition is not met or waived for the exchange offer and we cannot implement the recapitalization plan, there may still be sufficient votes to accept the prepackaged plan, in which event it will bind all of our security holders regardless of whether they voted for, against or not at all on the prepackaged plan.

      The consummation of the exchange offer is conditioned upon, among other things, our receipt of valid tenders from not less than 98% of our old notes outstanding immediately before the expiration of the exchange offer, unless such condition is waived. Absent the “cram-down” procedure, to obtain approval of the prepackaged plan, however, we need to receive from (1) each impaired class of claims the affirmative votes of holders of (A) two-thirds in terms of dollar amount and (B) one-half in terms of the number of holders of such class who actually cast ballots, and (2) each impaired class of equity interests entitled to vote on the plan, the affirmative votes of holders of two-thirds in amount of the equity interests of such class who actually cast ballots.

      If we cannot complete the recapitalization plan for any reason, including a failure to meet the minimum tender condition, but we receive the required votes from each impaired class of claims or interests to accept the prepackaged plan, we may seek confirmation of the prepackaged plan in the

19


Table of Contents

bankruptcy court. If the prepackaged plan is confirmed by the bankruptcy court, it will bind all of our security holders regardless of whether they voted for, against or not at all on the prepackaged plan. Therefore, assuming the prepackaged plan satisfies the other requirements of the bankruptcy code, a significantly smaller number of security holders can bind other security holders to the terms of the prepackaged plan. Additionally, since claims and equity interests are grouped in classes for the purpose of voting on the prepackaged plan, holders of claims and interests may be bound by the decisions of other claim or interest holders in a way that they otherwise would not be bound outside of bankruptcy.

      Furthermore, if at least one class of impaired claims and interests, such as the noteholders other than the interests held by our stockholders, accept the prepackaged plan, and we determine to seek confirmation of the prepackaged plan in the bankruptcy court, we may pursue confirmation of the prepackaged plan under the “cram down” provisions of the Bankruptcy Code. If the prepackaged plan is confirmed under the “cram down” provisions of the Bankruptcy Code, all classes of claims and interests will be bound by the terms of the plan regardless of whether such class voted to accept the prepackaged plan. See “The Prepackaged Plan — Confirmation of the Prepackaged Plan Without Acceptance by All Classes of Impaired Claims and Interests.”

 
We may incur income tax liability or lose tax attributes as a result of the restructuring.

      We will realize cancellation of indebtedness, or “COD,” income as a result of the exchange to the extent that the fair market value of the common stock and the issue price of the new notes issued in exchange for the old notes is less than the “adjusted issue price” of the old notes (generally including any accrued but unpaid interest). Thus, the precise amount of COD income cannot be determined until the closing date of the restructuring.

      To the extent that we are considered solvent from a tax perspective immediately before the completion of the restructuring and realize COD income, our available losses may offset all or a portion of the COD income. COD income realized in excess of available losses will result in a tax liability. In addition, the issuance of our common stock in the exchange will result in an ownership change (as defined in Section 382 of the Internal Revenue Code) in our company that will significantly limit the use of our remaining tax attributes, including our net operating loss carry forwards.

      We will not recognize COD income to the extent we are considered insolvent from a tax perspective immediately before the completion of the restructuring. If and to the extent COD income is excluded from taxable income due to insolvency, we will generally be required to reduce certain of our tax attributes, including, but not limited to, net operating losses and loss carryforwards. This may result in a significant reduction in our net operating losses. Taxable income will result to the extent COD income exceeds the amount by which we are considered to be insolvent immediately before the completion of the restructuring.

      Alternatively, if the discharge of the old notes occurs in a Chapter 11 bankruptcy case, we will not recognize any COD income as a result of such discharge although certain of our tax attributes will be reduced. In addition, we may be eligible to apply the Bankruptcy Exception (as defined below) under Section 382 to avoid triggering an ownership change.

      Since the noteholders will hold a significant equity position following the restructuring, regardless of whether the restructuring is achieved through the recapitalization plan or the prepackaged plan, if the noteholders dispose of all or a significant portion of their common stock after the exchange, such a disposition may cause us to undergo a further ownership change for tax purposes, resulting in a further limitation of our ability to use our tax attributes following that ownership change as described above.

      Notwithstanding our ability to utilize our net operating losses to offset COD income for regular federal income tax purposes, we will likely be subject to tax under the Alternative Minimum Tax provisions of the Internal Revenue Code of 1986, as amended.

20


Table of Contents

Risks Related to the Exchange Offer

 
The proposed amendments to the old notes indenture will significantly reduce the protections afforded non-tendering holders of the old notes.

      If the minimum tender condition and each of the other conditions to the exchange offer are met or waived and the exchange offer and the recapitalization plan are completed, we and the trustee under the old notes indenture will execute a supplemental indenture effecting the proposed amendments. Upon execution of the supplemental indenture, the proposed amendments will apply to all of the old notes that remain outstanding and each holder of such old notes not tendered in the exchange offer will be bound by the supplemental indenture, regardless of whether such holder consented to the proposed amendments.

      The proposed amendments to the old notes indenture will delete the provisions of the old notes indenture which limit indebtedness, issuance of preferred stock, restricted payments, permitted investments, issuance and sale of capital stock of subsidiaries, transactions with affiliates, sale and leaseback transactions, liens, dividends, the business activities of our subsidiaries and other payment restrictions affecting subsidiaries. The proposed amendments also will release the collateral that secures our obligations under the old notes indenture and waive certain defaults that may occur in connection with the restructuring. For a description of the proposed amendments, see “The Exchange Offer and Consent Solicitation — Proposed Amendments, Release and Waivers.”

      Pursuant to the support agreement, holders of approximately 67% of our old notes have agreed to consent to the proposed amendments, collateral release and waivers.

 
The exchange offer will reduce the liquidity of the old notes that are not tendered.

      There currently is a limited trading market for the old notes, and no reliable public pricing information for the old notes is generally available. The old notes are not traded on any national securities exchange or automated quotation system. We understand that from time to time a small number of brokers and dealers have made a market in the old notes as a service for their clients. The trading market for unexchanged old notes could become even more limited or nonexistent due to the reduction in the amount of such old notes outstanding upon completion of the recapitalization plan and elimination of protective covenants, which might adversely affect the liquidity, market price and price volatility of any unexchanged old notes. If a market for unexchanged old notes exists or develops, those old notes will likely trade at a discount to the price at which the old notes would trade if the amount outstanding were not reduced, depending on prevailing interest rates, the market for similar securities and other factors.

Holders of the old notes who tender their old notes in the exchange offer will lose their contractual rights under the old notes indenture and as creditors to the extent they receive common stock and gain contractual rights under the new notes indenture that differ from those under the old notes indenture.

      Upon completion of the recapitalization plan, holders of old notes will lose the contractual rights they currently have as our creditors and will have different rights as our common stockholders. For example, the noteholders who tender their old notes will lose their right to receive interest on the old notes and any other rights they have under the old notes indenture. Also, in a liquidation, a holder of common stock will be paid, if at all, only after claims of holders of debt are satisfied. Further, under most circumstances, the value of equity will likely react to changes in our business with a higher degree of volatility than will the value of a debt claim. Consequently, as stockholders, the holders of old notes may suffer more from future adverse developments relating to our financial condition, results of operations or prospects than they would as holders of our debt.

      In addition, with respect to the portion of the old notes that will be exchanged for new notes in the exchange offer, the holders will lose the contractual rights they currently have under the old notes indenture and will gain the contractual rights under the new notes indenture. For a comparison of the old notes and new notes and a holder’s rights under the respective indentures, see “Description of the New Notes — Comparison of Old Notes and New Notes.”

21


Table of Contents

 
Holders of the old notes who do not participate in the exchange offer may incur tax consequences.

      Holders of the old notes who choose not to participate in the exchange offer may be deemed to have exchanged their old notes for different notes in an exchange, which could result in the recognition of gain or loss for tax purposes. In addition, under certain circumstances, the different notes may be deemed to be issued with original issue discount, which holders would have to accrue into income on a constant yield basis. For a more detailed description of the tax consequences to holders who do not participate in the exchange offer, see “Material United States Federal Income Tax Consequences — Consequences of Not Participating in the Exchange Offer.”

 
In the future, we may acquire any old notes that are not tendered in the exchange offer for consideration different than that in the exchange offer.

      In the future, we may acquire any old notes that are not tendered in the exchange offer through open market purchases, privately negotiated transactions, an exchange offer or such other means as we deem appropriate. Any such acquisition will occur upon such terms and at such prices as we may determine in our discretion, which may be more or less than the value of the common stock and new notes being exchanged for the old notes under the exchange offer, and could be for cash or other consideration. We may choose to pursue any or none of these alternatives, or combinations thereof, in the future.

Risks Related to Our Common Stock

 
We may not succeed in relisting our common stock on The Nasdaq National Market.

      The Nasdaq National Market delisted our common stock as of April 8, 2003, because, among other matters, our bid price remained below the required minimum price of $1.00 per share for more than 30 days. As of September 25, 2003, the closing price of our common stock was $2.70. If we successfully consummate the exchange offer or the prepackaged plan, we anticipate that we will apply for relisting of our common stock on The Nasdaq National Market. While we believe that consummation of the recapitalization plan, including the proposed reverse stock split, will have the effect of increasing the minimum bid price of our common stock, the minimum bid price may not increase at all or for any period of time and we may fail in our attempt to relist our common stock on The Nasdaq National Market.

 
We cannot predict the price at which our common stock will trade after the restructuring.

      Assuming all outstanding old notes are tendered, we expect to issue approximately 33,000,000 shares of our common stock to the holders of our old notes in connection with the restructuring, before giving effect to the reverse stock split. As of June 30, 2003, there were 25,939,836 shares of our common stock issued and outstanding. After giving effect to the restructuring, assuming that all of the outstanding old notes are tendered in the exchange offer and without giving effect to the reverse stock split, we estimate that there will be approximately 58,939,836 shares of our common stock issued and outstanding, which means that our existing common stockholders will hold approximately 44% of our common stock after the restructuring.

      This issuance of common stock could materially depress the price of our common stock if holders of a large number of shares of common stock attempt to sell all or a substantial portion of their holdings after the restructuring. We cannot predict what the demand for our stock will be after the restructuring; how many shares of our common stock will be offered for sale or be sold after the restructuring; or the price at which our common stock will trade after the restructuring. There are no agreements or other restrictions that prevent the sale of a large number of our shares of common stock immediately after the restructuring. The issuance of the shares of common stock offered pursuant to this prospectus and solicitation statement in exchange for our old notes has been registered with the SEC. As a consequence, those shares will, in general, be freely tradeable.

22


Table of Contents

 
We may not achieve or sustain operating profitability or positive cash flows, which may adversely affect our stock price.

      We have a limited operating history. Our ability to achieve and sustain operating profitability will depend on many factors, including our ability to market Sprint PCS products and services, manage churn, sustain monthly average revenues per user, and reduce operating expenses and maintain a moderate level of capital expenditures. We have experienced slowing net subscriber growth, higher rates of churn than industry averages and increased costs to acquire new subscribers and as a result, have had to revise our business plan. If we do not achieve and maintain positive cash flows from operations as projected, our stock price may be materially adversely affected.

 
Because our stock price has suffered significant declines and remains volatile, you may be unable to sell your shares at the price you paid for them.

      The market price of our common stock has been and may continue to be subject to wide fluctuations in response to factors such as the following, some of which are beyond our control:

  •  quarterly variations in our operating results;
 
  •  concerns about liquidity;
 
  •  the de-listing of our common stock;
 
  •  operating results that vary from the expectations of securities analysts and investors;
 
  •  changes in expectations as to our future financial performance, including financial estimates by securities analysts and investors;
 
  •  changes in the market perception about the prospects and results of operations and market valuations of other companies in the telecommunications industry in general and the wireless industry in particular, including Sprint and its PCS network partners and our competitors;
 
  •  changes in our relationship with Sprint, including the impact of our efforts to more closely examine Sprint charges and amounts paid by Sprint, and our disputes with Sprint;
 
  •  litigation between other Sprint network partners and Sprint;
 
  •  announcements by Sprint concerning developments or changes in its business, financial condition or results of operations, or in its expectations as to future financial performance;
 
  •  actual or potential defaults by us under any of our agreements;
 
  •  actual or potential defaults in bank covenants by Sprint or Sprint PCS network partners, which may result in a perception that we are unable to comply with our bank covenants;
 
  •  announcements by Sprint or our competitors of technological innovations, new products and services or changes to existing products and services;
 
  •  changes in law and regulation;
 
  •  announcements by third parties of significant claims or proceedings against us;
 
  •  announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments; and
 
  •  general economic and competitive conditions.

23


Table of Contents

 
Our common stock was delisted from the Nasdaq National Market. Accordingly, our stockholders’ ability to sell our common stock may be adversely affected. Additionally, the market for so-called “penny stocks” has suffered in recent years from patterns of fraud and abuse.

      We were notified by the Nasdaq Stock Market, Inc. that because we had failed to regain compliance with the minimum $1.00 bid price per share requirement, and also failed to comply with the minimum stockholders’ equity, market value of publicly held shares and minimum bid requirements for continued listing on the Nasdaq National Market, the Nasdaq Stock Market, Inc. was delisting our stock from the Nasdaq National Market. This delisting occurred on April 8, 2003. In addition, we did not meet the listing requirements to be transferred to the Nasdaq Small Cap Market. Our common stock currently trades on the Over-The-Counter Bulletin Board maintained by The Nasdaq Stock Market, Inc., under the symbol “PCSA.OB”, and is subject to an SEC rule that imposes special sales practice requirements upon broker-dealers who sell such Over-The-Counter Bulletin Board securities to persons other than established customers or accredited investors. For purposes of the rule, the phrase “accredited investors” means, in general terms, institutions with assets in excess of $5,000,000, or individuals having a net worth in excess of $1,000,000 or having an annual income that exceeds $200,000 (or that, when combined with a spouse’s income, exceeds $300,000). For transactions covered by the rule, the broker-dealer must make a special suitability determination for the purchaser and receive the purchaser’s written agreement to the transaction prior to the sale. Consequently, the rule may affect the ability of broker-dealers to sell our common stock and also may affect the ability of our current stockholders to sell their securities in any market that might develop. In addition, the SEC has adopted a number of rules to regulate “penny stocks.” Such rules include Rules 3a51-1, 15-g1, 15-g2, 15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Securities Exchange Act of 1934 as amended. Our common stock may constitute “penny stocks” within the meaning of the rules. These rules may further affect the ability of owners of our common stock to sell our securities in any market that might develop for them.

      Shareholders should also be aware that, according to the SEC, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. We are aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our securities.

 
Upon completion of the restructuring, our common stock may be concentrated in a few holders.

      As a result of the restructuring, the holders of old notes will receive shares of our common stock representing 56% of our common stock, assuming all outstanding old notes are tendered in the exchange offer. Before the restructuring, the majority of our outstanding old notes were held by a few investors. Consequently, these investors individually will hold higher concentrations of our common stock after the restructuring.

      In addition, we entered into a registration rights agreement at the time of our acquisition of iPCS with some of the former iPCS stockholders. Under the terms of the registration rights agreement, Blackstone Communications Partners I L.P. and certain of its affiliates (“Blackstone”) have a demand registration right, which became exercisable after November 30, 2002, subject to the requirement that the offering exceed size requirements. In addition, the former iPCS stockholders, including Blackstone, have incidental registration rights pursuant to which they can, in general, include their shares of our common stock in any public registration we initiate, whether or not for sale for our own account.

      Sales of substantial amounts of shares of our common stock by any of these large holders, or even the potential for such sales, could lower the market price of our common stock and impair its ability to raise capital through the sale of equity securities.

24


Table of Contents

 
We do not intend to pay dividends in the foreseeable future.

      We do not anticipate paying any cash dividends on our common stock in the foreseeable future. We intend to retain any future earnings to fund operations, debt service requirements and other corporate needs. Accordingly, you will not receive a return on your investment in our common stock through the payment of dividends in the foreseeable future and may not realize a return on your investment even if you sell your shares. In addition, both our credit facility and the indenture governing the new notes will severely limit our ability to declare and pay dividends.

 
Our certificate of incorporation and bylaws include provisions that may discourage a change of control transaction or make removal of members of the board of directors more difficult.

      Some provisions of our certificate of incorporation and bylaws could have the effect of delaying, discouraging or preventing a change in control of us or making removal of members of the board of directors more difficult. These provisions include the following:

  •  a classified board, with each board member serving a three-year term;
 
  •  no authorization for stockholders to call a special meeting;
 
  •  no ability of stockholders to remove directors without cause;
 
  •  prohibition of action by written consent of stockholders; and
 
  •  advance notice for nomination of directors and for stockholder proposals.

      These provisions, among others, may have the effect of discouraging a third party from making a tender offer or otherwise attempting to obtain control of us, even though a change in ownership might be economically beneficial to us and our stockholders. See also “— Risks Related to Our Relationship with Sprint — Certain provisions of the Sprint agreements may diminish the value of our common stock and restrict the sale of our business.”

Risks Related to the New Notes

 
Our substantial level of indebtedness, even after the restructuring, could adversely affect our financial condition and prevent us from fulfilling our obligations on the new notes.

      Upon completion of the restructuring, we still will have a substantial amount of indebtedness that requires significant interest payments. As of June 30, 2003, on a pro forma basis after giving effect to the restructuring and assuming that all outstanding old notes are tendered in the exchange offer, we would have had approximately $343.5 million of total debt. In addition, the indenture for the new notes will permit us to incur additional indebtedness, subject to specified restrictions.

      Our substantial level of indebtedness could have important consequences to you, including the following:

  •  limiting our ability to fund working capital, capital expenditures, acquisitions or other general corporate purposes;
 
  •  requiring us to use a substantial portion of our cash flow from operations to pay interest and principal on the credit facility, the new notes and other indebtedness, which will reduce the funds available to us for purposes such as capital expenditures, marketing, development, potential acquisitions and other general corporate purposes;
 
  •  exposing us to fluctuations in interest rates, to the extent our borrowings bear variable rates of interest, including through interest rate swap agreements;
 
  •  placing us at a competitive disadvantage compared to our competitors that have less debt;

25


Table of Contents

  •  reducing our flexibility in planning for, or responding to, changing conditions in our industry, including increased competition; and
 
  •  making us more vulnerable to general economic downturns and adverse developments in our business.
 
If we incur more indebtedness, the risks associated with our substantial leverage, including our ability to service our indebtedness, will increase.

      The new notes indenture and the credit facility will permit us, subject to specified conditions, to incur additional indebtedness. If we incur additional debt above current levels, the risks associated with our substantial leverage, including our ability to service our debt, would increase.

 
We will require a significant amount of cash to service our indebtedness. Our ability to generate cash depends on many factors beyond our control.

      Our ability to make payments on and to refinance our indebtedness, including the new notes, and to fund working capital needs and planned capital expenditures will depend on our ability to generate cash in the future. Our ability to generate cash, to a certain extent, is subject to general economic, financial, competitive, regulatory, legislative and other factors that are beyond our control.

 
Your right to receive payments on the new notes and guarantees is subordinated to our credit facility.

      Payment on the new notes and guarantees will be subordinated in right of payment to all of our and the guarantors’ current and future senior debt, including our and the guarantors’ obligations under our credit facility. As a result, upon any distribution to our creditors or the guarantors’ creditors in a bankruptcy, liquidation, reorganization or similar proceeding relating to us or the guarantors or our or their property, the holders of our and the guarantors’ senior debt will be entitled to be paid in full in cash before any cash payment may be made on the new notes or the related guarantees. In these cases, we and the guarantors may not have sufficient funds to pay all of our creditors, and holders of the new notes may receive less, ratably, than the holders of our senior debt. In addition, all payments on the new notes and the related guarantees will be blocked in the event of a payment default on our designated senior debt and may be blocked for up to 179 consecutive days in the event of certain defaults other than payment defaults on our designated senior debt.

      As of June 30, 2003, on a pro forma basis after giving effect to the restructuring, the new notes and the related guarantees would have been subordinated to approximately $142.8 million of debt under our credit facility, which increased to $151.8 million with our August 2003 draw under our credit facility. In addition, the new notes indenture and our credit facility permit us and the guarantors, subject to specified limitations, to incur additional debt, some or all of which may be senior debt. All amounts outstanding from time to time under our credit facility will be designated senior debt.

 
The value of the collateral securing the new notes may not be sufficient to satisfy obligations under the new notes, and the collateral securing the new notes may be reduced or diluted under certain circumstances.

      The new notes will be secured by second-priority liens on the collateral described in this prospectus and solicitation statement. The collateral also secures on a first-priority basis our obligations under our credit facility, as well as other indebtedness to the extent permitted by the terms of the indenture governing the new notes. As of June 30, 2003, we and our subsidiaries had approximately $           million of secured indebtedness outside of our credit facility. Our obligations are generally secured by a first-priority lien on the underlying assets relating to such obligations, including under our credit facility. As a result, the new notes will be secured by a second-priority security interest in such assets. In addition, your rights to the collateral would be diluted by any future increases in the indebtedness secured by the collateral.

26


Table of Contents

      In the event of foreclosure on the collateral, the proceeds from the sale of the collateral securing indebtedness under the new notes may not be sufficient to satisfy our obligations on the new notes. This is so because proceeds from a sale of the collateral would be distributed to satisfy indebtedness and all other obligations under the credit facility and any other indebtedness secured by a first-priority lien on the collateral before any such proceeds could be distributed in respect of the new notes. Only after all of our obligations under the credit facility and any other first-priority indebtedness have been satisfied will proceeds from the sale of collateral be available to holders of the new notes.

      The value of the collateral and the amount to be received upon a sale of the collateral will depend on many factors, including, among others, the condition of the collateral and our industry, the ability to sell the collateral in an orderly sale, the condition of the international, national and local economies, the availability of buyers and similar factors. The book value of the collateral should not be relied on as a measure of realizable value for such assets. By their nature, portions of the collateral may be illiquid and may have no readily ascertainable market value. In addition, a significant portion of the collateral includes assets that may only be usable, and thus retain value, as part of our existing operating businesses.

      Accordingly, any such sale of the collateral separate from the sale of our business would not be feasible or of significant value. To the extent that holders of other secured indebtedness or third parties enjoy liens (including statutory liens), such holders or third parties may have rights and remedies with respect to the collateral securing the new notes that, if exercised, could reduce the proceeds available to satisfy the obligations under the new notes. See “Description of the New Notes — Security — Intercreditor Agreement.”

      The new notes indenture and the credit facility may also permit us to designate one or more of our restricted subsidiaries as an unrestricted subsidiary. If we designate an unrestricted subsidiary, all of the liens on any collateral owned by the unrestricted subsidiary or any of its subsidiaries and any guarantees of the new notes by the unrestricted subsidiary or any of its subsidiaries will be released under the new notes indenture. Designation of an unrestricted subsidiary will reduce the aggregate value of the collateral to the extent that liens on the assets of the unrestricted subsidiary and its subsidiaries are released and the new notes will be structurally subordinated to the debt and other obligations of the unrestricted subsidiary and its subsidiaries. This may materially reduce the collateral available to secure the new notes.

 
The lenders under our credit facility will have the sole right to exercise remedies against the collateral for so long as the credit facility is outstanding, including releasing the collateral securing the new notes.

      The intercreditor agreement will provide that the lenders under our credit facility will have the exclusive right to manage, perform and enforce the terms of the security documents relating to the collateral, and to exercise and enforce all privileges, rights and remedies thereunder, including to take or retake control or possession of the collateral and to hold or dispose of the collateral. Under the terms of the intercreditor agreement, the lenders under the credit facility may, under certain circumstances, release all or any portion of the collateral securing the credit facility, including, without limitation, in connection with certain sales of assets. The collateral so released will no longer secure our obligations under the new notes. In addition, if an event of default has occurred, the lenders under the credit facility may release collateral in connection with the foreclosure, sale or other disposition of such collateral to satisfy obligations under the credit facility. Any collateral released would cease to act as security for the new notes and the guarantees of the new notes, as well as our obligations under the credit facility.

      In addition, since the lenders under the credit facility control the disposition of the collateral securing the credit facility and the new notes, if there were an event of default under the new notes, the lenders could decide not to proceed against the collateral, regardless of whether or not there also were a default under the credit facility. In such event, the only remedy available to the holders of the new notes would be to sue for payment on the new notes and the guarantees. By virtue of the direction of the administration of the pledges and security interests and the release of collateral, actions may be taken under the collateral documents that may be adverse to you.

27


Table of Contents

 
The new notes indenture and our credit facility will impose significant operating and financial restrictions on us, which may prevent us from capitalizing on business opportunities and taking some corporate actions.

      The new notes indenture and our credit facility will impose, and the terms of any future debt may impose, significant operating and financial restrictions on us. These restrictions will, among other things, limit our ability and that of our subsidiaries to:

  •  incur or guarantee additional indebtedness;
 
  •  issue redeemable preferred stock and non-guarantor subsidiary preferred stock;
 
  •  pay dividends or make other distributions;
 
  •  repurchase our stock;
 
  •  make investments;
 
  •  sell or otherwise dispose of assets, including capital stock of subsidiaries;
 
  •  create liens;
 
  •  prepay, redeem or repurchase debt;
 
  •  enter into agreements restricting our subsidiaries’ ability to pay dividends;
 
  •  enter into transactions with affiliates;
 
  •  enter into sale and leaseback transactions; and
 
  •  consolidate, merge or sell all of our assets.

      In addition, our credit facility will require us to maintain specified financial ratios and satisfy other financial condition tests. We cannot assure you that these covenants will not adversely affect our ability to finance our future operations or capital needs or to pursue available business opportunities or limit our ability to plan for or react to market conditions or meet capital needs or otherwise restrict our activities or business plans. A breach of any of those covenants or our inability to maintain the required financial ratios could result in a default in respect of the related indebtedness. If a default occurs, the relevant lenders could elect to declare the indebtedness, together with accrued interest and other fees, to be immediately due and payable and proceed against any collateral securing that indebtedness.

 
Federal and state statutes allow courts, under specific circumstances, to void guarantees and require noteholders to return payments received from guarantors.

      Under the federal bankruptcy law and comparable provisions of state fraudulent transfer laws, a guarantee could be voided, or claims in respect of a guarantee could be subordinated to all other debts of that guarantor, if the guarantor at the time it incurred the indebtedness evidenced by its guarantee:

  •  received less than reasonably equivalent value or fair consideration for the incurrence of its guarantee and was insolvent or rendered insolvent by reason of such incurrence;
 
  •  was engaged in a business or transaction for which the guarantor’s remaining assets constituted unreasonably small capital; or
 
  •  intended to incur, or believed that it would incur, debts beyond its ability to pay those debts as they mature.

      The measures of insolvency for purposes of these fraudulent transfer laws will vary depending upon the law applied in any proceeding to determine whether a fraudulent transfer has occurred. Generally, however, a guarantor would be considered insolvent if:

  •  the sum of its debts, including contingent liabilities, was greater than the fair saleable value of all of its assets;

28


Table of Contents

  •  the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or
 
  •  it could not pay its debts as they become due.

      The new notes indenture will require that our restricted subsidiaries guarantee the new notes. These considerations will also apply to their guarantees.

      We cannot assure you as to what standard a court would apply in determining whether a guarantor would be considered to be insolvent. If a court determined that a guarantor was insolvent after giving effect to the guarantees, it could void the guarantees of the new notes by one or more of our subsidiaries and require you to return any payments received from such subsidiaries.

 
Our credit facility, as amended, will prevent us from repurchasing the new notes upon a change of control or asset sale.

      Upon a “change of control” or “asset sale,” in each case as defined in the new notes indenture, we will be required under certain circumstances to make an offer to repurchase all of the outstanding new notes at a price equal to, for a change of control, 101% of the principal amount thereof and, for an asset sale, 100% of the principal amount thereof, together with any accrued and unpaid interest and additional interest to the date of repurchase. If a change of control or asset sale were to occur, there can be no assurance that we would have sufficient funds to pay the purchase price for all of the new notes that we might be required to purchase. Our future indebtedness may also contain restrictions on our ability to repurchase the new notes upon certain events, including transactions that could constitute a change of control or asset sale under the new notes indenture. In addition, our credit facility limits our ability to purchase the new notes in the event of a change of control or asset sale. Our failure to purchase, or give notice of purchase of, the new notes would be a default under the new notes indenture, which would in turn be a default under our credit facility. In addition, a change of control will constitute an event of default under our credit facility. A default under our credit facility would result in an event of default under the new notes indenture if the lenders were to accelerate the debt under our credit facility. If the foregoing occurs, we may not have enough assets to satisfy all obligations under our credit facility and the new notes indenture. All payments on the new notes and the related guarantees will be blocked in the event of a payment default on our designated senior debt and may be blocked up to 179 consecutive days in the event of certain defaults other than payment defaults on our designated senior debt. See “Description of the New Notes — Ranking.”

 
Your ability to sell the new notes may be limited by the absence of an active trading market.

      The new notes are a new issue of securities for which there currently is no established trading market. Consequently, the new notes will be relatively illiquid and you may be unable to sell your new notes. We do not intend to apply for the new notes to be listed on any securities exchange or to arrange for quotation on any automated dealer quotation system. We cannot assure you as to the liquidity of any trading market for the new notes. We also cannot assure you that you will be able to sell your new notes at a particular time or that the prices that you receive when you sell will be favorable.

      Future trading prices of the new notes will depend on many factors, including:

  •  our operating performance and financial condition;
 
  •  the interest of securities dealers in making a market; and
 
  •  the market for similar securities.

29


Table of Contents

Risks Related to the Prepackaged Plan

 
Even if all classes of claims and interests that are entitled to vote accept the prepackaged plan, the prepackaged plan may not become effective.

      The confirmation and effectiveness of the prepackaged plan is subject to certain conditions and requirements that may not be satisfied, and if the prepackaged plan is filed, the bankruptcy court may conclude that the requirements for confirmation and effectiveness of the prepackaged plan have not been satisfied. Some of those reasons may be substantive, such as a concern about the feasibility of the prepackaged plan or about the alleged differences in treatment between different classes or types of unsecured creditors. Some of those reasons may be procedural or related to the adequacy of disclosure, such as, for example, that the disclosures or other procedural compliance required for a prepackaged plan to be confirmed are in any way deficient.

      Section 1122 of the Bankruptcy Code provides that a plan may place a claim or an interest in a particular class only if such claim or interest is substantially similar to the other claims or interests of such class. We believe that the classification of claims and interests under the prepackaged plan complies with the requirements set forth in the Bankruptcy Code; however, once a Chapter 11 case has been commenced, a claim or interest holder could challenge the classification. In such event, the cost of the prepackaged plan and the time needed to confirm the prepackaged plan would increase and the bankruptcy court may not agree with our classification of claims and interests.

      If the bankruptcy court concludes that the classification of claims and equity interests under the prepackaged plan does not comply with the requirements of the Bankruptcy Code, we may need to modify the prepackaged plan. Such modification could require a resolicitation of votes on the prepackaged plan. If the bankruptcy court determined that our classification of claims and equity interests was not appropriate or if the court determined that the different treatment provided to claim or interest holders was unfair or inappropriate, the prepackaged plan may not be confirmed. If this occurs, the amended plan of reorganization that would ultimately be confirmed would likely be less attractive to certain classes of our claim and equity interest holders than the prepackaged plan of reorganization, and we would expect that the treatment of our equity interest holders, particularly our existing stockholders, under an alternate plan would be adversely affected.

      Usually, a plan of reorganization is filed and votes to accept or reject the plan are solicited after the filing of a petition commencing a Chapter 11 case. Nevertheless, a debtor may solicit votes prior to the commencement of a Chapter 11 case in accordance with Section 1126(b) of the Bankruptcy Code and Bankruptcy Rule 3018(b). Section 1126(b) of the Bankruptcy Code and Bankruptcy Rule 3018(b) require that:

  •  the plan of reorganization be transmitted to substantially all creditors and other interest holders entitled to vote;
 
  •  the time prescribed for voting is not unreasonably short; and
 
  •  the solicitation of votes is in compliance with any applicable nonbankruptcy law, rule or regulation governing the adequacy of disclosure in such solicitation or, if no such law, rule or regulation exists, votes be solicited only after the disclosure of adequate information.

      Section 1125(a)(1) of the Bankruptcy Code describes adequate information as information of a kind and in sufficient detail as would enable a hypothetical reasonable investor typical of holders of claims and interests to make an informed judgment about the plan. The bankruptcy court could conclude that this prospectus and solicitation statement does not meet these disclosure requirements. With regard to solicitation of votes prior to the commencement of a bankruptcy case, if the bankruptcy court concludes that the requirements of Section 1126(b) of the Bankruptcy Code and Bankruptcy Rule 3018(b) have not been met, then the bankruptcy court could deem such votes invalid, and the prepackaged plan could not be confirmed without a resolicitation of votes to accept or reject the prepackaged plan. While we believe

30


Table of Contents

that the requirements of Section 1126(b) of the Bankruptcy Code and Bankruptcy Rule 3018 will be met, the bankruptcy court may not reach the same conclusion.

      If the bankruptcy court were to find any of these deficiencies, we could be required to start over again the process of filing another plan and disclosure statement, seeking bankruptcy court approval of a disclosure statement, soliciting votes from classes of debt and equity holders, and seeking bankruptcy court confirmation of the plan of reorganization. A resolicitation of acceptances of the prepackaged plan likely could not take place within a sufficiently short period of time to prevent the release of the noteholders from their obligations under the support agreement to vote for and support the prepackaged plan. If this occurs, confirmation of the prepackaged plan would be delayed and possibly jeopardized. Additionally, should the prepackaged plan fail to be approved, confirmed, or consummated, we and others with an interest may be in a position to propose alternative plans of reorganization. Any such failure to confirm the prepackaged plan would likely entail significantly greater risk of delay, expense and uncertainty, which would likely have a material adverse effect upon our business and financial condition. See “The Prepackaged Plan — Conditions to Confirmation” and “— Conditions to Effective Date of the Prepackaged Plan” for a description of the requirements for confirming the prepackaged plan and the conditions under which the plan may be declared effective.

 
We may seek to modify, amend or withdraw the prepackaged plan at any time prior to the confirmation date.

      If we file the prepackaged plan, we reserve the right, prior to its confirmation or substantial consummation thereof, and subject to the provisions of Section 1127 of the Bankruptcy Code and Bankruptcy Rule 3019, to amend the terms of the prepackaged plan or waive any conditions thereto if and to the extent we determine that such amendments or waivers are necessary or desirable to consummate the prepackaged plan. The potential impact of any such amendment or modification on the holders of claims and interests cannot presently be foreseen, but may include a change in the economic impact of the prepackaged plan, on some or all of the classes or a change in the relative rights of such classes. We will give all holders of claims and interests notice of such amendments or waivers required by applicable law and the bankruptcy court. If, after receiving sufficient acceptances but prior to confirmation of the prepackaged plan, we seek to modify the prepackaged plan, we could only use such previously solicited acceptances if (i) all classes of adversely affected creditors and interest holders accepted the modification in writing or (ii) the bankruptcy court determines, after notice to designated parties, that such modification was de minimis or purely technical or otherwise did not adversely change the treatment of holders of accepting claims and interests. We reserve the right to use acceptances of the prepackaged plan received in this solicitation to seek confirmation of the prepackaged plan under any case commenced under Chapter 11 of the Bankruptcy Code, whether such case is commenced by the filing of a voluntary or involuntary petition, subject to approval of the bankruptcy court.

      If a Chapter 11 petition is filed by or against us, we reserve the right not to file the prepackaged plan, or, if we file the prepackaged plan, to revoke and withdraw such prepackaged plan at any time prior to confirmation. If the plan is revoked or withdrawn, the prepackaged plan and the ballots will be deemed to be null and void. In such event, nothing contained in the prepackaged plan will be deemed to constitute a waiver or release of any claims by or against, or interests of or in, us, or any other person or to prejudice in any manner our rights or those of any other person.

 
In certain instances, our reorganization case may be converted to a case under Chapter 7 of the Bankruptcy Code.

      If no plan can be confirmed, or if the bankruptcy court otherwise finds that it would be in the best interest of our creditors, our reorganization case may be converted to a case under Chapter 7 of the Bankruptcy Code, pursuant to which a trustee would be appointed or elected to liquidate our assets for distribution in accordance with the priorities established by the Bankruptcy Code. A discussion of the effects that a Chapter 7 liquidation would have on the recoveries of holders of claims and interests and our

31


Table of Contents

liquidation analysis are set forth under “The Prepackaged Plan — Liquidation Analysis.” We believe that liquidation under Chapter 7 would result in:

  •  smaller distributions being made to creditors than those provided for in the prepackaged plan because of:

  •  the likelihood that our assets would have to be sold or otherwise disposed of in a less orderly fashion over a short period of time;
 
  •  additional administrative expenses involved in the appointment of a trustee; and
 
  •  additional expenses and claims, some of which would be entitled to priority, which would be generated during the liquidation and from the rejection of leases and other executory contracts in connection with a cessation of our operations; and

  •  no distributions being made to holders of our common stock.
 
Our future operational and financial performance may vary materially from the financial projections.

      We have prepared the financial projections contained in this prospectus and solicitation statement as required by the “feasibility test” of Section 1129 of the Bankruptcy Code. See “The Prepackaged Plan — Confirmation of the Prepackaged Plan — Feasibility of the Prepackaged Plan.” These projections are based upon a number of assumptions and estimates, including that the restructuring will be implemented in accordance with its current terms.

      Financial projections are necessarily speculative in nature and one or more of the assumptions and estimates underlying these projections may prove not to be valid. The assumptions and estimates underlying these projections are inherently uncertain and are subject to significant business, economic and competitive risks and uncertainties, many of which are beyond our control. See “Risk Factors — Risks Related to Our Business.” Accordingly, our financial condition and results of operations following the exchange offer may vary significantly from those set forth in the financial projections. Consequently, the financial projections should not be regarded as a representation by us, our advisors or any other person that the projections will be achieved. Holders are cautioned to read the financial projections in conjunction with our audited annual and unaudited interim historical financial statements and the unaudited pro forma historical financial information included in this prospectus and solicitation statement and not to place undue reliance on the financial projections in determining whether to accept or reject the prepackaged plan. See “Unaudited Projected Consolidated Financial Information.”

 
We cannot predict the amount of time we would spend in bankruptcy for the purpose of implementing the prepackaged plan, and a lengthy bankruptcy proceeding could disrupt our business, as well as impair the prospect for reorganization on the terms contained in the proposed plan.

      While we expect that a Chapter 11 bankruptcy filing solely for the purpose of implementing the prepackaged plan would be of short duration (e.g., 45-60 days) and would not be unduly disruptive to our business, we cannot be certain that this would be the case. Although the prepackaged plan is designed to minimize the length of the bankruptcy case, it is impossible to predict with certainty the amount of time that we may spend in bankruptcy, and we cannot be certain that the prepackaged plan would be confirmed. Even if confirmed on a timely basis, a bankruptcy case to confirm the prepackaged plan could itself have an adverse effect on our business. There is a risk, due to uncertainty about our future, that:

  •  customers could seek alternative sources of products and services from our competitors, including competitors that have comparatively greater financial resources and that are in little or no relative financial or operational distress;
 
  •  employees could be distracted from performance of their duties or more easily attracted to other career opportunities; and

32


Table of Contents

  •  business partners could terminate their relationship with us or require financial assurances or enhanced performance.

      A lengthy bankruptcy case would also involve additional expenses and divert the attention of management from operation of our business, as well as creating concerns for employees, suppliers and customers.

      The disruption that a bankruptcy case would inflict upon our business would increase with the length of time it takes to complete the proceeding and the severity of that disruption would depend upon the attractiveness and feasibility of the prepackaged plan from the perspective of the constituent parties on whom we depend, including vendors, employees, and customers. If we are unable to obtain confirmation of the prepackaged plan on a timely basis, because of a challenge to the prepackaged plan or a failure to satisfy the conditions to the effectiveness of the prepackaged plan, we may be forced to operate in bankruptcy for an extended period while we try to develop a different reorganization plan that can be confirmed. A protracted bankruptcy case would increase both the probability and the magnitude of the adverse effects described above.

      The noteholders’ obligations under the support agreement contemplate that the noteholders could propose a competing plan of reorganization after the support agreement terminates. If the noteholders propose an alternative plan following expiration of the support agreement, there is a risk that such a plan would be less generous to existing equity interest holders and other constituents upon whom our well-being could depend. If there were competing plans of reorganization or if key employees or others reacted adversely to a noteholder plan of reorganization, the adverse consequences discussed above could also occur.

 
We may be unsuccessful in obtaining first day orders to permit us to pay our key suppliers in the ordinary course of business.

      We have tried to address potential concerns of our key customers, vendors, employees, licensors/licensees and other key parties in interest that might arise from the filing of the prepackaged plan through a variety of provisions incorporated into or contemplated by the prepackaged plan, including our intention to seek appropriate court orders to permit us to pay our accounts payable to key parties in interest in the ordinary course, assume contracts with such parties of interest and in the case of those key vendors who have agreed to continue to extend business terms to us during and after our bankruptcy case, to provide for the payments of prepetition accounts payable. However, there can be no guaranty that we would be successful in obtaining the necessary approvals of the bankruptcy court for such arrangements or for every party in interest we may seek to treat in this manner, and as a result, our business might suffer.

      The holders of credit facility claims may not consent to our use of cash collateral in our Chapter 11 case or may condition such consent on concessions that are problematic for us. Lacking such consent, we must obtain the bankruptcy court’s approval to use such cash collateral and in order to do so, must furnish adequate protection for such use. The bankruptcy court may condition such use on terms that are problematic for us or may not approve the use of such cash collateral. The holders of credit facility claims may seek relief from the automatic stay in order to pursue their state law remedies against our property that serves as collateral for such claims. The cure and reinstatement of credit facility claims proposed in the prepackaged plan may be problematic for us.

 
Our business may be negatively impacted if we are unable to assume our executory contracts.

      The prepackaged plan provides for the assumption of all executory contracts, other than unexpired leases or other contracts that we specifically reject. Our intention is to preserve as much of the benefit of our existing contracts as possible. However, some limited classes of executory contracts may not be assumed in this way. In these cases we would need to obtain the consent of the counterparty to maintain the benefit of the contract. There is no guaranty that such consent would either be forthcoming or that conditions would not be attached to any such consent that make assuming the contracts unattractive. We would then be required to either forego the benefits offered by such contracts or to find alternative

33


Table of Contents

arrangements to replace them. We intend to attempt to pass through to the reorganized company any and all licenses in respect of patents, trademarks, copyright or other intellectual property which cannot otherwise be assumed pursuant to Section 365(c) of the Bankruptcy Code. The counterparty to any contract that we seek to pass through may object to our attempt to pass through the contract and require us to seek to assume or reject the contract or seek approval of the bankruptcy court to terminate the contract. In such an event, we could lose the benefit of the contract, which could harm our business.
 
Our disputes with Sprint may prolong confirmation of the prepackaged plan and could disrupt our business and adversely affect our operating costs.

      As described elsewhere in this prospectus and solicitation statement, we have a number of significant disputes with Sprint related to our agreements. If we are unable to resolve these disputes, it is quite possible that AirGate or Sprint will file suit seeking to have some or all of these disputes resolved in litigation.

      The prepackaged plan provides for the assumption of all executory contracts, other than contracts we specifically reject. We have not yet made a decision to assume the Sprint executory contracts. In order to assume the Sprint agreements, we would be required to cure any defaults under any of those agreements that the bankruptcy court requires. While we do not believe that we are in default of any obligation under any agreement with Sprint, Sprint may take a different position.

      We expect that negotiations with Sprint over whether there are defaults under the management agreement and, if so, the amounts required to cure those defaults would take time. These negotiations could prolong confirmation of the prepackaged plan. We may ultimately be forced to choose to litigate in the bankruptcy case or agree to pay cure amounts under the management agreement that we may not have otherwise agreed to pay.

      Because we believe that we could operate our business without the services agreement with Sprint, we may be in a position to reject that agreement. If we rejected the services agreement, we would need to provide those services directly or outsource those services on an expedited basis. There are certain significant services that AirGate cannot provide directly, which means that it would be required to identify and reach agreement with one or more outsourcing vendors. While we dispute its right to do so, Sprint might contest our right to reject the services agreement or terminate certain services and/or might demand that we pay high start-up costs for activities related to transitioning these services to a third-party vendor and to allow for an interface with Sprint’s system. Resolving these and other issues related to rejecting the services agreement could increase the costs of any such outsourcing and delay the benefits of any outsourcing. If we are unable to seamlessly outsource these services, our business could be disrupted. In addition, the increased costs of outsourcing could limit our ability to lower our operating costs.

Risks Related to Our Business

Risks Related to Our Business, Strategy and Operations

 
The unsettled nature of the wireless market may limit the visibility of key operating metrics, and future trends may affect operating results, liquidity and capital resources.

      Our business plan and estimated future operating results are based on estimates of key operating metrics, including subscriber growth, subscriber churn, capital expenditures, ARPU, losses on sales of handsets and other subscriber acquisition costs, and other operating costs. The unsettled nature of the wireless market, the current economic slowdown, increased competition in the wireless telecommunications industry, the problems in our relationship with Sprint, new service offerings of increasingly large bundles of minutes of use at lower prices by wireless carriers, and other issues facing the wireless telecommunications industry in general have created a level of uncertainty that may adversely affect our ability to predict key operating metrics.

34


Table of Contents

      Certain other factors that may affect our operating results, liquidity and capital resources include the fact that we have limited funding options. On August 8, 2003 we drew the $9.0 million remaining available under our credit facility. We currently have no additional sources of working capital other than cash on hand and operating cash flow. If our actual revenues are less than we expect or operating or capital costs are more than we expect, our financial condition and liquidity may be materially adversely affected. In such event, there is substantial risk that we could not access the capital or credit markets for additional capital.

 
Our revenues may be less than we anticipate which could materially adversely affect our liquidity, financial condition and results of operations.

      Revenue growth is primarily dependent on the size of our subscriber base, average monthly revenues per user and roaming revenue. During the year ended September 30, 2002, we experienced slower net subscriber growth rates than planned, which we believe is due in large part to increased churn, declining rates of wireless subscriber growth in general, the re-imposition of deposits for most sub-prime credit subscribers during the last half of the year, the current economic slowdown and increased competition. Subscriber growth in fiscal 2003 has been slower than in prior years, and we are likely to lose a small number of subscribers in the quarter ending September 30, 2003. Other carriers also have reported slower subscriber growth rates compared to prior periods. We have seen a continuation of competitive pressures in the wireless telecommunications market causing carriers to offer plans with increasingly large bundles of minutes of use at lower prices which may compete with the calling plans we offer, including the Sprint calling plans we support. While our business plan anticipates lower subscriber growth and assumes average monthly revenues per user will decline slightly, there is no assurance that subscriber growth will not be less than we project or that average revenue per user will not be lower than we project. Increased price competition may lead to lower average monthly revenues per user than we anticipate. See “— Risks Related to our Business — Risks Related to Our Relationship with Sprint.” In addition, the lower reciprocal roaming rate that Sprint has implemented will reduce our roaming revenue, which may not be offset by the reduction in our roaming expense. If our revenues are less than we anticipate, it could materially adversely affect our liquidity, financial condition and results of operation.

 
Our costs may be higher than we anticipate which could materially adversely affect our liquidity, financial condition and results of operations.

      Our business plan anticipates that we will be able to maintain lower operating and capital costs, including costs per gross addition and cash cost per user. Increased competition may lead to higher promotional costs, losses on sales of handset and other costs to acquire subscribers. Further, as described below under “Risks Related to Our Relationship With Sprint,” a substantial portion of costs of service and roaming are attributable to fees and charges we pay Sprint for billing and collections, customer care and other back-office support. Our ability to manage costs charged by Sprint is limited. If our costs are more than we anticipate, the actual amount of funds to implement our strategy and business plan may exceed our estimates, which could have a material adverse affect on our liquidity, financial condition and results of operations.

 
We may continue to experience a high rate of subscriber turnover, which would adversely affect our financial performance.

      The wireless personal communications services industry in general, and Sprint and its network partners in particular, have experienced a higher rate of subscriber turnover, commonly known as churn, as compared to cellular industry averages. This churn rate was driven higher in 2002 due to the NDASL and Clear Pay programs required by Sprint and the removal of deposit requirements as described elsewhere in this prospectus and solicitation statement. Our business plan assumes that churn will be relatively constant in fiscal 2004, but will decline significantly thereafter. Although churn declined in the first nine months of fiscal 2003, churn rates continue to remain at higher levels. Due to significant competition in our industry and general economic conditions, among other things, this trend may not occur and our future rate of

35


Table of Contents

subscriber turnover may be higher than our historical rate. Factors that may contribute to higher churn include:

  •  inability or unwillingness of subscribers to pay which results in involuntary deactivations, which accounted for 63% of our deactivations in the quarter ended June 30, 2003;
 
  •  subscriber mix and credit class, particularly sub-prime credit subscribers which accounted for approximately 50% of our gross subscriber additions since May 2001 and account for approximately 30% of our subscriber base as of June 30, 2003;
 
  •  Sprint’s announced billing system conversion and/or outsourcing services now provided by Sprint;
 
  •  the attractiveness of our competitors’ products, services and pricing;
 
  •  network performance and coverage relative to our competitors;
 
  •  quality of customer service;
 
  •  increased prices; and
 
  •  any future changes by us in the products and services we offer, especially to the Clear Pay Program.

      An additional factor that may contribute to a higher churn rate is implementation of the Federal Communications Commission’s (“FCC”) wireless local number portability (“LNP”) requirement. The wireless LNP rules will enable wireless subscribers to keep their telephone numbers when switching to another carrier. By November 24, 2003, all covered CMRS providers, including broadband PCS, cellular and certain SMR licensees, must allow customers to retain, subject to certain geographical limitations, their existing telephone number when switching from one telecommunications carrier to another. Once wireless LNP is implemented, current rules require that covered CMRS providers would have to provide LNP in the 100 largest metropolitan statistical areas, in compliance with certain FCC performance criteria, upon request from another carrier (CMRS provider or local exchange carrier). For metropolitan statistical areas outside the largest 100, CMRS providers that receive a request to allow an end user to port their number must be capable of doing so within six months of receiving the request or within six months after November 24, 2003, whichever is later. The overall impact of this mandate is uncertain. We anticipate that the wireless LNP mandate will impose increased operating costs on all CMRS providers, including us, and may result in higher subscriber churn rates and subscriber acquisition and retention costs.

      A high rate of subscriber turnover could adversely affect our competitive position, liquidity, financial position, results of operations and our costs of, or losses incurred in, obtaining new subscribers, especially because we subsidize some of the costs of initial purchases of handsets by subscribers.

 
Our allowance for doubtful accounts may not be sufficient to cover uncollectible accounts.

      On an ongoing basis, we estimate the amount of subscriber receivables that we will not collect to reflect the expected loss on such accounts in the current period. Our allowance for doubtful accounts may underestimate actual unpaid receivables for various reasons, including:

  •  our churn rate may exceed our estimates;
 
  •  bad debt as a percentage of service revenues may not decline as we assume in our business plan;
 
  •  adverse changes in the economy; or
 
  •  unanticipated changes in Sprint’s PCS products and services.

      If our allowance for doubtful accounts is insufficient to cover losses on our receivables, it could materially adversely affect our liquidity, financial condition and results of operations.

36


Table of Contents

 
Roaming revenue could be less than anticipated, which could adversely affect our liquidity, financial condition and results of operations.

      Sprint reduced the reciprocal roaming rate from $0.10 per minute to $0.058 per minute for the calendar year 2003. Based upon 2002 historical roaming data, a reduction in the roaming rate to $0.058 per minute would have reduced roaming revenue by approximately $30 million for us and would have reduced roaming expense by approximately $23 million for us. The ratio of roaming revenue to expense for us for the quarter ended June 30, 2003 was 1.3 to one.

      The amount of roaming revenue we receive also depends on the minutes of use of our network by PCS subscribers of Sprint and Sprint PCS network partners. If actual usage is less than we anticipate, our roaming revenue would be less and our liquidity, financial condition and results of operations could be materially adversely affected.

 
Our efforts to reduce costs may have adverse affects on our business.

      As a result of the current business environment, we have revised our business plan and are seeking to manage expenses to improve our liquidity position. We have significantly reduced projected capital expenditures, advertising and promotion costs and other operating costs. Reduced capital expenditures could, among other things, force us to delay improvements to our network, which could adversely affect the quality of service to subscribers. These actions could reduce subscriber growth and increase churn, which could materially adversely affect our financial condition and results of operation.

 
We may incur significantly higher wireless handset subsidy costs than we anticipate for existing subscribers who upgrade to a new handset.

      As our subscriber base matures, and technological innovations occur, more existing subscribers will upgrade to new wireless handsets. We subsidize a portion of the price of wireless handsets and incur sales commissions, even for handset upgrades. Excluding sales commissions, we experienced approximately $4.8 million associated with wireless handset upgrade costs for the year ended September 30, 2002 and $5.9 million for the nine months ended June 30, 2003. We have limited historical experience regarding the adoption rate for wireless handset upgrades. If more subscribers upgrade to new wireless handsets than we project, our results of operations would be adversely affected.

 
The loss of the officers and skilled employees who we depend upon to operate our business could materially adversely affect our results of operations.

      Our business is managed by a small number of executive officers. We believe that our future success depends in part on our continued ability to attract and retain highly qualified technical and management personnel. We may not be successful in retaining our key personnel or in attracting and retaining other highly qualified technical and management personnel. Our ability to attract and retain such persons may be negatively impacted if our liquidity position does not improve. In addition, we grant stock options as a method of attracting and retaining employees, to motivate performance and to align the interests of management with those of our stockholders. Due to the decline in the trading price of our common stock, a substantial majority of the stock options held by employees have an exercise price that is higher than the current trading price of our common stock, and therefore these stock options may not be effective in helping us to retain valuable employees. We currently have “key man” life insurance for our Chief Executive Officer. The loss of our officers and skilled employees could materially adversely affect our results of operation.

 
Parts of our territories have limited amounts of licensed spectrum, which may adversely affect the quality of our service and our results of operations.

      Sprint has licenses covering 10 MHz of spectrum in our territory. As the number of subscribers in our territories increase, this limited amount of licensed spectrum may not be able to accommodate increases in call volume, may lead to increased dropped and blocked calls and may limit our ability to offer enhanced

37


Table of Contents

services, all of which could result in increased subscriber turnover and adversely affect our financial condition and results of operations.

      Further, in January 2003, the FCC rules imposing limits on the amount of spectrum that can be held by one provider in a specific market was lifted. The FCC now relies on case-by-case review of transactions involving transfers of control of CMRS spectrum in connection with its public interest review of all license transfers. In light of this change in regulatory review, competition may increase to the extent that licenses are transferred from smaller stand-alone operators to larger, better capitalized, and more experienced wireless communications operators. These larger wireless communications operators may be able to offer customers network features not offered by us. The actions of these larger wireless communications operators could negatively affect our churn, ability to attract new subscribers, ARPU, cost to acquire subscribers and operating costs per subscriber.

 
There is a high concentration of ownership of the wireless towers we lease and if we lose the right to install our equipment on certain wireless towers or are unable to renew expiring leases, our financial condition and results of operations could be adversely impacted.

      Most of our cell sites are co-located on leased tower facilities shared with one or more wireless providers. A few tower companies own a large portion of these leased tower sites. Approximately 75% of the towers leased by us are owned by four tower companies (and their affiliates). If a master co-location agreement with one of these tower companies were to terminate, or if one of these tower companies were unable to support our use of its tower sites, we would have to find new sites or we may be required to rebuild that portion of our network. In addition, because of this concentration of ownership of our cell sites, our financial condition and results of operations could be materially and adversely affected if we are unable to renew expiring leases with such tower companies on favorable terms, or in the event of a disruption in any of their business operations.

 
Certain wireless providers are seeking to reduce access to their networks.

      We rely on Sprint’s roaming agreements with its competitors to provide automatic roaming capabilities to subscribers in many of the areas of the United States not covered by Sprint’s PCS network. Certain competitors may be able to offer coverage in areas not served by Sprint’s PCS network or may be able to offer roaming rates that are lower than those offered by Sprint. Certain of these competitors are seeking to reduce access to their networks through actions pending with the FCC. Moreover, AT&T Wireless has sought reconsideration of an FCC ruling in order to expedite elimination of the engineering standard (AMPS) for the dominant air interface on which Sprint’s subscribers roam. If AT&T Wireless is successful and the FCC eliminated this standard before Sprint can transition its handsets to different standards, customers of Sprint could be unable to roam in those markets where cellular operators cease to offer their AMPS network for roaming. Further, on September 24, 2002, the FCC modified its rules to eliminate, after a five-year transition period, the requirement that carriers provide analog service compatible with AMPS specifications. If this requirement is eliminated before Sprint can transition its handsets to different standards, customers of Sprint could be unable to roam in those markets where cellular operators cease to offer their AMPS network for roaming.

 
Our business is subject to seasonal trends.

      Our business is subject to seasonality because the wireless industry historically has been heavily dependent on fourth calendar quarter results. Among other things, the industry relies on significantly higher subscriber additions and handset sales in the fourth calendar quarter as compared to the other three calendar quarters. A number of factors contribute to this trend, including: the increasing use of retail distribution, which is heavily dependent upon the year-end holiday shopping season; the timing of new product and service announcements and introductions; competitive pricing pressures; and aggressive marketing and promotions. The increased level of activity requires a greater use of available financial resources during this period.

38


Table of Contents

Risks Particular to Our Indebtedness

 
Variable interest rates may increase substantially.

      As of June 30, 2003, we had $142.8 million outstanding debt under our credit facility, which was increased to $151.8 million on August 8, 2003. The rate of interest on the credit facility is based on a margin above either the alternate bank rate (the prime lending rate in the United States) or the London Interbank Offer Rate (LIBOR). For the quarter ended June 30, 2003, the weighted average interest rate under variable rate borrowings was 5.14% under our credit facility. If interest rates increase, we may not have the ability to service the interest requirements on our credit facility. Furthermore, if we were to default in our payments under our credit facility, our rate of interest would increase by 2.5% over the alternate bank rate.

 
Our payment obligations may be accelerated if we are unable to maintain or comply with the financial and operating covenants contained in our credit facility.

      Our credit facility contains covenants specifying the maintenance of certain financial ratios, reaching defined subscriber growth and network covered population goals, minimum service revenues, maximum capital expenditures, and the maintenance of a ratio of total and senior debt to annualized EBITDA, as defined in the credit facility. The definition of EBITDA in our credit facility is not the same as EBITDA used by us in this prospectus and solicitation statement. If we are unable to operate our business within the covenants specified in our credit facility, our ability to use our cash could be restricted or terminated and our payment obligations may be accelerated. Such a restriction, termination or acceleration could have a material adverse affect on our liquidity and capital resources. There can be no assurance that we could obtain amendments to such covenants, if necessary. We believe that we are currently in compliance in all material respects with all financial and operational covenants relating to our credit facility. Based on our current business plan and assuming that we meet our debt covenants, we believe that we will have sufficient cash flow to cover our debt service and other capital needs through March 2005. After that time, our ability to generate operating cash flow to pay debt service and meet our other capital needs is much less certain. In addition, based on current assumptions, we anticipate that we will meet our covenant obligations under our credit facility through March 2005. However, if actual results differ significantly from these assumptions and/or if the recapitalization plan is not completed and the credit facility is not further amended, then the costs incurred in connection with the recapitalization plan will make it challenging to meet certain covenants under our credit facility at March 31, 2004. Further, under our current business plan, we believe that we will not be in compliance with certain covenants under our credit facility at April 1, 2005.

      In connection with the restructuring, we are amending the terms of our credit facility to alter certain of the restrictive covenants. See “Description of Our Credit Facility — The Amendment of Our Credit Facility”.

 
If we fail to pay the debt under our credit facility, Sprint has the option of purchasing our loans, giving Sprint certain rights of a creditor to foreclose on our assets.

      Sprint has contractual rights, triggered by an acceleration of the maturity of the debt under our credit facility, pursuant to which Sprint may purchase our obligations to our senior lenders and obtain the rights of a senior lender. To the extent Sprint purchases these obligations, Sprint’s interests as a creditor could conflict with our interests. Sprint’s rights as a senior lender would enable it to exercise rights with respect to our assets and continuing relationship with Sprint in a manner not otherwise permitted under its Sprint agreements.

39


Table of Contents

Risks Related to iPCS

 
iPCS has declared bankruptcy, which may cause the iPCS stock that we transferred to the trust to have little to no value.

      In connection with the restructuring and subject to approval by the bankruptcy court overseeing iPCS’s bankruptcy proceeding, we are transferring all of our shares of iPCS common stock to a trust organized under Delaware law for the benefit of our stockholders. Because the amount of iPCS’ obligations under its credit facility and its notes were greater than its existing cash and other assets when its payment obligations were accelerated by the iPCS lenders, it is likely that shares of iPCS stock will have little to no value if they become available for distribution to our stockholders as the beneficiaries of the trust.

 
We may experience effects of iPCS, Inc.’s bankruptcy.

      Prior to our transfer of our iPCS common stock to the Delaware trust, iPCS operated as our unrestricted subsidiary, with its own independent financing sources, debt obligations and sources of revenue. Furthermore, iPCS lenders, noteholders and creditors do not have a lien or encumbrance on our assets, and we could not provide capital or other financial support to iPCS. We believe our operations will continue independent of the outcome of the iPCS bankruptcy. On April 22, 2003, the trustee for the old notes gave notice to the old noteholders of the iPCS bankruptcy filing and that in our and our outside counsel’s opinion, such filing is not a default under the old notes. If we were determined by a court of competent jurisdiction to be in default under the old notes and the old notes were accelerated, we would have insufficient funds to pay the old notes. In connection with the consent solicitation, we are seeking waivers of events of default that may occur in connection with the restructuring.

      In addition, we have agreements and relationships with third parties, including suppliers, subscribers and vendors, which are integral to conducting our day-to-day operations. iPCS’ bankruptcy could have a material adverse affect on the perception of our company and our business and our prospects in the eyes of subscribers, employees, suppliers, creditors and vendors. These persons may perceive that there is increased risk in doing business with us as a result of iPCS’ bankruptcy. Some of these persons may terminate their relationships with us, which would make it more difficult for us to conduct our business.

Risks Related to Our Relationship with Sprint

 
Our business experiences certain risks related to Sprint.

      Over time, Sprint has increased fees charged to AirGate and other network partners and has added fees that were not anticipated when the agreements with Sprint were entered into. Sprint also sought to collect money from us that we believe is not authorized under the agreements. In addition, Sprint has also imposed additional programs, requirements and conditions that have adversely affected our financial performance. If these increases, additional charges and changes continue, our operating results, liquidity and capital resources could be adversely affected. As of June 30, 2003, we have disputed approximately $7.0 million in invoices for such increases and additional charges, but those issues have not been resolved. While we have adequately reserved for these disputed amounts, if they are resolved in favor of Sprint and against AirGate, the payment of this amount money could adversely affect our liquidity and capital resources.

 
We operate with little working capital because of amounts owed to Sprint.

      Each month we pay Sprint expenses described in greater detail in Note 3 to the consolidated financial statements for the nine months ended June 30, 2003 set forth in this prospectus and solicitation statement. A reduction in the amounts we owe Sprint may result in a greater use of cash for working capital purposes than the business plan currently projects.

40


Table of Contents

 
The termination of our affiliation with Sprint would severely restrict our ability to conduct our business.

      We do not own the licenses to operate our wireless network. Our ability to offer Sprint PCS products and services and operate a PCS network is dependent on our Sprint agreements remaining in effect and not being terminated. All of our subscribers have purchased Sprint PCS products and services to date, and we do not anticipate any change in the near future. The management agreements between Sprint and us are not perpetual. Our management agreement automatically renews at the expiration of the 20-year initial term for an additional 10-year period unless we are in material default. Sprint can choose not to renew our management agreement at the expiration of the ten-year renewal term or any subsequent ten-year renewal term. In any event, our management agreement terminates in 50 years.

      In addition, subject to the provisions of the consent and agreement, these agreements can be terminated for breach of any material term, including, among others, failure to pay, marketing, build-out and network operational requirements. Many of these requirements are extremely technical and detailed in nature. In addition, many of these requirements can be changed by Sprint with little notice. As a result, we may not always be in compliance with all requirements of the Sprint agreements. There may be substantial costs associated with remedying any non-compliance, and such costs may adversely affect our liquidity, financial condition and results of operations.

      We are also dependent on Sprint’s ability to perform its obligations under the Sprint agreements. The non-renewal or termination of any of the Sprint agreements or the failure of Sprint to perform its obligations under the Sprint agreements would severely restrict our ability to conduct business.

 
Sprint may make business decisions that are not in our best interests, which may adversely affect our relationships with subscribers in our territory, increase our expenses and/or decrease our revenues.

      Sprint, under the Sprint agreements, has a substantial amount of control over the conduct of our business. Accordingly, Sprint has made and, in the future may make, decisions that adversely affect our business, such as the following:

  •  Sprint could price its national plans based on its own objectives and could set price levels or other terms that may not be economically sufficient for our business;
 
  •  Sprint could develop products and services, such as a one-rate plan where subscribers are not required to pay roaming charges or its PCS to PCS plan, or establish credit policies, such as the NDASL program, which could adversely affect our results of operations;
 
  •  Sprint has raised and could continue to raise the costs to perform back office services or maintain the costs above those expected, reduce levels of services or expenses or otherwise seek to increase expenses and other amounts charged;
 
  •  Sprint may elect with little or no notification, to upgrade or convert its financial reporting, billing or inventory software or change third party service organizations that can adversely affect our ability to determine or report our operating results, adversely affect our ability to obtain handsets or adversely affect our subscriber relationships;
 
  •  Sprint can seek to further reduce the reciprocal roaming rate charged when Sprint’s or other Sprint network partners’ PCS subscribers use our network;
 
  •  Sprint could limit our ability to develop local and other promotional plans to enable us to attract sufficient subscribers;
 
  •  Sprint could, subject to limitations under our Sprint agreements, alter its network and technical requirements;
 
  •  Sprint introduced a payment method for subscribers to pay the cost of service with us. This payment method initially did not have adequate controls or limitations, and fraudulent payments were made to accounts using this payment method. If other types of fraud become widespread, it could have a material adverse impact on our results of operations and financial condition;

41


Table of Contents

  •  Sprint implemented a new activation system for national third party retailers. AirGate believes that this system does not have adequate controls or limitations to prevent changes to customer accounts based on credit worthiness. These system issues could result in fraudulent activity and could have a negative impact on our results of operations and financial condition. We have implemented a process to closely monitor any exceptions resulting from customer credit changes;
 
  •  Sprint could make decisions which could adversely affect the Sprint brand names, products or services; and
 
  •  Sprint could decide not to renew the Sprint agreements or to no longer perform its obligations, which would severely restrict our ability to conduct business.

      The occurrence of any of the foregoing could adversely affect our relationship with subscribers in our territories, increase our expenses and/or decrease our revenues and have a material adverse affect on our liquidity, financial condition and results of operation.

 
Sprint’s newly implemented PCS to PCS program has had, and may continue to have, a negative impact on our business.

      In late 2002, Sprint implemented a new PCS to PCS product offering under which subscribers are not charged, or received unlimited buckets of minutes for a low price, for any calls made from one Sprint PCS subscriber to another. Pursuant to our Sprint agreements, we are required to support this program in our territory. The number of minutes-over-plan (“MOPs”) used and associated revenues of our subscribers has dropped. Our ARPU has declined from $61 for the fiscal year ended September 30, 2002 to $58 for the nine months ended June 30, 2003, while the number of minutes used for PCS to PCS calls increased ten-fold from 6 million to over 60 million minutes per month. In addition, the program had the effect of switching current subscribers to the product offering, rather than resulting in a meaningful increase in new subscribers. In addition to the lost revenue the PCS to PCS plan causes, it is also generating a large amount of incremental traffic on our network.

 
Our dependence on Sprint for services may limit our ability to reduce costs, which could materially adversely affect our financial condition and results of operation.

      Approximately 65% of cost of service and roaming in our financial statements relate to charges from or through Sprint. As a result, a substantial portion of our cost of service and roaming is outside our control. There can be no assurance that Sprint will lower its operating costs, or, if these costs are lowered, that Sprint will pass along savings to its PCS network partners. If these costs are more than we anticipate in our business plan, it could materially adversely affect our liquidity, financial condition and results of operations and as noted below, our ability to replace Sprint with lower cost providers may be limited.

 
Our dependence on Sprint may adversely affect our ability to predict our results of operations.

      In 2002, our dependence on Sprint interjected a greater degree of uncertainty to our business and financial planning. During this time:

  •  we agreed to a new $4 logistics fee for each 3G enabled handset to avoid a prolonged dispute over certain charges for which Sprint sought reimbursement;
 
  •  Sprint PCS sought to recoup $3.9 million in long-distance access revenues previously paid by Sprint PCS to AirGate and has invoiced us $1.2 million of this amount;
 
  •  Sprint has charged us $0.5 million to reimburse Sprint for certain 3G related development expenses with respect to calendar year 2002;
 
  •  Sprint informed us on December 23, 2002 that it had miscalculated software maintenance fees for 2002 and future years, which would result in an annualized increase from $1.0 million to $1.7 million if owed by AirGate;

42


Table of Contents

  •  Sprint reduced the reciprocal roaming rate charged by Sprint and its network partners for use of our respective networks from $0.10 per minute of use to $0.058 per minute of use in 2003.

      Other ongoing disputes are described in Note 3 to our unaudited financial statements for the nine months ended June 30, 2003, included in this prospectus and solicitation statement. We have questioned whether these and other charges and actions are appropriate and authorized under our Sprint agreements. We expect that it will take time to resolve these issues, the ultimate outcome is uncertain and litigation may be required to resolve these issues. Unanticipated expenses and reductions in revenue have had and, if they occur in the future, will have a negative impact on our liquidity and make it more difficult to predict with reliability our future performance.

 
Inaccuracies in data provided by Sprint could understate our expenses or overstate our revenues and result in out-of-period adjustments that may materially adversely affect our financial results.

      Approximately 65% of cost of service and roaming in our financial statements relate to charges from or through Sprint. In addition, because Sprint provides billing and collection services for us, Sprint remits approximately 95% of our revenues to us. The data provided by Sprint is the primary source for our recognition of service revenue and a significant portion of our selling and marketing and cost of service and operating expenses. In certain cases, the data is provided at a level of detail that is not adequate for us to verify for accuracy back to the originating source. As a result, we rely on Sprint to provide accurate, timely and sufficient data and information to properly record our revenues, expenses and accounts receivables, which underlie a substantial portion of our periodic financial statements and other financial disclosures.

      We and Sprint have discovered billing and other errors or inaccuracies, which could be material to us. If we are required in the future to make additional adjustments or charges as a result of errors or inaccuracies in data provided to us by Sprint, such adjustments or charges may have a material adverse affect on our financial results in the period that the adjustments or charges are made, on our ability to satisfy covenants contained in our credit facility, and on our ability to make fully informed business decisions.

 
The inability of Sprint to provide high quality back office services, leads to subscriber dissatisfaction, increased churn or otherwise increase our costs.

      We currently rely on Sprint’s internal support systems, including customer care, billing and back office support. Our operations could be disrupted if Sprint is unable to provide internal support systems in a high quality manner, or to efficiently outsource those services and systems through third-party vendors. Cost pressures are expected to continue to pose a significant challenge to Sprint’s internal support systems. Additionally, Sprint has made reductions in its customer service support structure and may continue to do so in the future, which may have an adverse effect on our churn rate. Further, Sprint 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’s willingness to continue to offer these services and to provide these services effectively and at competitive costs. These costs were approximately $31.0 million for AirGate for the nine months ended June 30, 2003. Our Sprint agreements provide that, upon nine months prior written notice, Sprint may elect to terminate any of these services. The inability of Sprint to provide high quality back office services, or our inability to use Sprint back office services and third-party vendors’ back office systems, could lead to subscriber dissatisfaction, increase churn or otherwise increase our costs.

      If Sprint elects to significantly increase the amount it charges us for any of these services, our operating expenses will increase, and our operating income and available cash would be reduced.

      Two recent independent surveys have ranked Sprint last among national carriers in customer service. We believe that poor customer care is an important cause of increased churn. To date, Sprint has been unable to provide a level of service equal to or better than industry averages under the services agreement. Consequently, outsourcing these services may be the only alternative to significantly improve churn. We

43


Table of Contents

are exploring ways to outsource certain services now provided by Sprint. While the services agreement allows us to use third-party vendors to provide certain of these services instead of Sprint, Sprint may seek to require us to pay high start-up costs to interface with Sprint’s system and may otherwise seek to delay any such outsourcing, which could increase the costs of any such outsourcing and delay the benefits of any outsourcing. This could limit our ability to lower our operating costs and reduce churn.
 
Changes in Sprint PCS products and services may reduce subscriber additions, increase subscriber turnover and decrease subscriber credit quality.

      The competitiveness of Sprint PCS products and services is a key factor in our ability to attract and retain subscribers. Certain Sprint pricing plans, promotions and programs may result in higher levels of subscriber turnover and reduce the credit quality of our subscriber base. For example, we believe that the NDASL and Clear Pay Program resulted in increased churn and an increase in sub-prime credit subscribers and its PCS to PCS plan is increasing minutes of use and reducing ARPU.

 
Our disputes with Sprint may adversely affect our relationship with Sprint.

      We have a number of significant disputes with Sprint related to our agreements. These disputes involve a number of issues including: Sprint’s collection of various revenues from subscribers and other parties and the payment of AirGate’s portion of those monies; various charges made by Sprint under the agreements with AirGate; Sprint’s right to impose programs, requirements and conditions on AirGate that adversely affect AirGate’s financial performance; and, various other rights and responsibilities imposed upon the parties under the terms of their agreements. In recent months, Sprint and AirGate have focused on whether these disputes can be resolved by agreement and are currently engaged in negotiation of these issues. If an agreement cannot be reached on terms that are acceptable to AirGate and Sprint, either party may take additional measures, including the filing of litigation, to have these issues resolved. The mere existence of these disputes could adversely affect our relationship with Sprint. If some or all of these disputed issues is resolved against AirGate, such resolution could have a material adverse effect on our business.

 
Sprint’s roaming arrangements may not be competitive with other wireless service providers, which may restrict our ability to attract and retain subscribers and create other risks for us.

      We rely on Sprint’s roaming arrangements with other wireless service providers for coverage in some areas where Sprint service is not yet available. The risks related to these arrangements include:

  •  the roaming arrangements are negotiated by Sprint and may not benefit us in the same manner that they benefit Sprint;
 
  •  the quality of the service provided by another provider during a roaming call may not approximate the quality of the service provided by the Sprint PCS network;
 
  •  the price of a roaming call off our network may not be competitive with prices of other wireless companies for roaming calls;
 
  •  customers may have to use a more expensive dual-band/dual mode handset with diminished standby and talk time capacities;
 
  •  subscribers must end a call in progress and initiate a new call when leaving the Sprint PCS network and entering another wireless network;
 
  •  Sprint customers may not be able to use Sprint’s advanced features, such as voicemail notification, while roaming; and
 
  •  Sprint or the carriers providing the service may not be able to provide us with accurate billing information on a timely basis.

44


Table of Contents

      If customers from our territory are not able to roam instantaneously or efficiently onto other wireless networks, we may lose current subscribers and our Sprint PCS services will be less attractive to new subscribers.

 
Certain provisions of the Sprint agreements may diminish the value of our common stock and restrict the sale of our business.

      Under limited circumstances and without further stockholder approval, Sprint may purchase our operating assets at a discount. In addition, Sprint must approve change of control of the ownership of AirGate and must consent to any assignment of our Sprint agreements. Sprint also has a right of first refusal if we decide to sell our operating assets to a third-party. We are also subject to a number of restrictions on the transfer of our business, including a prohibition on the sale of our operating assets to competitors of Sprint. These restrictions and other restrictions contained in the Sprint agreements could adversely affect the value of our common stock, may limit our ability to sell our business, may reduce the value a buyer would be willing to pay for our business, may reduce the “entire business value,” as described in our Sprint agreements, and may limit our ability to obtain new investment or support from any source.

 
We may have difficulty in obtaining an adequate supply of certain handsets from Sprint, which could adversely affect our results of operations.

      We depend on our relationship with Sprint to obtain handsets, and we have agreed to purchase all of our 3G capable handsets from Sprint or a Sprint authorized distributor through the earlier of December 31, 2004 or the date on which the cumulative 3G handset fees received by Sprint from all Sprint network partners equal $25,000,000. Sprint orders handsets from various manufacturers. We could have difficulty obtaining specific types of handsets in a timely manner if:

  •  Sprint does not adequately project the need for handsets for itself, its network partners and its other third-party distribution channels, particularly in transition to new technologies, such as “one time radio transmission technology,” or “1XRTT;”
 
  •  Sprint gives preference to other distribution channels, which it does periodically;
 
  •  we do not adequately project our need for handsets;
 
  •  Sprint modifies its handset logistics and delivery plan in a manner that restricts or delays our access to handsets; or
 
  •  there is an adverse development in the relationship between Sprint and its suppliers or vendors.

      The occurrence of any of the foregoing could disrupt our subscriber service and/or result in a decrease in subscribers, which could adversely affect our results of operations.

 
If Sprint does not complete the construction of its nationwide PCS network, we may not be able to attract and retain subscribers.

      Sprint currently intends to cover a significant portion of the population of the United States, Puerto Rico and the U.S. Virgin Islands by creating a nationwide PCS network through its own construction efforts and those of its network partners. Sprint 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 has entered into management agreements similar to ours with companies in other markets under its nationwide PCS build-out strategy. Our results of operations are dependent on Sprint’s national network and, to a lesser extent, on the networks of Sprint’s other network partners. Sprint’s PCS network may not provide nationwide coverage to the same extent as its competitors, which could adversely affect our ability to attract and retain subscribers.

45


Table of Contents

 
If other Sprint network partners have financial difficulties, the Sprint PCS network could be disrupted.

      Sprint’s national network is a combination of networks. The large metropolitan areas are owned and operated by Sprint, and the areas in between them are owned and operated by Sprint network partners. We believe that most, if not all, of these companies have incurred substantial debt to pay the large cost of building out their networks.

      If other network partners experience financial difficulties, Sprint’s PCS network could be disrupted. If Sprint’s agreements with those network partners were like ours, Sprint would have the right to step in and operate the network in the affected territory, subject to the rights of their lenders. In such event, there can be no assurance that Sprint could transition in a timely and seamless manner or that lenders would permit Sprint to do so.

 
If Sprint does not succeed, our business may not succeed.

      If Sprint has a significant disruption to its business plan or network, fails to operate its business in an efficient manner, or suffers a weakening of its brand name, our operations and profitability would likely be negatively impacted.

      If Sprint were to file for bankruptcy, Sprint may be able to reject its agreements with us under Section 365 of the Bankruptcy Code. The agreements provide us remedies, including purchase and put rights, though we cannot predict if or to what extent our remedies would be enforceable.

 
Non-renewal or revocation by the FCC of Sprint’s PCS licenses would significantly harm our business.

      PCS licenses are subject to renewal and revocation by the FCC. Sprint licenses in our territories will begin to expire in 2007 but may be renewed for additional ten-year terms. There may be opposition to renewal of Sprint’s PCS licenses upon their expiration, and Sprint’s PCS licenses may not be renewed. The FCC has adopted specific standards to apply to PCS license renewals. Any failure by Sprint or us to comply with these standards could cause revocation or forfeiture of Sprint’s PCS licenses for our territories. If Sprint loses any of its licenses in our territory, we would be severely restricted in our ability to conduct business.

 
If Sprint does not maintain control over its licensed spectrum, the Sprint agreements may be terminated, which would result in our inability to provide service.

      The FCC requires that licensees like Sprint maintain control of their licensed spectrum and not delegate control to third-party operators or managers. Although the Sprint agreements with us reflect an arrangement that the parties believe meets the FCC requirements for licensee control of licensed spectrum, we cannot assure you that the FCC will agree. If the FCC were to determine that the Sprint agreements need to be modified to increase the level of licensee control, we have agreed with Sprint to use our best efforts to modify the Sprint agreements to comply with applicable law. If we cannot agree with Sprint to modify the Sprint agreements, they may be terminated. If the Sprint agreements are terminated, we would no longer be a part of the Sprint PCS network and would be severely restricted in our ability to conduct business. Any required modifications could also have a material adverse effect on our business, financial condition and liquidity.

 
If we lose our right to use the Sprint brand and logo under its trademark and service mark license agreements, we would lose the advantages associated with marketing efforts conducted by Sprint.

      The Sprint brand and logo are highly recognizable. If we lose the rights to use this brand and logo or the value of the brand and logo decreases, customers may not recognize our brand readily and we may have to spend significantly more money on advertising to create brand recognition.

46


Table of Contents

Risks Particular to Our Industry

 
Significant competition in the wireless communications services industry may result in our competitors offering new or better products and services or lower prices, which could prevent us from operating profitably.

      Competition in the wireless communications industry is intense. According to information it has filed with the SEC, Sprint believes that the traditional dividing lines between long distance, local, wireless, and Internet services are increasingly becoming blurred. Through mergers and various service integration strategies, major providers, including Sprint, are striving to provide integrated solutions both within and across all geographical markets. We do not currently offer services other than wireless services and may not be able to effectively compete against competitors with integrated solutions. Further, the provision of integrated offerings may increase Sprint’s control over our business.

      Competition has caused, and we anticipate that competition will continue to cause, the market prices for two-way wireless products and services to decline in the future. Our ability to compete will depend, in part, on our ability to anticipate and respond to various competitive factors affecting the telecommunications industry. Our dependence on Sprint to develop competitive products and services and the requirement that we obtain Sprint’s consent to sell local pricing plans and non-Sprint approved equipment may limit our ability to keep pace with competitors on the introduction of new products, services and equipment. Many of our competitors are larger than us, possess greater financial and technical resources and may market other services, such as landline telephone service, cable television and Internet access, with their wireless communications services. Some of our competitors also have well-established infrastructures, marketing programs and brand names. In addition, some of our competitors may be able to offer regional coverage in areas not served by the Sprint PCS network or, because of their calling volumes or relationships with other wireless providers, may be able to offer regional roaming rates that are lower than those we offer. Additionally, we expect that existing cellular providers will continue to upgrade their systems to provide digital wireless communication services competitive with Sprint. Our success, therefore, is, to a large extent, dependent on Sprint’s ability to distinguish itself from competitors by marketing and anticipating and responding to various competitive factors affecting the wireless industry, including new services that may be introduced, changes in consumer preferences, demographic trends, economic conditions and discount pricing strategies by competitors. To the extent that Sprint is not able to keep pace with technological advances or fails to respond timely to changes in competitive factors in the wireless industry, it could cause us to lose market share or experience a decline in revenue.

      There has been a recent trend in the wireless communications industry towards consolidation of wireless service providers through joint ventures, reorganizations and acquisitions. We expect this consolidation to lead to larger competitors over time. We may be unable to compete successfully with larger companies that have substantially greater resources or that offer more services than we do. In addition, we may be at a competitive disadvantage since we may be more highly leveraged than many of our competitors.

 
If the demand for wireless data services does not grow, or if we or Sprint fail to capitalize on such demand, it could have an adverse effect on our growth potential.

      Sprint and its network partners, including AirGate, have committed significant resources to wireless data services and our business plan assumes increasing uptake in such services. That demand may not materialize. Even if such demand does develop, our ability to deploy and deliver wireless data services relies, in many instances, on new and unproven technology. Existing technology may not perform as expected. We may not be able to obtain new technology to effectively and economically deliver these services. The success of wireless data services is substantially dependent on the ability of Sprint and others to develop applications for wireless data devices and to develop and manufacture devices that support wireless applications. These applications or devices may not be developed or developed in sufficient quantities to support the deployment of wireless data services. These services may not be widely introduced and fully implemented at all or in a timely fashion. These services may not be successful when they are in

47


Table of Contents

place, and customers may not purchase the services offered. Consumer needs for wireless data services may be met by technologies such as 802.11, known as wi-fi, which does not rely on FCC regulated spectrum. The lack of standardization across wireless data handsets may contribute to customer confusion, which could slow acceptance of wireless data services, or increase customer care costs. Either could adversely affect our ability to provide these services profitably. If these services are not successful or costs associated with implementation and completion of the rollout of these services materially exceed our current estimates, our financial condition and prospects cold be materially adversely affected.
 
Market saturation could limit or decrease our rate of new subscriber additions.

      Intense competition in the wireless communications industry could cause prices for wireless products and services to continue to decline. If prices drop, then our rate of net subscriber additions will take on greater significance in improving our financial condition and results of operations. However, as our and our competitor’s penetration rates in our markets increase over time, our rate of adding net subscribers could continue to decrease. If this decrease were to continue, it could materially adversely affect our liquidity, financial condition and results of operations.

 
Alternative technologies and current uncertainties in the wireless market may reduce demand for PCS.

      The wireless communications 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. Technological advances and industry changes could cause the technology used on our network to become obsolete. We rely on Sprint for research and development efforts with respect to the products and services of Sprint and with respect to the technology used on our network. Sprint may not be able to respond to such changes and implement new technology on a timely basis, or at an acceptable cost.

      If Sprint is unable to keep pace with these technological changes or changes in the wireless communications market based on the effects of consolidation from the Telecommunications Act of 1996 or from the uncertainty of future government regulation, the technology used on our network or our business strategy may become obsolete.

 
We are a consumer business and a recession in the United States involving significantly lowered spending could negatively affect our results of operations.

      Our subscriber base is primarily individual consumers and our accounts receivable represent unsecured credit. We believe the economic downturn has had an adverse affect on our operations. In the event that the economic downturn that the United States and our territories have recently experienced becomes more pronounced or lasts longer than currently expected and spending by individual consumers drops significantly, our business may be further negatively affected.

      If Sprint’s current suppliers cannot meet their commitments, Sprint would have to use different vendors and this could result in delays, interruptions, or additional expenses associated with the upgrade and expansion of Sprint’s networks and the offering of its products and services.

 
Regulation by government and taxing agencies may increase our costs of providing service or require us to change our services, either of which could impair our financial performance.

      Our operations and those of Sprint may be subject to varying degrees of regulation by the FCC, the Federal Trade Commission, the Federal Aviation Administration, the Environmental Protection Agency, the Occupational Safety and Health Administration and state and local regulatory agencies and legislative bodies. Adverse decisions or regulation of these regulatory bodies could negatively impact our operations and our costs of doing business. For example, changes in tax laws or the interpretation of existing tax laws by state and local authorities could subject us to increased income, sales, gross receipts or other tax costs or require us to alter the structure of our current relationship with Sprint.

48


Table of Contents

 
Use of hand-held phones may pose health risks, which could result in the reduced use of wireless services or liability for personal injury claims.

      Media reports have suggested that certain radio frequency emissions from wireless handsets may be linked to various health problems, including cancer, and may interfere with various electronic medical devices, including hearing aids and pacemakers. Concerns over radio frequency emissions may discourage use of wireless handsets or expose us to potential litigation. Any resulting decrease in demand for wireless services, or costs of litigation and damage awards, could impair our ability to achieve and sustain profitability.

 
Regulation by government or potential litigation relating to the use of wireless phones while driving could adversely affect our results of operations.

      Some studies have indicated that some aspects of using wireless phones while driving may impair drivers’ attention in certain circumstances, making accidents more likely. These concerns could lead to litigation relating to accidents, deaths or serious bodily injuries, or to new restrictions or regulations on wireless phone use, any of which also could have material adverse effects on our results of operations. A number of U.S. states and local governments are considering or have recently enacted legislation that would restrict or prohibit the use of a wireless handset while driving a vehicle or, alternatively, require the use of a hands-free telephone. Legislation of this sort, if enacted, would require wireless service providers to provide hands-free enhanced services, such as voice activated dialing and hands-free speaker phones and headsets, so that they can keep generating revenue from their subscribers, who make many of their calls while on the road. If we are unable to provide hands-free services and products to subscribers in a timely and adequate fashion, the volume of wireless phone usage would likely decrease, and our ability to generate revenues would suffer.

 
Unauthorized use of, or interference with, the PCS network of Sprint could disrupt our service and increase our costs.

      We may incur costs associated with the unauthorized use of the PCS network of Sprint, including administrative and capital costs associated with detecting, monitoring and reducing the incidence of fraud. Fraudulent use of the PCS network of Sprint may impact interconnection costs, capacity costs, administrative costs, fraud prevention costs and payments to other carriers for fraudulent roaming.

 
Equipment failure and natural disasters or terrorist acts may adversely affect our operations.

      A major equipment failure or a natural disaster or terrorist act that affects our mobile telephone switching offices, microwave links, third-party owned local and long distance networks on which we rely, our cell sites or other equipment or the networks of other providers on which subscribers roam, could have a material adverse effect on our operations. While we have insurance coverage for some of these events, our inability to operate our wireless system even for a limited time period may result in a loss of subscribers or impair our ability to attract new subscribers, which would have a material adverse effect on our business, results of operations and financial condition.

49


Table of Contents

USE OF PROCEEDS

      We will not receive any cash proceeds from the recapitalization plan. In consideration for issuing the common stock and new notes in the recapitalization plan, we will receive the tendered old notes. The old notes surrendered in exchange for common stock and new notes will be retired and canceled and cannot be reissued. We will bear the expenses of the restructuring.

MARKET FOR OUR COMMON STOCK AND THE OLD NOTES

      Shares of our common stock began trading on The Nasdaq National Market on September 28, 1999, under the symbol “PCSA”. Before that date, there was no public market for our common stock. Beginning on April 8, 2003, after being de-listed from The Nasdaq National Market, our common stock began trading on the Over-The-Counter (“OTC”) Bulletin Board under the same symbol “PCSA.OB”. On September 23, 2003, the last trading day before the date of this prospectus and solicitation statement, the last reported sales price per share of our common stock on the OTC Bulletin Board was $2.80. On September 19, 2003, there were 201 holders of record of our common stock.

      The following table lists the high and low bid prices for our common stock for the periods indicated, as reported by The Nasdaq National Market and the OTC Bulletin Board.

                   
Price Range of
Common Stock

High Low


Fiscal Year Ended September 30, 2003:
               
 
Fourth Quarter (through September 25, 2003)
  $ 3.58     $ 1.01  
 
Third Quarter
  $ 1.34     $ 0.11  
 
Second Quarter
  $ 0.95     $ 0.14  
 
First Quarter
  $ 1.67     $ 0.35  
Fiscal Year Ended September 30, 2002:
               
 
Fourth Quarter
  $ 1.88     $ 0.39  
 
Third Quarter
  $ 17.53     $ 0.92  
 
Second Quarter
  $ 47.97     $ 8.52  
 
First Quarter
  $ 60.44     $ 42.20  
Fiscal Year Ended September 30, 2001:
               
 
Fourth Quarter
  $ 60.05     $ 41.75  
 
Third Quarter
  $ 53.50     $ 30.88  
 
Second Quarter
  $ 49.88     $ 29.44  
 
First Quarter
  $ 48.00     $ 21.69  

      We have never declared or paid any cash dividends on our common stock. We intend to retain any future earnings for use in our business and do not anticipate paying any cash dividends in the foreseeable future. In addition, both our credit facility and the indenture governing the new notes will severely limit our ability to declare and pay dividends.

      The old notes are not currently traded on any national securities exchange.

50


Table of Contents

CAPITALIZATION

      The following table sets forth our capitalization, as of June 30, 2003, (1) on an actual basis and (2) on an as adjusted basis to give effect to the recapitalization plan. The as adjusted data assumes that all of our outstanding old notes are exchanged for common stock and new notes in the recapitalization plan.

      To understand this table better, you should review “Selected Consolidated Historical Financial Data,” “Unaudited Pro-Forma Condensed Consolidated Financial Data”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes included elsewhere in this prospectus and solicitation statement.

                   
As of June 30, 2003

Actual As Adjusted


(In thousands)
(Unaudited)
Cash and cash equivalents
  $ 30,793     $ 20,835  
Debt securities
               
 
Credit Facility
    142,755       142,755  
 
Old notes
    244,495        
 
New notes offered hereby
          200,702  
     
     
 
Total debt securities
    387,250       343,457  
Stockholders’ equity
               
 
Common stock, $0.01 par value, 150,000,000 authorized 25,939,836 shares issued and outstanding(1)
    260       590  
 
Additional paid-in capital
    924,086       961,822  
 
Preferred stock, 5,000,000 shares authorized, no shares issued and outstanding
           
 
Deferred stock-based compensation
    (522 )     (522 )
 
Accumulated deficit
    (1,293,126 )     (1,301,023 )
     
     
 
 
Total stockholders’ equity (deficit)
    (369,302 )     (339,133 )
     
     
 
 
Total capitalization
  $ 48,741     $ 25,159  
     
     
 


(1)  58,939,836 shares issued and outstanding after the recapitalization plan, before giving effect to the reverse stock split.

51


Table of Contents

ACCOUNTING TREATMENT OF THE RESTRUCTURING

Exchange of Old Notes for Common Stock and New Notes

      The exchange of old notes for our common stock and new notes will be accounted for as a troubled debt restructuring pursuant to Statement of Financial Accounting Standards No. 15, “Accounting by Debtors and Creditors for Troubled Debt Restructurings” (“SFAS No. 15”) and EITF 02-4 “Determining whether Debtor’s Modification or Exchange of Debt is within the scope of FASB Statement No. 15.” Our outstanding old notes will be exchanged for 33,000,000 shares of our common stock, before giving effect to the reverse stock split, and $160.0 million in aggregate principal amount of new notes. In accordance with SFAS No. 15, a gain will not be recorded upon the restructuring as the adjusted carrying amount of the old notes is less than the maximum future cash payments (including future interest payments) of the new notes. The effects of the restructuring will therefore be accounted for as a reduction in the effective interest rate on the new notes.

      Transaction costs of the Recapitalization Plan are estimated to be $8.3 million, and are attributable to three components of the transaction. Approximately $0.6 million relates to financing costs capitalized on the balance sheet, which were incurred in connection with amending the existing covenants for the credit facility. These costs will be amortized to interest expense over the remaining life of the credit facility. Financial advisor and dealer/ manager, legal, filing, printing and accounting fees are estimated to be $7.7 million. Costs attributable to the debt are estimated to be $6.2 million and will be expensed as incurred; costs of approximately $1.5 million will be offset against the carrying amount of the common stock. Additionally, the Company may be required to pay alternative minimum taxes because net operating loss carry forwards can offset only 90% of alternative minimum taxable income. The Company has conservatively estimated alternative minimum taxes due of $1.7 million.

52


Table of Contents

SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA

      The selected statement of operations and balance sheet data presented below is derived from our audited consolidated financial statements as of and for the years ended December 31, 1998, the nine months ended September 30, 1999, and the years ended September 30, 2000, 2001 and 2002 and our unaudited consolidated financial statements as of June 30, 2003 and for the nine months ended June 30, 2002 and 2003.

      In accordance with generally accepted accounting principles, iPCS’ results of operations are not consolidated with the Company’s results subsequent to February 23, 2003 and the accounts of iPCS are recorded as an investment using the cost method of accounting. Prior to February 23, 2003, the Company’s results include the effects of purchase accounting related to the iPCS acquisition. The comparability of our results for the nine months ended June 30, 2003 to the same period for 2002 are affected by the exclusion of the results of iPCS for the periods prior to November 30, 2001 and after February 23, 2003.

      The unaudited financial statements include all adjustments, including normal recurring accruals, that management considers necessary to fairly present our financial position and results of operations. Operating results for the nine-month period ended June 30, 2003 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2003.

      The data set forth below should be read in conjunction with our consolidated financial statements and accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this proxy prospectus and solicitation statement.

53


Table of Contents

                                                             
For the For the Nine Nine Months Ended
Year Ended Months Ended For the Year Ended September 30, June 30,
December 31, September 30,

1998 1999 2000 2001 2002(1) 2002(1) 2003(4)







(In thousands, except per share subscriber data) (unaudited)
Statement of Operations Data:
                                                       
Revenues:
                                                       
 
Service revenue
  $     $     $ 9,746     $ 105,976     $ 327,365     $ 230,422     $ 242,928  
 
Roaming revenue
                12,338       55,329       111,162       75,458       67,019  
 
Equipment revenue
                2,981       10,782       18,030       13,523       10,773  
     
     
     
     
     
     
     
 
 
Total revenues
                25,065       172,087       456,557       319,403       320,720  
     
     
     
     
     
     
     
 
Operating expenses:
                                                       
 
Cost of services and roaming (exclusive of depreciation as shown separately below)
                (27,770 )     (116,732 )     (311,135 )     (216,698 )     (193,956 )
 
Cost of equipment
                (5,685 )     (20,218 )     (43,592 )     (29,982 )     (22,400 )
 
Selling and marketing
                (28,357 )     (71,617 )     (116,521 )     (85,568 )     (57,280 )
 
General and administrative
    (2,597 )     (5,294 )     (14,078 )     (15,742 )     (25,339 )     (18,277 )     (21,910 )
 
Non-cash stock compensation
          (325 )     (1,665 )     (1,665 )     (769 )     (597 )     (530 )
 
Depreciation
    (1,204 )     (622 )     (12,034 )     (30,621 )     (70,197 )     (47,864 )     (48,967 )
 
Amortization of intangible assets
                      (46 )     (39,332 )     (29,377 )     (6,855 )
 
Loss on disposal of property and equipment
                            (1,074 )            
     
     
     
     
     
     
     
 
 
Operating expenses before impairments
    (3,801 )     (6,241 )     (89,589 )     (256,641 )     (607,959 )     (428,363 )     (351,898 )
 
Impairment of goodwill(3)
                            (460,920 )     (261,212 )      
 
Impairment of property and equipment(3)
                            (44,450 )            
 
Impairment of intangible assets(3)
                            (312,043 )            
     
     
     
     
     
     
     
 
   
Total operating expenses
    (3,801 )     (6,241 )     (89,589 )     (256,641 )     (1,425,372 )     (689,575 )     (351,898 )
     
     
     
     
     
     
     
 
 
Operating loss
    (3,801 )     (6,241 )     (64,524 )     (84,554 )     (968,815 )     (370,172 )     (31,178 )
 
Interest income
                    9,321       2,463       590       530       94  
 
Interest expense
    (1,392 )     (9,358 )     (26,120 )     (28,899 )     (57,153 )     (40,732 )     (45,869 )
 
Other
                                  (20 )     11  
 
Income tax benefit
                            28,761       28,761        
     
     
     
     
     
     
     
 
 
Net loss
  $ (5,193 )   $ (15,599 )   $ (81,323 )   $ (110,990 )   $ (996,617 )   $ (381,633 )   $ (76,942 )
     
     
     
     
     
     
     
 
 
Basic and diluted net loss per share of common stock
  $ (1.54 )   $ (4.57 )   $ (6.60 )   $ (8.48 )   $ (41.96 )   $ (16.55 )   $ (2.97 )
 
Basic and diluted weighted-average outstanding common shares
    3,382,518       3,414,276       12,329,149       13,089,285       23,751,507       23,059,151       25,897,415  
Other Data:
                                                       
 
Number of subscribers at end of period
                56,689       235,025       554,833       532,446       364,157  
 
Ratio of earnings to fixed charges(5)
                                         
Statement of Cash Flow Data:
                                                       
 
Cash provided by (used in) operating activities
  $ (989 )   $ (2,473 )   $ (41,609 )   $ (40,850 )   $ (45,242 )   $ (48,797 )   $ 20,650  
 
Cash used in investing activities
    (2,432 )     (15,706 )     (152,397 )     (71,772 )     (78,716 )     (59,061 )     (28,869 )
 
Cash provided by (used in) financing activities
    5,200       274,783       (6,510 )     68,528       142,143       23,880       30,793  

54


Table of Contents

                                                   
As of As of September 30, As of
December 31,
June 30,
1998 1999 2000 2001 2002(1) 2003






Balance Sheet Data (at period end):
                                               
 
Cash and cash equivalents
  $ 2,296     $ 258,900     $ 58,384     $ 14,290     $ 32,475     $ 30,793  
 
Total current assets
    2,774       261,247       74,315       56,446       129,773       74,810  
 
Property and equipment, net
    12,545       44,206       183,581       209,326       399,155       184,493  
 
Total assets
    15,450       317,320       268,948       281,010       574,294       272,036  
 
Total current liabilities(2)
    16,481       31,507       37,677       61,998       494,173       72,257  
 
Long-term debt and capital lease obligations
    7,700       165,667       180,727       266,326       354,828       375,400  
 
Stockholders’ equity (deficit)
    (5,350 )     127,846       49,873       (52,724 )     (292,947 )     (369,302 )


(1)  On November 30, 2001, AirGate acquired iPCS, Inc. (together with its subsidiaries “iPCS”). The accounts of iPCS are included as of September 30, 2002, and the results of operations subsequent to November 30, 2001.
 
(2)  As a result of an event of default, the iPCS credit facility and iPCS notes have been classified as a current liability.
 
(3)  As a result of fair value assessments performed by a nationally recognized valuation expert, the Company recorded total impairment charge of $817,413 associated with the impairment of goodwill and tangible and intangible assets related to iPCS.
 
(4)  February 23, 2003, iPCS, Inc. filed for Chapter 11 bankruptcy. Prior to February 23, 2003 the accounts and results of operation of iPCS were consolidated. Subsequent to filling bankruptcy, iPCS is accounted for on the cost basis.
 
(5)  Earnings were inadequate to cover fixed charges for the year ended December 31, 1998, the nine months ended September 30, 1999, the years ended September 30, 2000, 2001, and 2002, and the nine months ended September 30, 2002 and 2003 by $5,193, $15,599, $81,323, $110,990, $1,025,378, $335,276 and $76,942, respectively.

55


Table of Contents

PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)
(Dollars in thousands)

      The following unaudited pro forma condensed consolidated financial statements show the effects of the Recapitalization Plan in the historical balance sheet and statements of operations of the Company. The pro forma condensed consolidated financial statements assume 100% of our Old Notes are exchanged for Common Stock and New Notes. We have presented this set of unaudited pro forma condensed consolidated financial statements to demonstrate the significant financial aspects of the transaction.

      We derived this information from the unaudited consolidated financial statements of the Company for the nine months ended June 30, 2003 and the audited consolidated financial statements of the Company for the year ended September 30, 2002. These historical financial statements used in preparing the pro forma financial statements are summarized and should be read in conjunction with our complete historical financial statements and related notes contained elsewhere in this prospectus and solicitation statement.

      The unaudited pro forma condensed consolidated statements of operations for the nine months ended June 30, 2003 and for the year ended September 30, 2002 give effect to the Recapitalization Plan as if it had been consummated at the beginning of the earliest period presented. The unaudited pro forma condensed consolidated balance sheet as of June 30, 2003 gives effect to the Recapitalization Plan as if it took place June 30, 2003.

      On November 30, 2001, AirGate acquired iPCS, Inc. (together with its subsidiaries, “iPCS”). Subsequent to November 30, 2001, the results of operations and accounts of iPCS were consolidated with the Company in accordance with generally accepted accounting principles. On February 23, 2003, iPCS, Inc. filed a Chapter 11 bankruptcy petition in the United States Bankruptcy Court for the Northern District of Georgia for the purpose of effecting a court-administered reorganization. In accordance with generally accepted accounting principles, subsequent to February 23, 2003, the Company no longer consolidates the accounts and results of operations of iPCS, Inc. and its subsidiaries. The accounts of iPCS, Inc. and its subsidiaries are recorded as an investment using the cost method of accounting as the Company no longer controls the management of iPCS, Inc.

      Transaction costs of the Recapitalization Plan are estimated to be $8.3 million, and are attributable to three components of the transaction. Approximately $0.6 million relates to financing costs capitalized on the balance sheet, which were incurred in connection with amending the Credit Facility. These costs will be amortized to interest expense over the remaining life of the credit facility. Financial advisor and dealer/ manager, legal, filing, printing and accounting fees are estimated to be $7.7 million. Costs attributable to the debt are estimated to be $6.2 million and will be expensed as incurred; costs of approximately $1.5 million will be offset against the carrying amount of the common stock. Additionally, the Company may be required to pay alternative minimum taxes because net operating loss carry forwards can offset only 90% of alternative minimum taxable income. The Company has conservatively estimated alternative minimum taxes due of $1.7 million.

      The pro forma condensed consolidated balance sheet gives effect to these payments, and the effect has not been reflected in the pro forma condensed consolidated statement of operations. The pro forma adjustments, which are based upon available information and upon certain assumptions that we believe are reasonable, are described in the accompanying notes. The final amount allocated to common stock to be received by the noteholders and resulting effect on the future effective interest rate will be different and the difference may be material.

      The Company is providing the unaudited pro forma condensed consolidated financial information for illustrative purposes only. The pro forma consolidated financial data does not purport to represent what our interim consolidated financial position or results of operations would have actually been had the recapitalization plan in fact been completed on that date, or to project our results of operations for any future period.

56


Table of Contents

AIRGATE PCS, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

As of June 30, 2003
(Dollars in thousands)
                             
Pro Forma
Pro Forma June 30,
Historical Adjustments 2003



(unaudited) (unaudited) (unaudited)
ASSETS
Current Assets:
                       
 
Cash and cash equivalents
  $ 30,793     $ (7,731 )(1)   $ 20,835  
              (527 )(2)        
              (1,700 )(7)        
 
Trade receivables
    27,989             27,989  
 
Allowance for doubtful accounts
    (4,601 )           (4,601 )
 
Receivable from Sprint PCS
    13,709             13,709  
 
Inventories
    2,043             2,043  
 
Prepaid expense
    4,403             4,403  
 
Intercompany receivable
    22             22  
 
Other current assets
    452             452  
     
     
     
 
   
Total current assets
    74,810       (9,958 )     64,852  
     
     
     
 
 
Property and equipment, net
    184,493             184,493  
 
Credit facility financing costs
    2,792       527  (2)     3,319  
 
Old notes financing costs
    4,193       (4,193 )(2)      
 
Direct subscriber activation costs
    4,600             4,600  
 
Other assets
    1,148             1,148  
     
     
     
 
   
Total assets
  $ 272,036     $ (13,624 )   $ 258,412  
     
     
     
 
 
LIABILITIES AND STOCKHOLDERS’ DEFICIT (EQUITY)
Current Liabilities:
                       
 
Accounts payable
  $ 2,879     $     $ 2,879  
 
Accrued expenses
    9,784             9,784  
 
Payable to Sprint PCS
    40,005             40,005  
 
Deferred revenue
    7,739             7,739  
 
Current maturities of long-term debt
    11,850             11,850  
     
     
     
 
   
Total current liabilities
    72,257             72,257  
     
     
     
 
Long-term debt, excluding current maturities
                       
 
Credit Facility
    130,905             130,905  
 
Senior Notes
    244,495       (4,193 )(2)     200,702  
              (39,600 )(3)        
     
     
     
 
   
Total Long-Term Debt
    375,400       (43,793 )     331,607  
     
     
     
 
Deferred subscriber activation fee revenue
    7,910             7,910  
Other long-term liabilities
    1,656             1,656  
Investment in sub
    184,115             184,115  
     
     
     
 
   
Total liabilities
    641,338       (43,793 )     597,545  
     
     
     
 
Stockholders’ (deficit) equity:
                       
 
Common stock
    260       330  (3)     590  
 
Additional paid-in-capital
    924,086       39,270  (3)     961,822  
              (1,534 )(1)        
 
Unearned stock option compensation
    (522 )           (522 )
 
Accumulated deficit
    (1,293,126 )     (6,197 )(1)     (1,301,023 )
              (1,700 )(7)        
     
     
     
 
   
Total stockholders’ (deficit) equity
    (369,302 )     30,169       (339,133 )
     
     
     
 
   
Total liabilities and stockholders’ (deficit) equity
  $ 272,036     $ (13,624 )   $ 258,412  
     
     
     
 

57


Table of Contents

AIRGATE PCS, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

For the Fiscal Year Ended September 30, 2002

(Dollars in thousands, except for share and per share amounts)
                             
Historical Pro Forma
Year Ended Year Ended
September 30, Pro Forma September 30,
2002(4) Adjustments 2002



(unaudited) (unaudited)
Revenues:
                       
 
Service revenue
  $ 327,365     $     $ 327,365  
 
Roaming revenue
    111,162             111,162  
 
Equipment revenue
    18,030             18,030  
     
     
     
 
      456,557             456,557  
     
     
     
 
Operating Expenses:
                       
 
Cost of services and roaming
    (311,135 )           (311,135 )
 
Cost of equipment
    (43,592 )           (43,592 )
 
Selling and marketing
    (116,521 )           (116,521 )
 
General and administrative expenses
    (25,339 )           (25,339 )
 
Non-cash stock compensation expense
    (769 )           (769 )
 
Depreciation and amortization
    (70,197 )           (70,197 )
 
Amortization
    (39,332 )           (39,332 )
 
Loss on Disposal of property and equipment
    (1,074 )           (1,074 )
 
Goodwill impairment
    (460,920 )           (460,920 )
 
Property and equipment impairment
    (44,450 )           (44,450 )
 
Intangible asset impairment
    (312,043 )           (312,043 )
     
     
     
 
   
Total operating expenses
    (1,425,372 )           (1,425,372 )
     
     
     
 
   
Operating loss
    (968,815 )           (968,815 )
 
Interest income
    590             590  
 
Interest expense
    (57,153 )     29,235  (5)     (36,534 )
              (8,511 )(6)        
              (105 )(9)        
     
     
     
 
   
Loss before income tax benefit
    (1,025,378 )     20,619       (1,004,759 )
   
Income tax benefit
    28,761             28,761  
     
     
     
 
   
Net loss
  $ (996,617 )   $ 20,619     $ (975,998 )
     
     
     
 
Basic and diluted net loss per share of common stock(8)
  $ (41.96 )           $ (17.20 )
Basic and diluted weighted-average outstanding common shares(8)
    23,751,507       33,000,000  (3)     56,751,507  

58


Table of Contents

AIRGATE PCS, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

For the Nine Months Ended June 30, 2003
(Dollars in thousands, except for share and per share amounts)
                             
Historical
9 Months Ended Pro Forma
June 30, Pro Forma 9 Months Ended
2003(4) Adjustments June 30, 2003



(unaudited) (unaudited) (unaudited)
Revenues:
                       
 
Service revenue
  $ 242,928     $     $ 242,928  
 
Roaming revenue
    67,019             67,019  
 
Equipment revenue
    10,773             10,773  
     
     
     
 
      320,720             320,720  
     
     
     
 
Operating Expenses:
                       
 
Cost of services and roaming
    (193,956 )           (193,956 )
 
Cost of equipment
    (22,400 )           (22,400 )
 
Selling and marketing
    (57,280 )           (57,280 )
 
General and administrative expenses
    (21,910 )           (21,910 )
 
Non-cash stock compensation expense
    (530 )           (530 )
 
Depreciation and amortization
    (48,967 )           (48,967 )
 
Amortization
    (6,855 )           (6,855 )
 
Goodwill impairment
                 
     
     
     
 
   
Total operating expenses
    (351,898 )           (351,898 )
     
     
     
 
   
Operating loss
    (31,178 )           (31,178 )
 
Interest income
    94             94  
 
Interest expense
    (45,869 )     24,835  (5)     (28,661 )
              (7,548 )(6)        
              (79 )(9)        
 
Other expense
    11             11  
     
     
     
 
   
Loss before income tax benefit
    (76,942 )     17,208       (59,734 )
   
Income tax benefit
                 
     
     
     
 
   
Net loss
  $ (76,942 )   $ 17,208     $ (59,734 )
     
     
     
 
Basic and diluted net loss per share of common stock(8)
  $ (2.97 )           $ (1.01 )
Basic and diluted weighted-average outstanding common shares(8)
    25,897,415       33,000,000  (3)     58,897,415  

59


Table of Contents

AIRGATE PCS, INC.

 

FOOTNOTES TO PRO FORMA CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except for share and per share amounts)

      The following summarizes certain key provisions and accounting related to the recapitalization plan as it relates to the condensed consolidated financial statements. The recapitalization plan is further described in the prospectus and solicitation statement.

      The 13.5% Senior Subordinated Discounted Notes due 2009 (“Old Notes”) with a carrying value of $240,302 as of June 30, 2003 will be exchanged for 9 3/8% Senior Subordinated Notes due 2009 (“New Notes”) with a principal balance of $160,000 and 33,000,000 shares of common stock, which is assumed to be valued at $39,600 as of June 30, 2003, based upon the common stock market price at that time. The common stock will be valued based on the market price immediately after the transaction has closed. The market price, which will be used to value the common stock, will be different and the difference may be material and will also change the effective interest rate of the New Notes. An increase or decrease of $1.00 in the market price of the Company’s common stock would result in a decrease or increase, respectively, in the carrying amount of the notes of $33,000. An increase or decrease in the carrying amount of the debt results in a decrease or increase, respectively, in the effective interest rate.

      The financial restructuring qualifies as a troubled debt restructuring in accordance with Statement of Financial Accounting Standards No. 15 “Accounting by Debtors and Creditors for Troubled Debt Restructurings” and EITF 02-4, “Determining Whether a Debtors Modification or Exchange of Debt is within the scope of FASB statement No. 15.” Based on the proposed Recapitalization Plan and assumptions, there will not be a gain on the transaction since total future cash payments, including interest, exceed the remaining carrying amount of the Old Notes after reducing the Old Notes by the assumed value of the common stock.

(1) The estimated transaction costs are summarized as follows:

         
Financial advisor and dealer/manager fees
  $ 670  
Financial advisor and dealer/manager fees — contingent transaction costs
    4,361  
Legal, printing and other fees
    2,350  
Accounting fees
    350  
     
 
    $ 7,731  
     
 

  Transaction costs incurred to raise capital related to the debt will be expensed in the period incurred. Transaction costs incurred to raise capital related to the equity are recorded against additional paid in capital.

(2)  Represents the reclassification of the net financing costs related to the issuance of the Old Notes, and the payment of additional financing costs related to an amendment of the Credit Facility.
 
(3)  Represents the adjustment to record the issuance of 33,000,000 shares of common stock, to be issued and outstanding immediately after the exchange offer. The issuance of the stock reflects a reduction in the Old Notes at an assumed market value as of June 30, 2003 of $1.20 per share.
 
(4)  On November 30, 2001, AirGate acquired iPCS, Inc. (together with its subsidiaries). Subsequent to November 30, 2001, the September 30, 2002 condensed consolidated statement of operations includes the results of iPCS, Inc. On February 23, 2003, iPCS filed a Chapter 11 bankruptcy petition for the purpose of effecting a court-administered reorganization. The results of iPCS have been included in the June 30, 2003 condensed consolidated statement of operations of AirGate through February 23, 2003. Subsequent to February 23, 2003, AirGate no longer consolidated the accounts and results of operations of its unrestricted subsidiary iPCS. The pro forma condensed consolidated financial

60


Table of Contents

AIRGATE PCS, INC.

FOOTNOTES TO PRO FORMA CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except for share and per share amounts)

statements do not show the effects of transferring AirGate’s shares of iPCS common stock to a trust for the benefit of AirGate shareholders and ultimate disposition.
 
(5)  Represents the adjustment to reflect the impact of removing the interest expense (including amortization of the discount and direct issue costs) related to the Old Notes.
 
(6)  Represents the adjustment to reflect the effective interest expense (including accretion of the premium) of the New Notes. Based on the assumptions herein, the effective rate is assumed to be 4.27%; the actual cash pay rate is 9 3/8%.
 
(7)  As a result of the recapitalization plan, the Company will realize cancellation of indebtedness income which will be absorbed by net operating loss carry forwards. Additionally, the Company may be required to pay alternative minimum taxes because net operating loss carry forwards can offset only 90% of alternative minimum taxable income. The Company has conservatively estimated alternative minimum taxes of $1,700.
 
(8)  As part of the Recapitalization Plan, the Company is proposing to implement an approximate [          ] reverse split of its common stock.
 
(9)  Represents amortization of financing costs capitalized on the balance sheet, which were incurred in connection with amending the Credit Facility. These costs will be amortized to interest expense over the remaining life of the Credit Facility.

61


Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

      On July 22, 1998, AirGate entered into management and related agreements with Sprint whereby it became the network partner of Sprint with the right to provide 100% digital PCS products and services under the Sprint brand names in AirGate’s original territory in the southeastern United States. In January 2000, AirGate began commercial operations with the launch of four markets covering 2.2 million residents in AirGate’s territory. By September 30, 2000, AirGate had launched commercial PCS service in all 21 of its markets, which comprise AirGate’s original territory. At June 30, 2003, AirGate had total network coverage of approximately 6.0 million residents or 83% of the 7.2 million residents in its territory.

      Under AirGate’s long-term agreements with Sprint, we manage our network on Sprint’s licensed spectrum and have the right to use the Sprint brand names royalty-free during our PCS affiliation with Sprint. We also have access to Sprint’s national marketing support and distribution programs and are generally required to buy network equipment and subscriber handsets from vendors approved by Sprint or from Sprint directly. The agreements with Sprint generally provide that these purchases are to be made at the same discounted rates offered by vendors to Sprint based on its large volume purchases. Sprint pays AirGate a management fee which generally consists of 92% of collected revenues. We are entitled to 100% of revenues collected from the sale of handsets and accessories and on roaming revenue received when customers of Sprint and Sprint’s other network partners make a wireless call on our PCS network.

      On November 30, 2001, AirGate acquired iPCS, a network partner of Sprint with 37 markets in the midwestern states of Michigan, Illinois, Iowa and Nebraska. The acquisition of iPCS increased the total resident population in the Company’s markets from approximately 7.1 million to approximately 14.5 million. On February 23, 2003, iPCS filed a Chapter 11 bankruptcy petition in the United States Bankruptcy Court for the Northern District of Georgia for the purpose of effecting a court-administered reorganization. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 94 “Consolidation of All Majority-Owned Subsidiaries” and Accounting Research Bulletin (“ARB”) No. 51 “Consolidated Financial Statements,” when control of a majority-owned subsidiary does not rest with the majority owners (as, for instance, where the subsidiary is in legal reorganization or in bankruptcy), ARB No. 51 precludes consolidation of the majority-owned subsidiary. As a result, subsequent to February 23, 2003, AirGate no longer consolidates the accounts and results of operations of iPCS and the accounts of iPCS are recorded as an investment using the cost method of accounting. In connection with the restructuring described in this prospectus and solicitation statement, we are transferring our shares of iPCS common stock to a trust organized under Delaware law for the benefit of our stockholders. For more information on this transfer, please see “The Recapitalization Plan — iPCS Stock Trust.”

      As required by the terms of AirGate’s and iPCS’ respective outstanding indebtedness, each of AirGate and iPCS conducts its business as separate corporate entities from the other. AirGate’s old notes require subsidiaries of AirGate to be classified as either “restricted subsidiaries” or “unrestricted subsidiaries.” A restricted subsidiary is defined generally as any subsidiary that is not an unrestricted subsidiary. An unrestricted subsidiary includes any subsidiary which:

  •  has been designated an unrestricted subsidiary by the AirGate board of directors,
 
  •  has no indebtedness which provides recourse to AirGate or any of its restricted subsidiaries,
 
  •  is not party to any agreement with AirGate or any of its restricted subsidiaries, unless the terms of the agreement are no less favorable to AirGate or such restricted subsidiary than those that might be obtained from persons unaffiliated with AirGate,
 
  •  is a subsidiary with respect to which neither AirGate nor any of its restricted subsidiaries has any obligation to subscribe for additional equity interests, maintain or preserve such subsidiary’s financial condition or cause such subsidiary to achieve certain operating results,

62


Table of Contents

  •  has not guaranteed or otherwise provided credit support for any indebtedness of AirGate or any of its restricted subsidiaries, and
 
  •  has at least one director and one executive officer that are not directors or executive officers of AirGate or any of its restricted subsidiaries.

      AirGate’s old notes impose certain affirmative and restrictive covenants on AirGate and its restricted subsidiaries and also include as events of default certain events, circumstances or conditions involving AirGate or its restricted subsidiaries. Because iPCS is an unrestricted subsidiary, the covenants and events of default under AirGate’s notes generally do not apply to iPCS.

      AirGate’s credit facility also imposes certain restrictions on, and applies certain events of default to events, circumstances or conditions involving, AirGate and its subsidiaries. AirGate’s senior credit facility, however, expressly excludes iPCS from the definition of “subsidiary.” Therefore, these restrictions and events of default applicable to AirGate and its subsidiaries do not generally apply to iPCS.

Critical Accounting Policies

      The Company relies on the use of estimates and makes assumptions that impact its financial condition and results. These estimates and assumptions are based on historical results and trends as well as the Company’s forecasts as to how these might change in the future. Several of the most critical accounting policies that materially impact the Company’s results of operations include:

 
Allowance for Doubtful Accounts

      Estimates are used in determining the allowance for doubtful accounts and are based on historical collection and write-off experience, current trends, credit policies and accounts receivable by aging category. In determining these estimates, the Company compares historical write-offs in relation to the estimated period in which the subscriber was originally billed. The Company also looks at the average length of time that elapses between the original billing date and the date of write-off in determining the adequacy of the allowance for doubtful accounts by aging category. From this information, the Company provides specific amounts to the aging categories. The Company provides an allowance for substantially all receivables over 90 days old.

      The Company provides a reduction in revenues for those subscribers that it anticipates will not pay late payment fees and early cancellation fees using historical information. The reserve for late payment fees and early cancellation fees are included in the allowance for doubtful accounts balance.

      For AirGate, the allowance for doubtful accounts was $4.6 million as of June 30, 2003 and $6.8 million as of September 30, 2002. If the allowance for doubtful accounts is not adequate, it could have a material adverse affect on the Company’s liquidity, financial position and results of operations.

      The Company also reviews current trends in the credit quality of its subscriber base. As of June 30, 2003, 30% of AirGate’s subscriber base consisted of sub-prime credit quality subscribers. Sprint has a program in which subscribers with lower quality credit or limited credit history may nonetheless sign up for service subject to certain account spending limits, if the subscriber makes a deposit ranging from $125 to $250. In May 2001, Sprint introduced the no-deposit account spending limit program, in which the deposit requirement was waived except in very limited circumstances (the “NDASL program”). The NDASL program was replaced in late 2001 with the Clear Pay program. The Clear Pay program re-instituted the deposit for only the lowest credit quality subscribers. The NDASL and Clear Pay programs and their associated lack of general deposit requirements increased the number of the Company’s sub-prime credit subscribers. In February 2002, Sprint allowed its network partners to re-institute deposits in a program called the Clear Pay II program. The Clear Pay II program and its deposit requirements are currently in effect in all of AirGate’s markets, which reinstated a deposit requirement of $125 for most sub-prime credit subscribers. In early February 2003, management increased the deposit threshold to $250 for sub-prime customers.

63


Table of Contents

 
First Payment Default Subscribers

      The Company had previously reserved for subscribers that it anticipated would never pay a bill. During the three months ended March 31, 2003, the Company experienced a significant improvement in customer payment behavior for these customers as well as a significant improvement in the credit quality of new subscribers to the Company. As a result, the Company determined that the first payment default reserve is no longer necessary. At June 30, 2003, first payment default reserve was $0.

 
Revenue Recognition

      The Company recognizes revenue when persuasive evidence of an arrangement exists, services have been rendered or products have been delivered, the price to the buyer is fixed and determinable, and collectibility is reasonably assured. The Company’s revenue recognition polices are consistent with the guidance in Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition in Financial Statements” promulgated by the Securities and Exchange Commission.

      The Company records equipment revenue from the sale of handsets and accessories to subscribers in its retail stores and to local distributors in its territories upon delivery to the subscriber. The Company does not record equipment revenue on handsets and accessories purchased by subscribers from national third-party retailers such as Radio Shack and Best Buy, or directly from Sprint by subscribers in its territories. The Company believes the equipment revenue and related cost of equipment associated with the sale of wireless handsets and accessories is a separate earnings process from the sale of wireless services to subscribers. Because such arrangements do not require a customer to subscribe to the Company’s wireless services and because the Company sells wireless handsets to existing customers at a loss, the Company currently accounts for these transactions separately from agreements to provide customers wireless service.

      The Company’s subscribers pay an activation fee to the Company when they initiate service. The Company defers activation fee revenue over the average life of its subscribers, which is estimated to be 30 months. The Company recognizes service revenue from its subscribers as they use the service. The Company provides a reduction of recorded revenue for billing adjustments, late payment fees, and early cancellation fees. The Company also reduces recorded revenue for rebates and discounts given to subscribers on wireless handset sales in accordance with Emerging Issues Task Force (“EITF”) Issue No. 01-9 “Accounting for Consideration Given by a Vendor to a Subscriber (Including a Reseller of the Vendor’s Products).” For industry competitive reasons, the Company sells wireless handsets at a loss. The Company participates in the Sprint national and regional distribution programs in which national retailers such as Radio Shack and Best Buy sell Sprint PCS products and services. In order to facilitate the sale of Sprint PCS products and services, national retailers purchase wireless handsets from Sprint for resale and receive compensation from Sprint for Sprint PCS products and services sold. For industry competitive reasons, Sprint subsidizes the price of these handsets by selling the handsets at a price below cost. Under the Company’s Sprint agreements, when a national retailer sells a handset purchased from Sprint to a subscriber in the Company’s territories, the Company is obligated to reimburse Sprint for the handset subsidy. The Company does not receive any revenue from the sale of handsets and accessories by such national retailers. The Company classifies these handset subsidy charges as a selling and marketing expense for a new subscriber handset sale and classifies these subsidies as a cost of service and roaming for a handset upgrade to an existing subscriber.

      Sprint retains 8% of collected service revenue from subscribers based in the Company’s markets and from non-Sprint subscribers who roam onto the Company’s network. The amount of affiliation fee retained by Sprint is recorded as cost of service and roaming. Revenue derived from the sale of handsets and accessories by the Company and from certain roaming services (outbound roaming and roaming revenue from Sprint PCS and its PCS network partner subscribers) are not subject to the 8% affiliation fee from Sprint.

      The Company defers direct subscriber activation costs when incurred and amortizes these costs using the straight-line method over 30 months, which is the estimated average life of a subscriber. Direct

64


Table of Contents

subscriber activation costs also include credit check fees and loyalty welcome call fees charged to the Company by Sprint and costs incurred by the Company to operate a subscriber activation center. In November 2002, the Emerging Issues Task Force (EITF) of the Financial Accounting Standards Board (FASB) reached a consensus on EITF No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables.” The EITF guidance addresses how to account for arrangements that may involve multiple revenue-generating activities, i.e., the delivery or performance of multiple products, services, and/or rights to use assets. In applying this guidance, separate contracts with the same party, entered into at or near the same time, will be presumed to be a bundled transaction, and the consideration will be measured and allocated to the separate units based on their relative fair values. This consensus guidance will be applicable to agreements entered into in quarters beginning after June 15, 2003. AirGate will adopt this new accounting effective July 1, 2003. The adoption of EITF 00-21 will result in the majority of activation fee revenue being recognized at the time the related wireless phone is sold, and will classify it as equipment sales. Upon adopting EITF 00-21, the Company will continue to amortize previously deferred activation revenues ($7.9 million at June 30, 2003) and costs ($4.6 million at June 30, 2003) over the remaining estimated life of a subscriber not to exceed 30 months.
 
Impairment of Long-Lived Assets and Goodwill

      The Company accounts for long-lived assets and goodwill in accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” and SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 144 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. SFAS No. 142 requires annual tests for impairment of goodwill and intangible assets that have indefinite useful lives and interim tests when an event has occurred that more likely than not has reduced the fair value of such assets. The Company no longer has any assets recorded subject to SFAS 142 impairment testing. As of September 30, 2002, the Company recorded substantial write-offs of long lived assets and goodwill relating to its iPCS subsidiary. Management will continue to monitor any triggering events and perform re-evaluations, as necessary.

New Accounting Pronouncements

      See Note 2 to the consolidated financial statements for the nine months period ended June 30, 2003 for a description of new accounting pronouncements and their impact on AirGate.

Results of Operations

      The following discussion of the results of operations includes the results of operations of iPCS subsequent to November 30, 2001, its date of acquisition, but as a result of iPCS’ Chapter 11 bankruptcy filing, does not include the results of operations of iPCS subsequent to February 23, 2003. iPCS filed for Chapter 11 bankruptcy on February 23, 2003. In accordance with SFAS No. 94 and ARB No. 51, iPCS’ results of operations are not consolidated with AirGate’s results subsequent to February 23, 2003 and the accounts of iPCS are recorded as an investment using the cost method of accounting. AirGate results include the effects of purchase accounting related to the iPCS acquisition. The comparability of the Company’s results for the nine months ended June 30, 2003 to the same period for 2002 are affected by the exclusion of the results of iPCS for the periods prior to November 30, 2001 and after February 23, 2003. As a result and in addition to the other factors described below for AirGate, the exclusion of iPCS results after February 23, 2003 has the effect of lowering revenues and expenses in the nine months ended June 30, 2003 compared to the same period in 2002, which is partially offset by the exclusion of results for iPCS prior to November 30, 2001.

65


Table of Contents

 
Financial Measures and Key Operating Metrics

      We use certain operating and financial measures that are not calculated in accordance with accounting principles generally accepted in the United States, or GAAP. A non-GAAP financial measure is defined as a numerical measure of a company’s financial performance that (i) excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the comparable measure calculated and presented in accordance with GAAP in the statement of income or statement of cash flows; or (ii) includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the comparable measure so calculated and presented.

      Terms such as subscriber net additions, average revenue per user (“ARPU”), churn, cost per gross addition (“CPGA”) and cash cost per user (“CCPU”) are important operating metrics used in the wireless telecommunications industry. These metrics are important to compare us to other wireless service providers. ARPU, CCPU and CPGA also assist management in budgeting and CPGA also assists management in quantifying the incremental costs to acquire a new subscriber. Except for churn and net subscriber additions, we have included a reconciliation of these metrics to the most directly comparable GAAP financial measure. Churn and subscriber net additions are operating statistics with no comparable GAAP financial measure. ARPU, CPGA and CCPU are supplements to GAAP financial information and should not be considered an alternative to, or more meaningful than, revenues, expenses or net loss as determined in accordance with GAAP.

      Earnings before interest, taxes, depreciation and amortization, or “EBITDA,” is a performance metric we use and which is used by other companies. Management believes that EBITDA is a useful adjunct to net loss and other measurements under GAAP because it is a meaningful measure of a company’s performance, as interest, taxes, depreciation and amortization can vary significantly between companies due in part to differences in accounting policies, tax strategies, levels of indebtedness, capital purchasing practices and interest rates. EBITDA also assists management in evaluating operating performance and is sometimes used to evaluate performance for executive compensation. We have included below a presentation of the GAAP financial measure most directly comparable to EBITDA, which is net loss, as well as a reconciliation of EBITDA to net loss. We have also provided a reconciliation to net cash provided by (used in) operating activities as supplemental information. EBITDA is a supplement to GAAP financial information and should not be considered an alternative to, or more meaningful than, net loss, cash flow or operating loss as determined in accordance with GAAP. EBITDA has distinct limitations as compared to GAAP information such as net loss, cash flow or operating loss. By excluding interest and tax payments for example, an investor may not see that both represent a reduction in cash available to the Company. Likewise, depreciation and amortization, while non-cash items, represent generally the devaluation of assets that produce revenue for the Company.

      EBITDA, ARPU, churn, CPGA and CCPU as used by the Company may not be comparable to a similarly titled measure of another company.

      The following terms used in this report have the following meanings:

  •  “EBITDA” means earnings before interest, taxes, depreciation and amortization.
 
  •  “ARPU” summarizes the average monthly service revenue per user, excluding roaming revenue. ARPU is computed by dividing service revenue for the period by the average subscribers for the period.
 
  •  “Churn” is the average monthly rate of subscriber turnover that both voluntarily and involuntarily discontinued service during the period, expressed as a percentage of the average subscriber base. Churn is computed by dividing the number of subscribers that discontinued service during the period, net of 30-day returns, by the average subscribers for the period.
 
  •  “CPGA” summarizes the average cost to acquire new subscribers during the period. CPGA is computed by adding the income statement components of selling and marketing, cost of equipment and activation costs (which are included as a component of cost of service) and reducing that

66


Table of Contents

  amount by the equipment revenue recorded. That net amount is then divided by the total new subscribers acquired during the period.
 
  •  “CCPU” is a measure of the average monthly cash costs to operate the business on a per user basis consisting of subscriber support, network operations, service delivery, roaming expense, bad debt expense, wireless handset upgrade subsidies (but not commissions) and other general and administrative costs, divided by average subscribers for the period.
 
For the Nine Months Ended June 30, 2003 Compared to the Nine Months Ended June 30, 2002:

      The table below sets forth key operating metrics for the Company for the nine months ended June 30, 2003 and 2002.

                                                 
Nine Months Ended June 30,

2003 2002


AirGate iPCS** Combined AirGate iPCS** Combined






Subscriber Gross Additions
    137,543       59,403       196,946       198,945       82,196       281,141  
Subscriber Net Additions
    25,018       14,199       39,217       102,280       45,521       147,801  
Total Subscribers
    364,157       228,893       593,050       337,303       195,143       532,446  
ARPU
  $ 58.47     $ 53.40     $ 57.33     $ 63.25     $ 55.44     $ 60.95  
Churn (with subscriber reserve)
    3.3 %     4.0 %     3.7 %     3.0 %     2.4 %     2.7 %
Churn (without subscriber reserve)
    3.8 %     4.9 %     4.4 %     3.9 %     3.4 %     3.6 %
CPGA
  $ 351     $ 356     $ 355     $ 354     $ 399     $ 370  
CCPU
  $ 48     $ 58     $ 51     $ 59     $ 67     $ 62  
Capital Expenditures (cash) (in thousands)
  $ 10,369     $ 8,469     $ 18,838     $ 32,280     $ 45,125     $ 77,405  
EBITDA (in thousands)
  $ 31,910     $ (7,225 )   $ 24,655     $ (268,990 )   $ (23,961 )   $ (292,951 )

      The reconciliation of EBITDA to our reported net loss, as determined in accordance with GAAP, is as follows (dollar amounts in thousands):

                                                 
Nine Months Ended June 30,

2003 2002


AirGate iPCS** Combined AirGate iPCS** Combined






Net Loss
  $ (39,958 )   $ (36,984 )   $ (76,942 )   $ (321,461 )   $ (60,172 )   $ (381,633 )
Depreciation and amortization
    41,145       14,677       55,822       55,645       21,596       77,241  
Interest income
    (52 )     (42 )     (94 )     (156 )     (374 )     (530 )
Interest expense
    30,775       15,094       45,869       25,743       14,989       40,732  
Income tax benefit
                      (28,761 )           (28,761 )
     
     
     
     
     
     
 
EBITDA
  $ 31,910     $ (7,255 )   $ 24,655     $ (268,990 )   $ (23,961 )   $ (292,951 )
     
     
     
     
     
     
 

67


Table of Contents

      The reconciliation of EBITDA to net cash provided by (used in) operating activities, as determined in accordance with GAAP, is as follows (dollar amounts in thousands):

                                                 
Nine Months Ended June 30,

2003 2002


AirGate iPCS** Combined AirGate iPCS** Combined






Net cash provided by (used in) operating activities
  $ 29,736     $ (9,086 )   $ 20,650     $ (24,294 )   $ (24,503 )   $ (48,797 )
Change in operating assets and liabilities
    290       541       831       30,725       6,744       37,469  
Interest expense
    30,775       15,094       45,869       25,743       14,989       40,732  
Accretion of interest
    (24,158 )     (11,589 )     (35,747 )     (21,323 )     (15,118 )     (36,441 )
Goodwill impairment
                      (261,212 )           (261,212 )
Interest income
    (52 )     (42 )     (94 )     (156 )     (374 )     (530 )
Provision for doubtful accounts
    (3,724 )     (1,693 )     (5,417 )     (16,968 )     (5,374 )     (22,342 )
Other expense
    (957 )     (480 )     (1,437 )     (1,505 )     (325 )     (1,830 )
     
     
     
     
     
     
 
EBITDA
  $ 31,910     $ (7,255 )   $ 24,655     $ (268,990 )   $ (23,961 )   $ (292,951 )
     
     
     
     
     
     
 

      The reconciliation of ARPU to service revenue, as determined in accordance with GAAP, is as follows (dollar amounts in thousands, except per unit data):

                                                   
Nine Months Ended June 30,

2003 2002


AirGate iPCS** Combined AirGate iPCS** Combined






Average Revenue per User (ARPU):
                                               
 
Service revenue
  $ 185,032     $ 57,896     $ 242,928     $ 162,886     $ 67,536     $ 230,422  
 
Average subscribers
    351,648       222,794       470,798       286,163       172,383       420,028  
 
ARPU
  $ 58.47     $ 53.40     $ 57.33     $ 63.25     $ 55.44     $ 60.95  

      The reconciliation of CCPU to cost of service expense and general and administrative expense as determined in accordance with GAAP, is calculated as follows (dollar amounts in thousands, except per unit data):

                                                 
Nine Months Ended June 30,

2003 2002


AirGate iPCS** Combined AirGate iPCS** Combined






Cash Cost per User (CCPU):
                                               
Cost of service expense
  $ 138,208 *   $ 56,191 *   $ 193,956     $ 144,182 *   $ 73,199 *   $ 216,698  
Less: Activation expense
    (747 )     (194 )     (941 )     (1,260 )     (596 )     (1,856 )
Plus: General and administrative expense
    15,029       6,881       21,910       9,057       9,220       18,277  
     
     
     
     
     
     
 
Total cash costs
  $ 152,490     $ 62,878     $ 214,925     $ 151,979     $ 81,823     $ 233,119  
     
     
     
     
     
     
 
Average subscribers
    351,648       222,794       470,798       286,163       172,383       420,028  
CCPU
  $ 48     $ 58     $ 51     $ 59     $ 67     $ 62  

68


Table of Contents

      The reconciliation of CPGA to selling and marketing expense, as determined in accordance with GAAP, is calculated as follows (dollar amounts in thousands, except per unit data):

                                                 
Nine Months Ended June 30,

2003 2002


AirGate iPCS** Combined AirGate iPCS** Combined






Selling and marketing expense
  $ 40,863     $ 16,417     $ 57,280     $ 59,925     $ 25,643     $ 85,568  
Plus: Activation expense
    747       194       941       1,260       596       1,856  
Plus: Cost of equipment
    15,271       7,129       22,400       20,129       9,853       29,982  
Less: Equipment revenue
    (8,641 )*     (2,575 )*     (10,773 )     (10,934 )*     (3,272 )*     (13,523 )
     
     
     
     
     
     
 
Total acquisition costs
  $ 48,240     $ 21,165     $ 69,848     $ 70,380     $ 32,820     $ 103,883  
     
     
     
     
     
     
 
Gross Additions
    137,543       59,403       196,946       198,945       82,196       281,141  
CPGA
  $ 351     $ 356     $ 355     $ 354     $ 399     $ 370  


  Amounts are reflected prior to the elimination of intercompany transactions.

**  For 2003, iPCS amounts represent the period between October 1, 2002 and February 23, 2003. For 2003, average subscribers for the combined entity is a weighted average. For 2002, iPCS amounts represent the period between December 1, 2002 and June 30, 2002. For 2002, average subscribers for the combined entity is a weighted average.

      Subscriber Net Additions. For AirGate, subscriber net additions decreased for the nine months ended June 30, 2003, compared to the same period in 2002. This decline is due to the decrease in subscriber gross additions and the increased number of subscribers who churned during the period. Reported net additions during the nine months ended June 30, 2003 for AirGate were positively impacted by the Company’s elimination of its subscriber reserve. The net impact of this change for the nine months ending June 30, 2003 is an increase in net additions of 3,717 for AirGate and 2,251 for iPCS.

      Subscriber Gross Additions. For AirGate, subscriber gross additions decreased for the nine months ended June 30, 2003 compared to the same period in 2002. This decline is due to increases in the deposit for sub-prime credit quality customers and actions taken to reduce acquisition costs.

      EBITDA. For AirGate, EBITDA for the nine months ended June 30, 2003 increased from the same period in 2002. The increase is a result of an overall decrease in spending, particularly in cost of services and selling and marketing. EBITDA for AirGate was favorably impacted by special settlements from Sprint, including $4.9 million in credits reflected as a reduction in cost of service and $1.8 million in E911 amounts, reflected as an increase in revenues.

      Average Revenue Per User. For AirGate, the decrease in ARPU for the nine months ended June 30, 2003, compared to the same period in 2002 is primarily the result of an overall reduction in revenue from customers using minutes in excess of their subscriber usage plans. The decrease also reflects the cessation of recognizing terminating long-distance access revenue. Until June 30, 2002, the Company recorded terminating long-distance access revenues billed by Sprint PCS to long distance carriers.

      Churn. Churn without subscribers reserve decreased for the nine months ended June 30, 2003, compared to the same period for 2002. The Company has focused on improving the credit quality of the subscriber base. In February 2003, management increased the deposit required for a sub-prime credit customer to begin service to $250 in an effort to reduce churn and bad debt and increase the percentage of prime credit customers in AirGate’s customer base. We believe these and other factors may have influenced the reduction in churn for the nine months ended June 30, 2003 compared to the same period in 2002.

69


Table of Contents

      Cost Per Gross Addition. For AirGate, CPGA decreased for the nine months ended June 30, 2003, compared to the same period in 2002. The decrease is the result of reduced acquisition costs, partially offset by fewer subscriber gross additions.

      Cash Cost Per User. For AirGate, the decrease in CCPU for the nine months ended June 30, 2003, compared to the same period in 2002 reflects lower costs resulting from a lower reciprocal roaming rate charged among Sprint and its PCS network partners, decreased bad debt expenses reflecting an improved customer base, and the affect of the fixed network and administrative support costs being spread over a greater number of average subscribers.

      Revenues

                                                 
Nine Months Ended June 30,

2003 2002


AirGate iPCS Combined AirGate iPCS Combined






(In thousands)
Service Revenue
  $ 185,032     $ 57,896     $ 242,928     $ 162,886     $ 67,536     $ 230,422  
Roaming Revenue
    48,126       18,893       67,019       52,291       23,167       75,458  
Equipment Revenue
    8,641 *     2,575 *     10,773       10,934 *     3,272 *     13,523  
     
     
     
     
     
     
 
Total
  $ 241,799     $ 79,364     $ 320,720     $ 226,111     $ 93,975     $ 319,403  
     
     
     
     
     
     
 


Amounts are reflected prior to the elimination of intercompany transactions.

      We derive our revenue from the following sources:

        Service. We sell wireless personal communications services. The various types of service revenue associated with wireless communications services include monthly recurring access and feature charges and monthly non-recurring charges for local, wireless long distance and roaming airtime usage in excess of the subscribed usage plan.
 
        Roaming. The Company receives roaming revenue at a per-minute rate from Sprint and other Sprint PCS network partners when Sprint’s or its network partner’s PCS subscribers from outside of AirGate’s territory use AirGate’s network. The Company pays the same reciprocal roaming rate when subscribers from our territories use the network of Sprint or its other PCS network partners. The Company also receives non-Sprint roaming revenue when subscribers of other wireless service providers who have roaming agreements with Sprint roam on the Company’s network.
 
        Equipment. We sell wireless personal communications handsets and accessories that are used by our subscribers in connection with our wireless services. Equipment revenue is derived from the sale of handsets and accessories from Company owned stores, net of sales incentives, rebates and an allowance for returns. The Company’s handset return policy allows subscribers to return their handsets for a full refund within 14 days of purchase. When handsets are returned to the Company, the Company may be able to reissue the handsets to subscribers at little additional cost. When handsets are returned to Sprint for refurbishing, the Company receives a credit from Sprint, which is approximately equal to the retail price of the refurbished handset.

      For AirGate, service revenue for the nine months ended June 30, 2003 increased over the same period in the prior year. The increase in service revenue reflects a higher average number of subscribers using its network. This increase is partially offset by an overall reduction in average revenue per subscriber.

      For AirGate, roaming revenue for the nine months ended June 30, 2003 decreased over the same period in the prior year. The decrease is attributable to the lower reciprocal roaming rate charged among Sprint and its PCS network partners. For the nine months ended June 30, 2003, roaming revenue from Sprint and its PCS network partners attributable to AirGate was $44.0 million or 92% of the roaming revenue recorded.

70


Table of Contents

      For AirGate, equipment revenue for the nine months ended June 30, 2003 decreased over the same period in the prior year. This decrease is primarily due to the lower number of subscriber gross additions compared to the same period in the prior year.

      Cost of Service and Roaming

                                                 
Nine Months Ended June 30,

2003 2002


AirGate iPCS Combined AirGate iPCS Combined






(In thousands)
Roaming expense
  $ 39,259 *   $ 13,673 *   $ 52,489     $ 41,220 *   $ 18,405 *   $ 58,942  
Network operating costs
    91,136       39,036       130,172       85,019       48,491       133,510  
Bad debt expense
    3,724       1,694       5,418       16,821       5,617       22,438  
Wireless handset upgrades
    4,089       1,788       5,877       1,122       686       1,808  
     
     
     
     
     
     
 
Total cost of service and roaming
  $ 138,208     $ 56,191     $ 193,956     $ 144,182     $ 73,199     $ 216,698  
     
     
     
     
     
     
 


Amounts are reflected prior to the elimination of intercompany transactions.

      Cost of service and roaming principally consists of costs to support the Company’s subscriber base including:

  •  roaming expense;
 
  •  network operating costs (including salaries, cell site lease payments, fees related to the connection of the Company’s switches to the cell sites that they support, inter-connect fees and other expenses related to network operations);
 
  •  back office services provided by Sprint such as customer care, billing and activation;
 
  •  the 8% of collected service revenue representing the Sprint affiliation fee;
 
  •  long distance expense relating to inbound roaming revenue and the Company’s own subscriber’s long distance usage and roaming expense when subscribers from the Company’s territory place calls on Sprint’s or its network partners’ networks;
 
  •  bad debt related to estimated uncollectible accounts receivable; and
 
  •  wireless handset subsidies on existing subscriber upgrades through national third-party retailers.

      For AirGate, roaming expense decreased for the nine months ended June 30, 2003, compared to the same period in 2002 primarily as a result of a decrease in the reciprocal roaming rate charged among Sprint and its network partners, partially offset by an increase in roaming usage. For AirGate, 94% and 93% of the cost of roaming was attributable to Sprint and its network partners for the nine months ended June 30, 2003 and 2002, respectively, prior to the elimination of intercompany transactions.

      For AirGate, bad debt expense decreased by $13.1 million for the nine months ended June 30, 2003, compared to the same period in 2002. The decrease in bad debt expense is attributable primarily to improvements in the credit quality and payment profile of our subscriber base since we re-imposed deposits for sub-prime credit subscribers in early 2002 and increased them again in February 2003. This resulted in a significant improvement in accounts receivable write-offs and corresponding bad debt expense for the nine months ended June 30, 2003.

      For AirGate, wireless handset upgrade expenses increased $3.0 million for the nine months ended June 30, 2003, compared to the same period in 2002. In April 2002, Sprint began billing upgrade costs to AirGate for national third party and certain other channels. Prior to April 2002, these charges were not passed through to AirGate from Sprint.

71


Table of Contents

      Cost of Equipment and Operating Expenses

                                                 
Nine Months Ended June 30,

2003 2002


AirGate iPCS Combined AirGate iPCS Combined






(In thousands)
Cost of Equipment
  $ 15,271     $ 7,129     $ 22,400     $ 20,129     $ 9,853     $ 29,982  
Selling and Marketing
    40,863       16,417       57,280       59,925       25,643       85,568  
General and Administrative
    15,029       6,881       21,910       9,057       9,220       18,277  
Non-Cash Stock Compensation
    530             530       597             597  
Depreciation and Amortization
    34,799       14,168       48,967       28,419       19,445       47,864  
Amortization of Intangible Assets
    6,346       509       6,855       27,226       2,151       29,377  
Interest Expense
    31,577       14,292       45,869       25,743       14,989       40,732  

      Cost of Equipment. We are currently required to purchase handsets and accessories to resell to our subscribers for use in connection with our services. To remain competitive in the marketplace, we subsidize handset sales and therefore the cost of handsets is higher than the resale price to the subscriber. For AirGate, cost of equipment decreased for the nine months ended June 30, 2003, compared to the same period in 2002 primarily as a result of the decrease in the number of subscriber gross additions.

      Selling and Marketing. Selling and marketing expense includes retail store costs such as salaries and rent in addition to promotion, advertising and commission costs, and handset subsidies on units sold by national third-party retailers for which the Company does not record revenue. Under the management agreement with Sprint, when a national retailer sells a handset purchased from Sprint to a subscriber from AirGate’s territory, AirGate is obligated to reimburse Sprint for the handset subsidy and commissions that Sprint originally incurred. For AirGate, selling and marketing expense decreased for the nine months ended June 30, 2003, compared to the same period in 2002 reflecting the effect of reduced subscriber gross additions, staff reductions, store closings and reduced advertising and promotions expense.

      General and Administrative. For AirGate, general and administrative expense increased for the nine months ended June 30, 2003, compared to the same period in 2002 reflecting increased spending for relocation costs and spending for outside consultants providing services to AirGate as it relates to identifying cost saving opportunities that we believe will provide future long term savings to the Company.

      Non-Cash Stock Compensation. Non-cash stock compensation expense was approximately the same for the nine months ended June 30, 2003 and 2002. The Company applies the provisions of APB Opinion No. 25 “Accounting for Stock Issued to Employees” in accounting for its stock option plans. Unearned stock compensation is recorded for the difference between the exercise price and the fair market value of the Company’s common stock and restricted stock at the date of grant and is recognized as non-cash stock compensation expense in the period for which the related services are rendered.

      Depreciation. The Company capitalizes network development costs incurred to ready our network for use and costs to build-out our retail stores and office space. Depreciation of these costs begins when the equipment is ready for its intended use and is amortized over the estimated useful life of the asset. For AirGate, depreciation and amortization expense increased to $34.8 million for the nine months ended June 30, 2003, compared to $28.4 million for same period in 2002, an increase of $6.4 million. The increase in depreciation and amortization expense primarily relates to additional network assets placed in service in fiscal year 2002. AirGate incurred capital expenditures of $10.4 million in the nine months ended June 30, 2003, which included approximately $0.4 million of capitalized interest as compared to capital expenditures of $32.2 million and capitalized interest of $6.2 million in the same period in 2002.

      Amortization of Intangible Assets. Amortization of intangible assets relates to the amounts recorded from the iPCS acquisition for the acquired subscriber base, non-competition agreements, and the right to provide service under iPCS’ Sprint agreements. Amortization of intangible assets primarily related to iPCS for the nine months ended June 30, 2003 and 2002 was approximately $6.9 million and $29.4 million,

72


Table of Contents

respectively. The Company recorded an impairment charge of $261.2 million in fiscal year 2002 to write-down intangible assets in accordance with SFAS No. 144 and 142.

      Goodwill Impairment. The wireless telecommunications industry experienced significant declines in market capitalization throughout most of 2002. These significant declines in market capitalization resulted from concerns surrounding anticipated weakness in future subscribers growth, increased subscribers churn, anticipated future lower ARPU and liquidity concerns. As a result of these industry trends, the Company experienced significant declines in its market capitalization subsequent to its acquisition of iPCS. Additionally, there have been adverse changes to the strategic business plan for iPCS. These changes include lower new subscribers, lower ARPU, higher churn, increased service and pass through costs from Sprint and lower roaming margins from Sprint. Wireless industry acquisitions subsequent to the Company’s acquisition of iPCS have been valued substantially lower on a price per population and price per subscriber basis. As a result of these transactions and industry trends, the Company believed that the fair value of iPCS and its assets had been reduced. Accordingly, the Company engaged a nationally recognized valuation expert during 2002 to perform a fair value assessment of iPCS. The Company recorded a goodwill impairment of approximately $261.2 million.

      Interest Expense. For AirGate, interest expense for the nine months ended June 30, 2003 increased compared to the same period in 2002 primarily as a result of increased debt related to accreted interest on the AirGate notes and increased borrowings under the AirGate credit facility. The increase was partially offset by lower commitment fees on undrawn balances of the AirGate credit facility and a lower interest rate on the variable rate for borrowings under the AirGate credit facility.

      Income Tax Benefit. No income tax benefit was realized for the nine months ended June 30, 2003. Income tax benefit of $28.8 million was realized for the nine months ended June 30, 2002.

      Net Loss. For the nine months ended June 30, 2003, the net loss for the Company was $76.9 million, compared to a net loss of $381.6 million for the same period in 2002. For the nine months ended June 30, 2002, net loss attributable to AirGate and iPCS was $321.4 million and $60.2 million, respectively. The nine months ended June 30, 2002 included $261.2 million related to goodwill impairment.

 
For the year ended September 30, 2002 compared to the year ended September 30, 2001:

      Subscriber Net Additions. As of September 30, 2002, the Company provided personal communication services to 554,833 subscribers compared to 235,025 subscribers as of September 30, 2001, an increase of 319,808 subscribers. The increased net subscribers include 149,622 subscribers acquired from iPCS on November 30, 2001. For the year ended September 30, 2002, the Company added 104,115 net new AirGate subscribers and 66,072 net new iPCS subscribers. The increase in net subscribers is due primarily to subscribers attracted from other wireless carriers and demand for wireless services from new subscribers.

      The Company does not include in its subscriber base an estimate of first payment default subscribers. At September 30, 2002 and 2001, the estimated first payment default subscribers were 7,126 and 7,811, respectively. Estimated first payment default subscribers at September 30, 2002 for AirGate and iPCS were 3,717 and 3,409, respectively.

      Subscriber Gross Additions. Subscriber gross additions for the years ended September 30, 2002 and 2001 were 374,249 and 233,390, respectively. For the year ended September 30, 2002, subscriber gross additions from AirGate and iPCS were 247,221 and 127,028, respectively. The increase in subscriber gross additions were attributable to the acquisition of iPCS and the removal of deposit requirements in the NDASL and certain Clear Pay programs, additional network build out and retail sales distribution from AirGate.

      Average Revenue Per User. For the years ended September 30, 2002 and 2001, ARPU was $59 and $62, respectively. For the year ended September 30, 2002, iPCS had an ARPU of $55, compared to $61 for AirGate. The decrease in ARPU for the Company is primarily the result of the acquisition of iPCS, cessation of recognizing terminating access revenue and declines in the average monthly recurring revenue

73


Table of Contents

per user. Until March 2002, the Company recorded terminating long-distance access revenues billed by Sprint PCS to long distance carriers. Sprint PCS has made a claim to these historical revenues based upon its current litigation with AT&T and other long distance carriers. While we continue to examine rights we may have against Sprint PCS, the Company recorded a reserve to accrue for terminating access charges previously paid by Sprint on behalf of long distance carriers and for which Sprint PCS has made a claim.

      Churn. Churn for the year ended September 30, 2002 was 3.4%, compared to 2.8% for the year ended September 30, 2001. For the year ended September 30, 2002, churn attributable to AirGate and iPCS was 3.5% and 3.0%, respectively. The increase in churn is primarily a result of an increase in the number of sub-prime credit quality subscribers whose service was involuntarily discontinued during the period. Without the subscriber reserve, churn for the year ended September 30, 2002 and 2001 would be 4.0% and 2.8%, respectively. Churn without the subscriber reserve for the year ended September 30, 2002 attributable to AirGate and iPCS would be 4.2% and 3.6%, respectively.

      Cost Per Gross Addition. CPGA was $386 for the year ended September 30, 2002, compared to $361 for the year ended September 30, 2001. For the year ended September 30, 2002, CPGA for AirGate and iPCS was $386 and $387, respectively. The increase in CPGA is the result of greater handset sales incentives, rebates and marketing costs.

      Cash Cost Per User. CCPU was $60 for the year ended September 30, 2002, compared to $76 for the year ended September 30, 2001. For the year ended September 30, 2002, CCPU for AirGate and iPCS was $59 and $61, respectively. The decrease in CCPU is the result of the fixed network and administrative support costs of CCPU being spread over a greater number of average subscribers, including those acquired in the merger with iPCS.

      Revenues. Service revenue and equipment revenue was $327.4 million and $18.0 million, respectively, for the year ended September 30, 2002, compared to $106.0 million and $10.8 million, respectively, for the year ended September 30, 2001, an increase of $221.4 million and $7.2 million, respectively. For the year ended September 30, 2002, service revenue attributable to AirGate and iPCS was $226.5 million and $100.9 million, respectively. These increased revenues reflect the substantially higher average number of subscribers using the Company’s network, including subscribers acquired in the iPCS acquisition. For the year ended September 30, 2002, the Company’s service revenue was reduced because the Company did not record revenues from terminating long-distance access charges. In addition, the Company recorded a revenue adjustment for terminating long-distance access revenue previously paid to the Company by Sprint PCS on behalf of long distance carriers. Sprint PCS has made a claim to these historical revenues that were previously paid by Sprint PCS to Company for the period from January 2000 to March 2002. Terminating access revenue for which the Company provided a revenue adjustment was approximately $2.0 million for the period January 2000 to September 2001. Revenue adjustments for terminating access revenue attributable to AirGate and iPCS for the year ended September 30, 2002 was $4.3 million and $1.1 million, respectively.

      The Company recorded roaming revenue of $111.2 million during the year ended September 30, 2002 (see roaming expense in Cost of Service and Roaming below), compared to $55.3 million for the year ended September 30, 2001, an increase of $55.9 million. The increase is attributable to the larger wireless subscriber base for Sprint and other Sprint PCS network partners, the additional covered territory acquired with iPCS, increased roaming revenue to iPCS from Verizon Wireless and increased roaming revenue from other third-party carriers, partially offset by a lower average roaming rate. For the year ended September 30, 2002, roaming revenue from Sprint and its PCS network partners was $103.1 million, or 93% of the roaming revenue recorded. For the year ended September 30, 2002, roaming revenue from Sprint and its PCS network partners attributable to AirGate and iPCS was $70.0 million and $33.1 million, respectively.

      The reciprocal roaming rate among Sprint and its PCS network partners, including the Company, has declined over time, from $0.20 per minute of use prior to June 1, 2001, to $0.10 per minute of use in 2002. See “Sprint Relationship and Agreements -The Management Agreements — Service pricing, roaming and fees.” Sprint reduced the reciprocal roaming rate to $0.058 per minute of use in 2003.

74


Table of Contents

      Cost of Service and Roaming. The cost of service and roaming was $311.1 million for the year ended September 30, 2002, compared to $116.7 million for the year ended September 30, 2001, an increase of $194.4 million. For the year ended September 30, 2002, cost of service and roaming attributable to AirGate and iPCS was $203.2 million and $107.9 million, respectively. The increase in the cost of service and roaming is attributable to the increase in the number of subscribers due to the acquisition of iPCS and additional subscriber growth.

      Roaming expense included in the cost of service and roaming was $85.5 million for the year ended September 30, 2002, compared to $35.4 million for the year ended September 30, 2001, an increase of $50.6 million as a result of the substantial increase in the Company’s subscriber base, the acquired iPCS subscriber base and an increase in the average roaming minutes per month for each subscriber, partially offset by a lower average rate per minute. 92% and 88% of the cost of roaming was attributable to Sprint and its network partners for the years ended September 30, 2002 and 2001, respectively. For the year ended September 30, 2002, roaming expense attributable to AirGate and iPCS was $57.3 million and $28.2 million, respectively. As discussed above, the per-minute rate the Company pays Sprint when subscribers from the Company’s territory roam onto the Sprint network decreased beginning June 1, 2001 for AirGate and January 1, 2002 for iPCS.

      Bad debt included in the cost of service and roaming was $26.9 million for the year ended September 30, 2002, compared to $10.9 million for the year ended September 30, 2001, an increase of $16.0 million. This increase in bad debt expense is attributable to the acquisition of iPCS and the increase in payment defaults resulting from the increase in sub-prime credit quality customers.

      For the year ended September 30, 2002, the network operating costs were $85.8 million, compared to $37.5 million at September 30, 2001, an increase of $48.3 million. This increase resulted from the acquisition of iPCS and its subscriber base and network assets. The Company was supporting 554,833 subscribers at September 30, 2002, compared to 235,025 subscribers at September 30, 2001. At September 30, 2002, the Company’s network, including the territory of iPCS, consisted of 1,435 active cell sites and seven switches compared to 719 active cell sites and four switches at September 30, 2001. There were approximately 144 employees performing network operations functions at September 30, 2002, compared to 79 employees at September 30, 2001.

      At September 30, 2002, the number of subscribers at AirGate and iPCS was 339,139 and 215,694, respectively. The number of active cell sites at September 30, 2002 for AirGate and iPCS was 802 and 633, respectively. The number of employees performing network operations functions at September 30, 2002 for AirGate and iPCS was 89 and 55, respectively.

      Excluding sales commissions, the Company experienced approximately $4.8 million associated with wireless handset upgrade costs for the year ended September 30, 2002. The Company did not experience wireless handset upgrade costs during the year ended September 30, 2001.

      Cost of Equipment. Cost of equipment was $43.6 million for the year ended September 30, 2002, and $20.2 million for year ended September 30, 2001, an increase of $23.4 million. This increase is attributable to the increase in the number of subscribers added during the period, including subscribers added as a result of the iPCS acquisition, as cost of equipment includes the cost of handsets and accessories sold to subscribers from the Company’s stores. For the year ended September 30, 2002, cost of equipment attributable to AirGate and iPCS was $27.5 million and $16.1 million, respectively.

      Selling and Marketing. The Company incurred selling and marketing expenses of $116.5 million during the year ended September 30, 2002, compared to $71.6 million in the year ended September 30, 2001, an increase of $44.9 million. For the year ended September 30, 2002, selling and marketing expense attributable to AirGate and iPCS was $79.0 million and $37.5 million, respectively. For the year ended September 30, 2002, national third-party handset subsidy costs attributable to AirGate and iPCS was $11.7 million and $7.4 million, respectively. Handset subsidies on units sold by third parties totaled approximately $19.1 million for the year ended September 30, 2002, compared to $12.8 million for the

75


Table of Contents

year ended September 30, 2001, an increase of $6.3 million that is attributable to the acquisition of iPCS and increased subscriber additions.

      At September 30, 2002, there were approximately 710 employees performing sales and marketing functions, compared to 388 employees as of September 30, 2001. The majority of the increase in employees is a result of the acquisition of iPCS. At September 30, 2002, employees performing sales and marketing functions for AirGate and iPCS was approximately 480 and 230, respectively. Selling and marketing expenses include retail store costs such as salaries and rent in addition to promotion, advertising and commission costs, and handset subsidies on units sold by national third-party retailers for which the Company does not record revenue. Under the management agreements with Sprint, when a national retailer sells a handset purchased from Sprint to a subscriber from the Company’s territories, the Company is obligated to reimburse Sprint for the handset subsidy that Sprint originally incurred. The national retailers sell Sprint wireless services under the Sprint brands and trademarks.

      General and Administrative. For the year ended September 30, 2002, the Company incurred general and administrative expenses of $25.3 million, compared to $15.7 million for the year ended September 30, 2001, an increase of $9.6 million. This increase resulted from the growth in the number of employees and service providers providing general and administrative services and the acquisition of iPCS. Of the 973 employees at September 30, 2002, approximately 126 employees were performing corporate support functions compared to 62 employees as of September 30, 2001. For the year ended September 30, 2002, general and administrative expense attributable to AirGate and iPCS was $17.6 million and $7.7 million, respectively.

      Non-Cash Stock Compensation. Non-cash stock compensation expense was $0.8 million for the year ended September 30, 2002, and $1.7 million for the year ended September 30, 2001. The Company applies the provisions of APB Opinion No. 25 and related interpretations in accounting for its stock option plans. Unearned stock compensation is recorded for the difference between the exercise price and the fair market value of the Company’s common stock and restricted stock at the date of grant and is recognized as non-cash stock compensation expense in the period in which the related services are rendered.

      Depreciation. We capitalize network development costs incurred to ready our network for use and costs to build-out our retail stores and office space. Depreciation of these costs begins when the equipment is ready for its intended use and is amortized over the estimated useful life of the asset. For the year ended September 30, 2002, depreciation increased to $70.2 million, compared to $30.7 million for the year ended September 30, 2001, an increase of $39.5 million. The increase in depreciation expense relates primarily to additional network assets placed in service in 2002 and 2001 and approximately $29.5 million of depreciation from the acquired iPCS property and equipment. During the fiscal fourth quarter of 2002, the Company placed into service the 1XRTT network hardware costs in association with the commercial launch of 1XRTT. For the year ended September 30, 2002, depreciation attributable to AirGate and iPCS was $40.7 million and $29.5 million, respectively.

      The Company incurred capital expenditures of $97.1 million in the year ended September 30, 2002, which included approximately $7.1 million of capitalized interest, compared to capital expenditures of $71.3 million and capitalized interest of $2.9 million in the year ended September 30, 2001. Capital expenditures incurred by AirGate and iPCS were $41.4 million and $55.7 million, respectively, for the year ended September 30, 2002.

      Amortization of Intangible Assets. Amortization of intangible assets relates to the amounts recorded from the iPCS acquisition for the acquired subscriber base, non-competition agreements, and the right to provide service under iPCS’ Sprint agreements. Amortization for the year ended September 30, 2002, was approximately $39.3 million. Amortization of intangible assets for the year ended September 30, 2002 was attributable to AirGate as the Company did not elect pushdown accounting for the acquisition of iPCS.

      Loss on Disposal of Property and Equipment. For the year ended September 30, 2002, the Company recognized a loss of $1.1 million on disposal of property and equipment. This loss is the result of the abandonment of eleven cell sites in AirGate’s territory that were in process of being constructed.

76


Table of Contents

      Goodwill Impairment. The wireless telecommunications industry experienced significant declines in market capitalization throughout most of 2002. These significant declines in market capitalization resulted from concerns surrounding anticipated weakness in future subscriber growth, increased subscriber churn, anticipated future lower ARPU and liquidity concerns. As a result of these industry trends, the Company experienced significant declines in its market capitalization subsequent to its acquisition of iPCS. Additionally, there have been adverse changes to the strategic business plan for iPCS. These changes include lower new subscribers, lower ARPU, higher churn, increased service and pass through costs from Sprint and lower roaming margins from Sprint. Wireless industry acquisitions subsequent to the Company’s acquisition of iPCS have been valued substantially lower on a price per population and price per subscriber basis. As a result of these transactions and industry trends, the Company believed that the fair value of iPCS and its assets had been reduced. Accordingly, the Company engaged a nationally recognized valuation expert on two occasions during 2002 to perform fair value assessments of iPCS. The Company recorded a goodwill impairment of approximately $261.2 million and $199.7 million during the quarter ended March 31, 2002 and the quarter ended September 30, 2002, respectively, as a result of these fair value assessments. The total goodwill impairment for the year ended September 30, 2002 was $460.9 million.

      Impairment of Fixed Assets. During the quarter ended September 30, 2002, the Company recorded an asset impairment of $44.5 million associated with the fixed assets (principally wireless networking infrastructure) of iPCS. This impairment was recorded under the requirements of SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets.” As discussed above, this impairment arose from significant adverse changes to the business plan for iPCS as well as a generally weak secondary market for telecommunications equipment. Accordingly, the Company engaged a nationally recognized valuation expert to determine the fair value of the assets which were valued at $185.4 million as of September 30, 2002.

      Impairment of Intangible Assets. The Company recorded an intangible asset impairment of $305.4 million associated with iPCS’ right to provide services under the Sprint agreements. The right to provide service under iPCS’ Sprint agreements was recorded by the Company as a result of the purchase price allocation for the acquisition of iPCS. The original value and life assigned to this intangible was $323.3 million and 205 months, respectively. As discussed previously in the goodwill impairment section, this impairment arose from significant adverse changes to the business plan for iPCS. Accordingly, the Company adjusted the carrying value of the right to provide services under the Sprint agreements to its fair value at September 30, 2002. The Company engaged a nationally recognized valuation expert to determine the fair value of the right to provide services under the Sprint agreements.

      Interest Income. For the year ended September 30, 2002, interest income was $0.6 million, compared to $2.5 million for the year ended September 30, 2001. The Company had higher average cash and cash equivalent balances and higher average interest rates on deposits for the year ended September 30, 2001, which resulted in higher interest income for year ended September 30, 2001, when compared to the year ended September 30, 2002. For the year ended September 30, 2002, interest income attributable to AirGate and iPCS was $0.2 million and $0.4 million, respectively.

      Interest Expense. For the year ended September 30, 2002, interest expense was $57.2 million, compared to $28.9 million for the year ended September 30, 2001, an increase of $28.3 million. The increase is primarily attributable to increased debt related to the iPCS notes, accreted interest on the AirGate notes and increased borrowings under the AirGate and iPCS credit facilities, partially offset by lower commitment fees on undrawn balances of the AirGate credit facility, and a lower interest rate on variable rate borrowings under the AirGate credit facility. The Company had borrowings of $709.8 million as of September 30, 2002, including debt of iPCS, compared to $266.3 million at September 30, 2001. For the year ended September 30, 2002, interest expense attributable to AirGate and iPCS was $34.3 million and $22.9 million, respectively.

77


Table of Contents

      Income Tax Benefit. Income tax benefits of $28.8 million were recognized for the year ended September 30, 2002. Income tax benefits will be recognized in the future only to the extent management believes recoverability of deferred tax assets is more likely than not.

      Net Loss. For the year ended September 30, 2002, the net loss was $996.6 million, an increase of $885.6 million from a net loss of $111.0 million for the year ended September 30, 2001. The increase was attributable to the results of operations of iPCS, which had a reported net loss of $133.2 million, the goodwill impairment associated with AirGate’s investment in iPCS of $460.9 million, the fixed asset impairment associated with AirGate’s investment in iPCS of $44.5 million, and the intangibles impairment associated with AirGate’s investment in iPCS of $312.0 million. For the year ended September 30, 2002, net loss attributable to AirGate and iPCS was $863.4 million and $133.2 million, respectively.

 
For the year ended September 30, 2001 compared to the year ended September 30, 2000:

      Subscriber Gross Additions. Subscriber gross additions for the years ended September 30, 2001 and 2000 were 233,390 and 62,007, respectively. The increase in subscriber gross additions was attributable to additional network build out and retail sales distribution from AirGate and the removal of the deposit for subscribers selecting the NDASL plan.

      Subscriber Net Additions. As of September 30, 2001, the Company provided personal communication services to 235,025 subscribers compared to 56,689 subscribers as of September 30, 2000, an increase of 178,336 net subscribers. At September 30, 2001 and 2000 the estimated first payment default subscribers were 7,811 and 0, respectively. The increase in net subscribers acquired during the year ended September 30, 2001 was attributable to having all of the Company’s 21 markets fully launched during fiscal 2001 and increased demand for wireless services in the United States.

      Average Revenue Per User. For the year ended September 30, 2001, ARPU was $62. For the year ended September 30, 2000, ARPU was $59. The increase in ARPU primarily resulted from subscribers selecting rate plans with higher monthly recurring charges.

      Churn. Churn for the year ended September 30, 2001 was 2.8%, the same as for the year ended September 30, 2000. Without the subscriber reserve, churn for each of the years ended September 30, 2001 and 2000 would have been 2.8%.

      Cost Per Gross Addition. CPGA was $361 for the year ended September 30, 2001, compared to $501 for the year ended September 30, 2000. The decrease in CPGA was the result of greater gross subscriber additions covering the fixed cost components of CPGA such as advertising, salaries and store rents.

      Cash Cost Per User. CCPU was $76 for the year ended September 30, 2001 compared to $162 for the year ended September 30, 2000. The decrease in CCPU was the result of the fixed network and administrative support costs of CCPU being spread over a greater number of average subscribers.

      Revenues. Service revenue, roaming revenue and equipment revenue were $106.0 million, $55.3 million and $10.8 million, respectively, for the year ended September 30, 2001, compared to $9.7 million, $12.3 million and $3.0 million, respectively, for the year ended September 30, 2000, an increase of $96.3 million, $43.0 million and $7.8 million, respectively. These increased revenues reflected all of the Company’s markets being commercially operational in fiscal year 2001. In fiscal year 2000, our markets were being launched in phases and were not operational on a full fiscal year basis.

      Cost of Service and Roaming. The cost of service and roaming was $116.7 million for the year ended September 30, 2001, compared to $27.8 million for the year ended September 30, 2000, an increase of $88.9 million. Roaming expense included in the cost of service and roaming was $35.4 million for the year ended September 30, 2001, compared to $2.5 million for the year ended September 30, 2000, an increase of $32.9 million resulting from the substantial increase in the Company’s subscriber base.

      The Company was supporting 235,025 subscribers at September 30, 2001, compared to 56,689 subscribers at September 30, 2000. At September 30, 2001, the Company’s network consisted of 719 active

78


Table of Contents

cell sites and four switches compared to 567 active cell sites and three switches at September 30, 2000. There were approximately 79 employees performing network operations functions at September 30, 2001, compared to 59 employees at September 30, 2000.

      The Sprint affiliation fee totaled $7.6 million in the year ended September 30, 2001, compared to $0.8 million for the year ended September 30, 2000, a $6.8 million increase related to the growth in service revenues. Fees paid to Sprint for customer support and retention totaled $15.5 million for the year ended September 30, 2001, compared to $1.5 million at September 30, 2000. Long distance fees paid to Sprint totaled $6.5 million for the year ended September 30, 2001, compared to $1.1 million at September 30, 2000. The increases for customer support and retention and long distance fees resulted from the increase in the Company’s subscriber base.

      Cost of Equipment. Cost of equipment was $20.2 million for the year ended September 30, 2001, and $5.7 million for the year ended September 30, 2000, an increase of $14.5 million. This increase was attributable to the increase in the number of subscribers.

      Selling and Marketing. The Company incurred selling and marketing expenses of $71.6 million during the year ended September 30, 2001 compared to $28.4 million in the year ended September 30, 2000, an increase of $43.2 million. At September 30, 2001, there were approximately 388 employees performing sales and marketing functions, compared to 246 employees as of September 30, 2000. A net 178,336 subscribers were added in the year ended September 30, 2001 compared to 56,689 net subscribers added in the year ended September 30, 2000. Handsets subsidies on units sold by third parties totaled $12.8 million for the year ended September 30, 2001, compared to $3.7 million for the year ended September 30, 2000, an increase of $9.1 million.

      General and Administrative. For the year ended September 30, 2001, the Company incurred expenses of $15.7 million, compared to $14.1 million for the year ended September 30, 2000, an increase of $1.6 million. Increased compensation and benefit amounts related to the growth in employees were partially offset by lower amounts earned under the retention bonus agreement with our chief executive officer. Of the 529 employees at September 30, 2001, approximately 62 employees were performing corporate support functions compared to 36 employees as of September 30, 2000.

      Non-Cash Stock Compensation. Non-cash stock compensation expense was $1.7 million for each of the years ended September 30, 2001 and 2000.

      Depreciation. For the year ended September 30, 2001, depreciation and amortization expense increased to $30.6 million, compared to $12.0 million for the year ended September 30, 2000, an increase of $18.6 million. The increase in depreciation and amortization expense related primarily to the completion of our network build-out during fiscal year 2000 to support the Company’s commercial launch. The Company incurred capital expenditures of $56.1 million in the year ended September 30, 2001, which included approximately $2.9 million of capitalized interest compared to capital expenditures of $151.4 million and capitalized interest of $5.9 million in the year ended September 30, 2000.

      Interest Income. For the year ended September 30, 2001, interest income was $2.5 million compared to $9.3 million for the year ended September 30, 2000, a decrease of $6.8 million. The Company had higher cash and cash equivalent balances for the year ended September 30, 2000, resulting from the higher amount of proceeds that remained from our September 1999 equity and debt offerings. As capital expenditures were required to complete the build-out of the Company’s PCS network, and as working capital and operating losses were funded, decreasing cash balances and a lower short-term interest rate environment resulted in lower levels of interest income.

      Interest Expense. For the year ended September 30, 2001, interest expense was $28.9 million, compared to $26.1 million for the year ended September 30, 2000, an increase of $2.8 million. The increase was primarily attributable to increased debt related to accreted interest on the AirGate notes and increased borrowings under the AirGate credit facility, partially offset by lower commitment fees on undrawn balances of the AirGate credit facility, a lower interest rate on variable rate borrowings under the

79


Table of Contents

AirGate credit facility and lower capitalized interest. The Company had borrowings of $266.3 million as of September 30, 2001, compared to $180.7 million as of September 30, 2000.

      Net Loss. For the year ended September 30, 2001, net loss was $111.0 million, an increase of $29.7 million over a net loss of $81.3 million for the year ended September 30, 2000.

Liquidity and Capital Resources

      As of June 30, 2003, AirGate had $30.8 million in cash and cash equivalents compared to $4.9 million in cash and cash equivalents at September 30, 2002. The increase in cash is attributable to improvements in working capital, reduced operating expenses and borrowings, net of repayments under the AirGate credit facility. The improved cash position during the nine months ended June 30, 2003 for AirGate is primarily attributable to the following:

  •  Sprint special settlements and other items of $10.5 million that were not previously remitted to AirGate (See Note 3 to the Consolidated Financial Statements for the nine-months period ended June 30, 2003);
 
  •  Net borrowings of $6.5 million under the AirGate credit facility; and
 
  •  Reduced operating expenses as a result of cost containment initiatives eliminating certain personnel positions, retail location closures and reductions in advertising and promotion spending.

The Company’s working capital balance was $2.6 million at June 30, 2003, compared to a working capital deficit of $364.4 million at September 30, 2002. The improvement in the Company’s working capital position is primarily attributable to the deconsolidation of iPCS’ working capital components subsequent to February 23, 2003.

 
Net Cash Provided By (Used In) Operating Activities

      The $20.7 million of cash provided by operating activities in the nine months ended June 30, 2003 was the result of the Company’s $76.9 million net loss offset by non-cash items including depreciation, amortization of note discounts, financing costs, amortization of intangibles, provision for doubtful accounts, and non-cash stock compensation totaling $98.4 million. These non-cash items were partially offset by net cash working capital changes of $0.8 million. The net working capital changes were driven primarily by an increase in prepaid expenses along with decreases in payables due to Sprint, trade accounts payable and accrued expenses. The $48.8 million of cash used in operating activities in the nine months ended June 30, 2002 was the result of the Company’s $381.6 million net loss offset by $370.4 million of goodwill impairment, depreciation, amortization of note discounts, financing costs, amortization of intangibles, deferred tax benefit, provision for doubtful accounts and non-cash stock option compensation, that was partially offset by negative net cash working capital changes of $37.6 million.

      The $45.2 million of cash used in operating activities in the year ended September 30, 2002 was the result of the Company’s $996.6 million net loss offset by $978.8 million of goodwill impairment, fixed asset impairment, impairment of intangible assets, depreciation, amortization of note discounts, financing costs, amortization of intangibles, deferred tax benefit provision for doubtful accounts and non-cash stock compensation, that was partially offset by negative net cash working capital changes of $27.4 million. The negative net working capital changes were primarily a result of timing of payments principally to Sprint, the increase in interest payable related to the increase in the balance of the AirGate and iPCS credit facilities, and the increase in the current maturities of long-term debt at September 30, 2002, compared to September 30, 2001, resulting from the acquisition of iPCS and growth in the Company’s subscriber base. The $40.9 million of cash used in operating activities in the year ended September 30, 2001 was the result of the Company’s $111.0 million net loss being partially offset by a net $4.6 million in cash provided by changes in net working capital and $65.5 million of depreciation, amortization of note discounts, provision for doubtful accounts, amortization of financing costs and non-cash stock option compensation. The $41.6 million of cash used in operating activities in the year ended September 30, 2000 was the result of the Company’s $81.3 million net loss being partially offset by $38.5 million of depreciation, amortization of

80


Table of Contents

note discounts, provision for doubtful accounts, amortization of financing costs, non-cash stock compensation and positive working capital changes of $1.2 million. For the year ended September 30, 2002, cash used in operating activities attributable to AirGate and iPCS was $24.5 million and $20.9 million, respectively.
 
Net Cash Used in Investing Activities

      The $28.9 million of cash used in investing activities during the nine months ended June 30, 2003 represents $18.9 million for purchases of property and equipment. Purchases of property and equipment during the nine months ended June 30, 2003 related to investments for the expansion of switch capacity and expansion of service coverage. In addition, $10.0 million of cash was deconsolidated subsequent to February 23, 2003 relating to the iPCS bankruptcy. For the nine months ended June 30, 2002, cash used in investing activities of $59.1 million represented $77.4 million for purchases of equipment and $6.1 million of acquisition costs related to the merger with iPCS offset by $24.4 million of cash acquired from iPCS. For the nine months ended June 30, 2003, cash used in investing activities attributable to AirGate and iPCS was $10.4 million and $18.5 million, respectively.

      The $78.7 million of cash used in investing activities during the year ended September 30, 2002 represents $97.1 million for purchases of property and equipment and $6.0 million of cash acquisition costs related to the acquisition of iPCS, partially offset by $24.4 million of cash acquired from iPCS. Purchases of property and equipment during the year ended September 30, 2002 related to investments to upgrade the Company’s network to 1XRTT, expansion of switch capacity and expansion of service coverage in the Company’s territories. For the year ended September 30, 2001, cash outlays of $71.8 million represented cash payments of $71.3 million made for purchases of equipment and $0.5 million to purchase certain assets of one of the Company’s agents. For the year ended September 30, 2000, cash outlays of $152.4 million represented cash payments made for purchases of property and equipment. For the year ended September 30, 2002, cash used in investing activities attributable to AirGate and iPCS was $23.0 million and $55.7 million, respectively.

 
Net Cash Provided by Financing Activities

      The $6.5 million in cash provided by financing activities during the nine months ended June 30, 2003, consisted of $8.0 million in borrowings under the AirGate credit facility offset by $1.5 million for principal payments associated with the AirGate credit facility. The $117.4 million of cash provided by financing activities in the nine months ended June 30, 2002 consisted of $56.2 million borrowed under the AirGate credit facility and $60.0 million under the iPCS senior credit facility, and $0.7 million of proceeds received from exercise of options and warrants and $0.5 million received from stock issued to the employee stock purchase plan. For the nine months ended June 30, 2003, the $6.5 million in cash provided by financing activities was attributable solely to AirGate.

      The $142.1 million in cash provided by financing activities during the year ended September 30, 2002, consisted of $61.2 million in borrowings under the AirGate credit facility and $80.0 million under the iPCS credit facility, $0.7 million of proceeds received from the exercise of options and warrants and $0.6 million received from stock issued under the employee stock purchase plan, offset by $0.3 million for payments associated with the amendment to the iPCS credit facility. The $68.5 million of cash provided by financing activities in the year ended September 30, 2001 consisted of $61.8 million borrowed under the AirGate credit facility and $6.7 million of proceeds received from exercise of options and warrants. The $6.5 million of cash used in financing activities in the year ended September 30, 2000 consisted of the repayment of a $7.7 million unsecured promissory note partially offset by $1.2 million received from the exercise of options to purchase common stock by employees and the exercise of common stock purchase warrants. For the year ended September 30, 2002, cash provided by financing activities attributable to AirGate and iPCS was $62.5 million and $79.8 million, respectively.

81


Table of Contents

 
Liquidity Before the Restructuring

      Due to the factors described herein under “AirGate — Current Operating Environment and its Impact on Us,” management made changes to the assumptions underlying the long-range business plans for AirGate and iPCS. These changes included fewer new subscribers, lower ARPU, higher subscriber churn, increased service and pass through costs from Sprint in the near-term and lower roaming margins from Sprint.

      On February 23, 2003 iPCS, Inc. and its subsidiaries, iPCS Wireless, Inc. and iPCS Equipment, Inc., filed a Chapter 11 bankruptcy petition in the United States Bankruptcy Court for the Northern District of Georgia for the purpose of effecting a court-administered reorganization. Immediately prior to iPCS’ bankruptcy filing, the lenders under the iPCS credit facility accelerated iPCS’ payment obligations as a result of existing defaults under the credit facility.

      Based on our current business plan and assuming that we meet our debt covenants, we believe that we will have sufficient cash flow to cover our debt service and other capital needs through March 2005. After that time, our ability to generate operating cash flow to pay debt service and meet our other capital needs is much less certain. In addition, based on current assumptions, we anticipate that we will meet our covenant obligations under our credit facility through March 2005. However, if actual results differ significantly from these assumptions and/or if the recapitalization plan is not completed and the credit facility is not further amended, then the costs incurred in connection with the recapitalization will make it challenging to meet certain covenants under our credit facility at March 31, 2004. Further, under our current business plan, we believe that we will not be in compliance with certain covenants under our credit facility at April 1, 2005.

 
Liquidity After the Restructuring

      We are completely dependent on available cash and operating cash flow to operate our business and fund our capital needs. We expect that the completion of the financial restructuring will improve our capital structure and reduce the financial risk in our business plan by substantially reducing the required payments under our outstanding indebtedness. Subsequent to the proposed financial restructuring, we expect that AirGate will have sufficient cash and cash equivalents and funds from operations to satisfy its working capital requirements, capital expenditures, and other liquidity requirements for the foreseeable future.

AirGate Capital Resources

      As of June 30, 2003, AirGate had $30.8 million of cash and cash equivalents. As of June 30, 2003, $9.0 million remained available for borrowing under the AirGate credit facility. On August 8, 2003, AirGate drew the remaining $9.0 million available under the AirGate credit facility, leaving no further borrowing availability.

Future Trends That May Affect Operating Results, Liquidity and Capital Resources

      See “Risk Factors” for a description of the trends and risks that may affect our operating results, liquidity and capital resources.

Contractual Obligations

      The Company is obligated to make future payments under various contracts it has entered into, including amounts pursuant to the AirGate credit facility, the old notes, capital leases and non-cancelable operating lease agreements for office space, cell sites, vehicles and office equipment. Future expected

82


Table of Contents

minimum contractual cash obligations for the next five years and in the aggregate at September 30, 2002 are as follows (dollar amounts in thousands):
                                                           
Payments Due By Period Years Ending September 30,

Contractual Obligation Total 2003 2004 2005 2006 2007 Thereafter








AirGate credit facility(1)
  $ 136,500     $ 2,024     $ 15,863     $ 21,150     $ 26,920     $ 35,400     $ 35,143  
AirGate notes
    300,000                                     300,000  
AirGate operating leases(2)
    78,628       18,646       18,539       14,256       9,604       6,632       10,951  
     
     
     
     
     
     
     
 
 
Total
  $ 515,128     $ 20,670     $ 34,402     $ 35,406     $ 36,524     $ 42,032     $ 346,094  
     
     
     
     
     
     
     
 


(1)  Total repayments are based upon borrowings outstanding as of September 30, 2002, not projected borrowings under the AirGate credit facility.
 
(2)  Does not include payments due under renewals to the original lease term.
 
(3)  We will be required to make the following approximate principal and interest payments on our credit facility and old notes: approximately $25.8 million during fiscal 2004; approximately $71.0 million in fiscal 2005; approximately $75.9 million in fiscal 2006; approximately $83.8 million in fiscal 2007; approximately $81.7 million in fiscal 2008; and approximately $340.5 million in fiscal 2009. This assumes an interest rate on our credit facility of 5.5%. As of September 4, 2003, the interest rate on our credit facility was 5.13%.

      The AirGate credit facility is comprised of two senior secured loan commitments (“tranches”) totaling $153.5 million. Tranche 1 provides for a $13.5 million senior secured term loan commitment (of which $12.0 million is outstanding as of June 30, 2003), which matures on June 6, 2007. Tranche II provides for a $140.0 million senior secured term loan commitment (of which $131.0 million is outstanding as of June 30, 2003), which matures on September 30, 2008. The AirGate credit facility requires quarterly principal payments, which began on December 31, 2002 for tranche I and begins on June 30, 2004 for tranche II, initially in the amount of 3.75% of the loan balance then outstanding and increasing thereafter. As of June 30, 2003, AirGate had cumulative borrowings under the AirGate credit facility totaling $144.5 million and has made cumulative quarterly principal repayments in the amount of $1.5 million. As of August 8, 2003, AirGate had cumulative borrowings under the AirGate credit facility totaling $153.5 million. The old notes will require cash payments of interest beginning on April 1, 2005.

      There are provisions in the agreements governing the AirGate credit facility and the old notes providing for an acceleration of repayment upon an event of default, as defined in the respective agreements. AirGate is currently in material compliance with its obligations under these agreements.

      As of July 31, 2003, two major credit rating agencies rate AirGate’s unsecured debt. The ratings were as follows:

                 
Type of facility Moody’s S&P



AirGate notes
    Caa2       CC  

      The Company has no off-balance sheet arrangements and has not entered into any transactions involving unconsolidated, limited purpose entities or commodity contracts.

83


Table of Contents

AIRGATE

Background

      AirGate PCS, Inc. and its subsidiaries and predecessors were formed for the purpose of becoming a leading regional provider of wireless Personal Communication Services, or “PCS”. We are a network partner of Sprint PCS, which is a group of wholly-owned subsidiaries of Sprint Corporation (a diversified telecommunications service provider), that operate and manage Sprint’s PCS products and services.

      As of June 30, 2003, AirGate had 364,157 subscribers and total network coverage of approximately 6.0 million residents, representing approximately 83% of the residents in its territory. For the nine months ended June 30, 2003, we generated revenue of approximately $320.7 million, including $79.4 million of revenue related to iPCS.

      The following description of AirGate’s business is limited to AirGate alone, and does not reflect the business of iPCS.

Current Operating Environment and its Impact on Us

      Since the beginning of 2002, the wireless communications industry, including us, experienced significant declines in per share equity prices that limited the ability of wireless companies to raise capital. We believe that this decline in wireless stocks results from a weaker outlook for the wireless industry than previously expected. Reasons for a weaker operating environment include:

  •  declining rates of subscriber growth in the United States as overall rates of penetration in the wireless industry approached and then exceeded 50%, which decline may have been exacerbated by a widespread economic slowdown;
 
  •  concerns that these declines, coupled with intense competition among wireless service providers in the United States, will continue to lead to service offerings of increasingly large bundles of minutes at lower prices;
 
  •  higher rates of churn resulting from intense competition and programs for sub-prime credit quality subscribers, which may be exacerbated in the future by wireless number portability; and
 
  •  the highly leveraged capital structures of many wireless providers and a lack of viable financing alternatives.

      Our business has been and continues to be affected by these market conditions. In addition, as a result of our dependence on Sprint, we are also confronted with additional factors that have had a negative impact on our operations such as:

  •  Sprint offered a program that attracted sub-prime credit quality subscribers, which contributed to high rates of churn and reduced our liquidity. The introduction of this program was required under our agreements with Sprint until late February, 2002 (See “— Marketing Strategy — Pricing” for a description of the program and “— Sprint Relationship and Agreements”);
 
  •  in 2002 and early 2003, Sprint took a number of actions which resulted in unanticipated charges or increases in charges to us. Some of these charges resulted from errors by Sprint, while others were charges to which we had little or no advance notice. The effect of these actions was to reduce our liquidity and interject a greater degree of uncertainty to our business and financial planning (See “Risk Factors — Risks Related to Our Relationship with Sprint”);
 
  •  our current dependence on Sprint to provide customer care provided us limited tools to improve the quality of customer care, which we believe contributes to higher churn, and to reduce the costs of customer care;

84


Table of Contents

  •  because 65% of our costs of service and roaming is paid to (or through) Sprint as service, affiliation, roaming, long-distance and other fees and expenses under our agreements, our ability to control costs through our own cost cutting measures is more limited; and
 
  •  a more limited control of our own working capital.

      These factors and the lack of additional sources of capital led us to revise our business plans to reflect this less-favorable operating environment, and ultimately, to consider alternatives for a capital restructuring.

Business Strategy

      In order to succeed in this operating environment, we have implemented a “smart growth” strategy with a focus on EBITDA and cash flow growth. This smart growth strategy entails adding higher credit quality subscribers with higher than market revenues per subscriber while reducing costs. To achieve our business plan, we believe the following elements are critical to enable us to achieve this goal:

  •  continue to maximize free cash flow by constraining our capital spending and operating costs;
 
  •  restructuring our debt to reduce debt service payments and improve cash flow;
 
  •  seek to reduce churn and bad debt expense by focusing on the credit quality of our new subscribers and our subscriber base;
 
  •  seek to reduce churn and operating costs by exploring ways to improve the quality and cost of customer care and similar services provided by Sprint;
 
  •  capitalize on Sprint wireless products and services;
 
  •  improve the predictability and accuracy of financial information provided through Sprint; and
 
  •  in the longer term, take advantage of the Sprint brand recognition to capitalize on new growth initiatives, including data services and wireline-to-wireless migration opportunities.

      Maximize free cash flow by lowering capital spending and operating costs. We believe our success will depend in large part on our ability to constrain capital spending and operating costs and be cost competitive. With the primary build-out of our network complete, we have reduced capital spending. In addition, we have taken a number of steps to lower our general and administrative, sales, marketing and network service costs, including the following:

  •  restructuring the AirGate organization and eliminating 154 positions to operate in the most cost efficient manner possible, which includes the following changes:

  •  moving the accounting function to Atlanta, Georgia from Geneseo, Illinois and reducing the overall accounting staff;
 
  •  restructuring management in our retail channel and closing our least productive retail stores,
 
  •  a reduction in support to our indirect distribution channels to reflect reduced productivity in certain of these outlets, such as Radio Shack and Walmart, and
 
  •  a reduction in support to our business distribution channel;

  •  significantly reducing capital expenditures (from $41.3 million in fiscal 2002 to an estimated $23.8 million in fiscal 2003);
 
  •  reducing spending for selling and marketing (from $79.0 million in fiscal 2002 to an estimated $68.5 million in fiscal 2003); and
 
  •  tightening management of vendors, including re-negotiating contracts for backhaul and other telecommunications services.

85


Table of Contents

      Savings from these actions were partially offset by the bankruptcy of iPCS and the termination of management services by iPCS.

      Restructuring our debt. For the nine months ended June 30, 2003, AirGate has produced $24.7 million of EBITDA. As of June 30, 2003, AirGate had working capital of $2.6 million and cash and cash equivalents of approximately $30.8 million. After drawing the remaining $9.0 million available under our $153.5 million senior secured credit facility in August, 2003, AirGate is completely dependent on available cash and operating cash flow to operate our business and fund our capital needs. Based on our current business plan and assuming that we meet our debt covenants, we believe that we will have sufficient cash flow to cover our debt service and other capital needs through March 2005. After that time, our ability to generate operating cash flow to pay debt service and meet our other capital needs is much less certain. In addition, based on current assumptions, we anticipate that we will meet our covenant obligations under our credit facility through March 2005. However, if actual results differ significantly from these assumptions and/or if the recapitalization plan is not completed and the credit facility is not further amended, then the costs incurred in connection with the recapitalization will make it challenging to meet certain covenants under our credit facility at March 31, 2004. Further, under our current business plan, we believe that we will not be in compliance with certain covenants under our credit facility at April 1, 2005. We have significant cash principal and interest payments under our indebtedness coming due during the period from 2005 through 2009. Unless the financial restructuring occurs, we will be required to make the following approximate principal and interest payments on our credit facility and notes: $25.8 million during fiscal 2004; $71.0 million in fiscal 2005; $75.9 million in fiscal 2006; $83.8 million in fiscal 2007; $81.7 million in fiscal 2008 and $340.5 million in fiscal 2009. This assumes an interest rate on our credit facility of 5.5%. As of September 4, 2003, the interest rate on our credit facility was 5.13%.

      Seek to reduce churn and bad debt expense by focusing on the credit quality of our new subscribers and our subscriber base. We believe it is important to maintain the appropriate balance of prime and sub-prime credit subscribers to reduce churn and bad debt expense. Currently, rates of churn, or customer turnover, are highest among sub-prime credit quality customers. During fiscal 2003, we increased the deposit required to be paid by sub-prime credit customers to use our services. As a result of these actions, 70% of our customer base now consists of prime credit quality customers; up from 62% at June 30, 2002. Churn was 2.90% for the quarter ended June 30, 2003. Despite these measures, current churn rates remain at high levels.

      Seek to reduce operating costs and churn by improving the quality and cost of customer service and related services. A number of factors, including quality of customer service, are factors in churn. Two recent surveys ranked Sprint last among national wireless carriers in satisfaction with customer service. We are exploring options to outsource customer care and other related services currently provided by Sprint and/or ways to improve both the quality and cost of these services provided by Sprint.

      Capitalize on Sprint wireless products and services. An underlying premise of our business plan is to continue to capitalize on the Sprint brand and the other services Sprint is required to provide under our agreements with Sprint. We believe Sprint wireless products and services provide us with a significant competitive advantage over other regional wireless providers because of Sprint’s:

  •  strong brand name recognition,
 
  •  all-digital nationwide coverage,
 
  •  quality products and services,
 
  •  advanced technology, including Sprint PCS Vision products, and
 
  •  established distribution channels.

      In addition to Sprint’s national marketing plans, we plan to develop local plans, with Sprint’s approval, to target groups who share common characteristics or have common needs in our territory.

86


Table of Contents

      Increase the predictability and accuracy of financial information provided through Sprint. 65% of cost of service and roaming in our financial statements is paid to or through Sprint as service, affiliation, roaming, long-distance and other fees and expenses under our agreements. Many of these are charges passed along from third parties. We have been working with Sprint to increase the financial data provided to AirGate regarding its subscribers, and we have been developing tools to better analyze this data.

      In the longer term, take advantage of the Sprint brand recognition to capitalize on new growth initiatives, including data services and wireline-to-wireless migration opportunities. The development of compelling data applications will be critical to the growth in usage of wireless data network services. In the third quarter of 2002, Sprint launched PCS Vision, a third generation technology. Vision-enabled PCS devices take and receive pictures, check personal and corporate e-mail, play games with full-color graphics and polyphonic sounds and browse the Internet wirelessly with speeds that equal or exceed a home computer’s dial-up connection. At the same time, Sprint began to roll out a broad portfolio of Vision-enabled devices that incorporate voice and data functionality, expanded memory, high-resolution and larger color screens that allow greater mobility, convenience and productivity. While the uptake of these services has been slow, we believe PCS Vision will provide a vehicle for growth for data and wireless internet services.

      We believe wireless will continue to grow as a substitution for wireline services. Wireless internet access, wireless local loop and other wireless applications can spur this migration and increase sales of wireless services. Currently available data speeds on our network can exceed dial up speeds through wireline carriers. Future speed upgrades may offer alternatives to wireline services in rural areas in our territory.

Markets

      We believe that connecting Sprint’s existing PCS markets with our PCS markets is an important part of Sprint’s on-going strategy to provide seamless, nationwide PCS service to its subscribers. We believe our territories, with 7.1 million residents, have attractive demographic characteristics. AirGate’s territory has many vacation destinations, covers substantial highway mileage and includes a large student population,

87


Table of Contents

with at least 60 colleges and universities. The following table sets forth the location and estimated population in our territory:
           
AirGate Basic Trading Areas (1) Population(2)


Greenville-Spartanburg, SC
    897,700  
Savannah, GA
    737,100  
Charleston, SC
    686,800  
Columbia, SC
    657,000  
Asheville-Hendersonville, NC
    588,700  
Augusta, GA
    579,400  
Anderson, SC
    346,600  
Hickory-Lenoir-Morganton, NC
    331,100  
Wilmington, NC
    327,600  
Florence, SC
    260,200  
Greenville-Washington, NC
    245,100  
Goldsboro-Kinston, NC
    232,000  
Rocky Mount-Wilson, NC
    217,200  
Myrtle Beach, SC
    186,400  
New Bern, NC
    174,700  
Sumter, SC
    156,700  
Jacksonville, NC
    148,400  
Orangeburg, SC
    119,600  
The Outer Banks, NC(3)
    92,000  
Roanoke Rapids, NC
    76,800  
Greenwood, SC
    74,400  
     
 
 
Total
    7,135,500  
     
 


(1)  Each of the AirGate markets contains 10 MHz of spectrum.
 
(2)  Based on 2000 estimates compiled by Kagan’s Wireless Telecom Atlas & Databook, 2001 Edition, as reported per individual basic trading area.
 
(3)  Territory covered by our Sprint PCS management agreement do not comprise a complete basic trading area.

      Our Sprint agreements required us to cover a specified percentage of the population at a range of coverage levels within each of the markets granted to us by those agreements by specified dates. We are fully compliant with these build-out requirements.

Products and Services

      We offer Sprint PCS products and services throughout our territory. These PCS products and services generally mirror the services offered by Sprint.

      100% Digital Wireless Network with Service Across the Country. Our primary service is wireless mobility coverage. As Sprint network partners, our existing PCS network is part of the largest 100% digital wireless PCS network in the United States. Subscribers in our territory may use Sprint PCS services throughout our contiguous markets and seamlessly throughout the Sprint PCS network.

      PCS Vision Service. In the third calendar quarter of 2002, Sprint launched PCS Vision, a third generation technology. Vision-enabled PCS devices take and receive pictures, check personal and corporate e-mail, play games with full-color graphics and polyphonic sounds and browse the Internet wirelessly with

88


Table of Contents

speeds that equal or exceed a home computer’s dial-up connection. At the same time, Sprint began to roll out a broad portfolio of Vision-enabled devices that incorporate voice and data functionality, expanded memory, high-resolution and larger color screens that allow greater mobility, convenience and productivity. We support and offer PCS Vision services and phones in the majority of our territory.

      Wireless Internet Access. Wireless Internet access is available through both the new PCS Vision service and PCS Vision-enabled phones as well as the Sprint Wireless Web and other data capable PCS phones. PCS subscribers with web browser-enabled phones have the ability to receive information such as stock prices, airline schedules, sports scores and weather updates directly on their handsets. Subscribers with PCS Vision phones can browse full color, graphic versions of popular web sites. Those subscribers with other browser-enabled phones are able to browse specially designated text based sites.

      CDMA and Dual Band/ Dual Mode Handsets. We offer code division multiple access, or CDMA, digital technology handsets. These handsets range from full-featured models with special features such as Palm OS and built-in digital cameras to models with voice only capability. The phones can weigh as little as 2.65 ounces and can have standby times surpassing 300 hours. We offer dual band/dual mode handsets that allow subscribers to make and receive calls on both PCS and cellular frequency bands and both digital or analog technology.

      Sprint and Non-Sprint Roaming. We provide roaming services to PCS subscribers of Sprint and its network partners that use a portion of our PCS network, and to non-Sprint subscribers when they use a portion of our PCS network pursuant to roaming agreements between Sprint and other wireless service providers. Sprint and other wireless service providers supply similar services to our subscribers when our subscribers use a portion of their networks.

Marketing Strategy

      Our marketing and sales strategy generally leverages the national advertising and marketing programs that have been developed by Sprint, often enhanced with strategies and tactics we have tailored to our specific markets.

      Use Sprint’s brand equity and marketing. We feature exclusively and prominently the nationally recognized Sprint brand in our marketing effort. From the subscribers’ point of view, they use our network and the PCS national network seamlessly as a unified nationwide network.

      Pricing. Our use of the Sprint national pricing strategy offers subscribers simple, easy-to-understand service plans. Sprint’s pricing plans are typically structured with monthly recurring charges, large local calling areas, bundles of minutes and service features such as voicemail, caller ID, call waiting, call forwarding and three-way calling. We also feature Sprint Free and Clear plans, which offer simple, affordable plans for consumer and business subscribers, and include long distance calling from anywhere on the Sprint PCS nationwide network.

      Sprint has a program in which subscribers with lower quality credit or limited credit history may nonetheless sign up for service subject to certain account spending limits, if the subscriber makes a deposit ranging from $125 to $250. In May 2001, Sprint introduced the no-deposit account spending limit program, in which the deposit requirement was waived except in very limited circumstances (the “NDASL program”). The NDASL program was replaced in late 2001 with the Clear Pay program. The Clear Pay program re-instituted the deposit for only the lowest credit quality subscribers. The NDASL and Clear Pay programs and their associated lack of general deposit requirements increased the number of the Company’s sub-prime credit subscribers. In February 2002, Sprint allowed its network partners to re-institute deposits in a program called the Clear Pay II program. The Clear Pay II program and its deposit requirements are currently in effect in all of AirGate’s markets, which reinstated a deposit requirement of $125 for most sub-prime credit subscribers. In early February 2003, management increased the deposit threshold to $250 for sub-prime credit subscribers.

      Advertising and promotions. Sprint 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

89


Table of Contents

territory at no additional cost to us. Sprint also runs numerous promotional campaigns that provide subscribers with benefits such as additional features at the same rate, free minutes of use for limited time periods or special prices on handsets and other accessories.

      Sponsorships. Sprint sponsors numerous national, regional and local events. These sponsorships provide Sprint with brand name and product recognition in high profile events, create a forum for sales and promotional events and enhance our promotional efforts in our territory.

Sales and Distribution

      Our agreements with Sprint require us to use Sprint’s and our own sales and distribution channels in our territory. Key elements of our sales and distribution plan consist of the following:

      Sprint stores. We currently operate 33 retail Sprint stores within our territory. These stores are located in metropolitan markets within our territory, providing us with a local presence and visibility. These stores have been designed to facilitate retail sales, bill collection and subscriber service.

      Sprint store within a Radio Shack store. Sprint has an arrangement with RadioShack to install a “store within a store.” Currently, RadioShack has 100 stores in our territory that are authorized to offer Sprint PCS products and services to potential subscribers.

      Other national third-party retail stores. In addition to RadioShack, we benefit from the sales and distribution agreements established by Sprint with other national retailers, which currently include Best Buy, CostCo, Staples, Office Max, Office Depot and Ritz Camera. These retailers and others have approximately 159 retail stores in our territory.

      Local third-party retail stores. We benefit from the sales and distribution agreements that we enter into with local retailers in our territory. We have entered into sales and distribution agreements related to approximately 11 local stores in our territory.

      National accounts and direct selling. We participate in Sprint’s national accounts program. Sprint has a national accounts team which focuses on the corporate headquarters of large companies. Our direct sales force targets the employees of these companies in our territories and cultivates other local business subscribers. In addition, once a Sprint national account manager reaches an agreement with any company headquartered outside of our territory, we help service the offices and subscribers of that company located in our territory.

      Sprint distribution channels. Sprint directly controls various distribution channels that sell Sprint PCS products and services in our markets. These channels with significant activity in our markets include: Sprint Inbound Telemarketing, Sprint web-based electronic commerce, Sprint Local Telephone Division Retail, and Sprint Local Telephone Division Telemarketing. In addition to these channels, Sprint’s retail and business sales activities often have some incidental overflow into our markets.

      For the nine months ended June 30, 2003, the following table sets forth the percentage of gross activations that certain of our distribution channels generated for us:

         
AirGate

Retail Sprint Stores
    39 %
RadioShack
    18  
Other National Third-Party
    14  
Local Third-Party
    5  
National Accounts
    10  
Sprint
    14  
     
 
      100 %
     
 

90


Table of Contents

Suppliers and Equipment Vendors

      We do not manufacture any of the handsets or network equipment we use in our operations. We purchase our network equipment and handsets pursuant to various Sprint vendor arrangements that provide us with volume discounts. These discounts have significantly reduced the overall capital required to build our network.

      Under such arrangements, we currently purchase our network equipment from Lucent Technologies, Inc. (“Lucent”). In addition, we currently purchase our handsets directly from Sprint and our accessories from Sprint and certain other third-party vendors. Our agreements with Sprint require us to pay Sprint $4.00 for each 3G handset that we purchase either directly from Sprint or from a Sprint authorized distributor. We agreed to pay this fee starting with purchases on July 1, 2002 and ending on the earlier of December 31, 2004 or the date on which the cumulative 3G handset fees received by Sprint from all Sprint network partners equal $25,000,000. We further agreed to purchase 3G handsets only from Sprint or a Sprint authorized distributor during this period.

Seasonality

      Our business is subject to seasonality because the wireless industry is heavily dependent on fourth calendar quarter results. Among other things, the industry relies on higher subscriber additions and handset sales in the fourth calendar quarter when compared to the other three calendar quarters. A number of factors contribute to this trend, including: the increasing use of retail distribution, which is heavily dependent upon the year-end holiday shopping season; the timing of new product and service announcements and introductions; competitive pricing pressures; and aggressive marketing and promotions. The increased level of activity requires a greater use of our available financial resources during this period. We expect, however, that fourth calendar quarter seasonality will have less impact in the future.

Employees and Labor Relations

      As of June 30, 2003, we employed 454 full-time employees and 18 part-time employees. None of our employees are represented by a labor union. We believe that we have good relations with our employees.

Competition

      Competition in the wireless communications industry is intense. We operate in highly competitive markets in the southeast. We compete with national and regional cellular, PCS and other wireless providers. We believe that our primary competition is with Verizon Wireless, Nextel, Cingular Wireless, T-Mobile, AT&T Wireless and its affiliates, Alltel and US Cellular. These wireless service providers offer services that are generally comparable to our PCS service. Most of our competitors have financial resources and subscriber bases greater than ours.

      Many of our competitors have access to more licensed spectrum than the 10 MHz licensed to Sprint in our territory. In addition, certain of our 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. Wireless providers 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.

      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 competitive call clarity and quality;
 
  •  our ability to provide quality network service in a limited capital environment;
 
  •  the competitiveness of Sprint’s pricing plans;
 
  •  our spending on marketing and promotions compared to our competitors;

91


Table of Contents

  •  liquidity and capital resources;
 
  •  our ability to upgrade our networks to accommodate new technologies;
 
  •  the continued expansion and improvement of the Sprint PCS nationwide network;
 
  •  the quality of our customer care systems; and
 
  •  our selection of handset options.

      Our ability to compete successfully will also depend, in part, on the ability of Sprint and us 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.

Network Operations

 
General

      The effective operation of our portions of the Sprint PCS network require:

  •  public switched and long distance interconnection;
 
  •  the implementation of roaming arrangements; and
 
  •  the development of network monitoring systems.

      We utilize Sprint’s Network Operations Control Center for around-the-clock monitoring of our network base stations and switches.

      Sprint developed the initial plan for the build-out of our Sprint PCS network. We have further enhanced this plan to provide better coverage for our territory. Pursuant to our network operations strategy, we have provided PCS service to the largest communities in our markets and have covered interstates and primary roads connecting these communities to each other and to the adjacent major markets owned and operated by Sprint.

      As of June 30, 2003, our network consisted of four switches located at two switch centers and approximately 800 operating cell sites. A switching center serves several purposes, including routing calls, managing call handoff, managing access to the public telephone network and providing access to voice mail. 99% of our operating cell sites are co-located. Co-location describes the strategy of leasing available space on a tower or cell site owned by another company rather than building and owning the tower or cell site directly.

      Our networks connect to the public telephone network through local exchange carriers, which facilitate the origination and termination of traffic between our networks and both local exchange and long distance carriers. Through our management agreement with Sprint, we have the benefit of Sprint-negotiated interconnection agreements with local exchange carriers.

      Under our management agreement with Sprint, we are required to use Sprint for long distance services and Sprint provides us with preferred rates for these services. Backhaul services are provided by other third-party vendors. These services carry traffic from our cell sites and local points of interconnection to our switching facilities.

92


Table of Contents

Technology

 
General

      In 1993, the FCC allocated the 1900 MHz frequency block of the radio spectrum for wireless PCS Systems. PCS networks operate at a higher frequency and employ more advanced digital technology than traditional analog cellular telephone service. The enhanced capacity of digital systems, along with enhancements in digital protocols, allows digital-based wireless technologies, whether using PCS or cellular frequencies, to offer new and enhanced services, including greater call privacy and more robust data transmission, such as facsimile, electronic mail and connecting notebook computers with computer/data networks.

      Presently, wireless PCS systems operate under one of three principal air interface protocols: CDMA, time division multiple access (TDMA) or global system for mobile communications (GSM). Wireless PCS operators in the United States now have dual-mode or tri-mode handsets available so that their customers can operate on different networks that employ different protocols.

 
CDMA Technology

      Sprint’s network and Sprint’s network partners’ networks all use CDMA technology. CDMA technology is fundamental to accomplishing our business objective of providing high volume, high quality airtime at a low cost. We believe that CDMA provides important system performance benefits. CDMA systems offer more powerful error correction, less susceptibility to fading and reduced interference than analog systems. Using enhanced voice coding techniques, CDMA systems achieve voice quality that is comparable to that of the typical wireline telephone. This CDMA vocoder technology also employs adaptive equalization, which filters out background noise more effectively than existing wireline, analog cellular or other digital PCS phones. CDMA technology also allows a greater number of calls within one allocated frequency and reuses the entire frequency spectrum in each cell. In addition, CDMA technology combines a coding scheme with a low power signal to enhance security and privacy. As a subscriber travels from one cell site to another cell site, the call must be “handed off” to the second cell site. CDMA systems transfer calls throughout the network using a technique referred to as soft hand-off, which connects a mobile subscriber’s call with a new cell site while maintaining a connection with the cell site currently in use.

      CDMA offers a cost effective migration to the next generation of wireless services. CDMA standards and products currently in place will allow existing CDMA networks to be upgraded in a cost efficient manner to the next generation of wireless technology. As of June 30, 2003, we have upgraded our network to the next generation of technology known as “one times radio transmission technology” or “1XRTT.” This technology offers data speeds of up to 144 kilobits per second, voice capacity improvements of over 50% and improved battery life in the handset. Further standards are being developed for CDMA that will offer data speeds in excess of 2,000 kilo bits per second and additional improvements in voice capacity.

 
Research and Development

      We currently do not conduct our own research and development. Instead we take advantage of Sprint’s and our vendors’ extensive research and development effort, which provides us with access to new technological products and enhanced service features without significant research and development expenditures of our own.

      We have been provided access to key developments produced by Sprint for use in our network. We believe that new features and services will be developed for the Sprint PCS network to take advantage of CDMA technology. We may be required to incur additional expenses in modifying our network to provide these additional features and services.

93


Table of Contents

 
Intellectual Property

      Other than our corporate names, we do not own any intellectual property that is material to our business. “Sprint,” the Sprint diamond design logo, “Sprint PCS,” “Sprint Personal Communication Services,” “The Clear Alternative to Cellular” and “Experience the Clear Alternative to Cellular Today” are service marks registered with the United States Patent and Trademark Office and owned by Sprint or its affiliates. Pursuant to our management agreement with Sprint, we have the right to use, royalty-free, the Sprint and Sprint PCS brand names and the Sprint diamond design logo and certain other service marks of Sprint in connection with marketing, offering and providing licensed services to end-users and resellers, solely within our territory.

      Except in certain instances, Sprint has agreed not to grant to any other person a right or license to provide or resell, or act as agent for any person offering, licensed services under the licensed marks in our territory, except as to Sprint’s marketing to national accounts and the limited right of resellers of Sprint to inform their subscribers of handset operation on the Sprint PCS network. In all other instances, Sprint has reserved for itself and its network partners the right to use the licensed marks in providing its services, subject to its exclusivity obligations described above, whether within or without our territories.

      Our agreements with Sprint contain numerous restrictions with respect to the use and modification of any of the licensed marks.

Sprint Relationship and Agreements

      The following includes a summary of the material terms and provisions of our Sprint agreements and the consent and agreement modifying the Sprint management agreement. The Sprint agreements and consent and agreement have been filed by us as exhibits to certain of our filings with the SEC. We urge you to carefully review the Sprint agreements and the consent and agreement.

 
Overview of Sprint Relationship and Agreements

      Under our long-term agreements with Sprint, we market PCS products and services under the Sprint brand names in our territory. The agreements with Sprint require us to build-out our systems, platforms, products and services to seamlessly interface with the Sprint PCS wireless network. The Sprint agreements also provide us with the right to receive Sprint’s equipment discounts in making purchases from equipment vendors; roaming revenue from Sprint PCS and its PCS network partner subscribers traveling into our territory; national marketing and advertising; and various other back office services provided by Sprint. Our relationship and agreements with Sprint are structured to provide us with certain advantages such as avoiding the up-front costs of acquiring spectrum in our territory and being able to offer high quality products as part of a nationwide network. The Sprint agreements have an initial term of 20 years with three 10-year renewals which can lengthen the contracts to a total term of 50 years. Our Sprint agreements will automatically renew for the first 10-year renewal period unless we are in material default on our obligations under the agreements. The Sprint agreements will automatically renew for two additional 10-year terms unless either we on the one hand, or Sprint on the other hand, provides the other with two years prior written notice to terminate the agreements.

      We have four major agreements with Sprint:

  •  the management agreement;
 
  •  the services agreement; and
 
  •  two separate trademark and service mark license agreements.

      In addition, Sprint has entered into a consent and agreement with our lenders that modifies the management agreement for the benefit of the lenders under our senior secured credit facility.

94


Table of Contents

 
The Management Agreement

      Under our management agreement with Sprint, we have agreed to:

  •  construct and manage a network in our territory in compliance with Sprint’s PCS licenses and the terms of the management agreement;
 
  •  distribute during the term of the management agreement Sprint PCS products and services;
 
  •  use Sprint’s and our own distribution channels in our territory;
 
  •  conduct advertising and promotion activities in our territory; and
 
  •  manage that portion of Sprint’s subscriber base assigned to our territory.

      Exclusivity. We are designated as the only person or entity that can manage or operate a PCS network for Sprint in our territory. Sprint 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. Our agreement does not limit the definition of a wireless mobility communications network to a specific spectrum. Sprint is permitted under the agreement to make national sales to companies in the covered territories and, as required by the FCC, to permit resale of the Sprint PCS products and services in the covered territory.

      Network build-out. The management agreement specifies the terms of the Sprint affiliation, including the required network build-out plan. We 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. We have satisfied these network build-out requirements. 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. If Sprint decides to expand coverage within our territory, Sprint 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 can build out the territory or permit another third-party to do so. Any new area that Sprint or a third-party builds out is removed from our territory.

      Products and services. The management agreement identifies the wireless products and services that we can offer in our territory. We may offer non-Sprint PCS products and services in our territory under limited circumstances. We may not offer products and services that are confusingly similar to Sprint PCS products and services. We may cross-sell services such as Internet access, subscriber premises equipment and prepaid phone cards with Sprint and other Sprint network partners. If we decide to resell such services of third parties, we must give Sprint 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 without Sprint’s consent, unless we name the Sprint-owned local exchange carrier as the exclusive distributor.

      We are required to participate in the Sp