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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.     )

  Filed by the Registrant  x
  Filed by a Party other than the Registrant   o
 
  Check the appropriate box:

  x   Preliminary Proxy Statement
  o   Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
  o   Definitive Proxy Statement
  o   Definitive Additional Materials
  o   Soliciting Material Pursuant to §240.14a-12

AIRGATE PCS, INC.


(Name of Registrant as Specified In Its Charter)

N/A


(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

      Payment of Filing Fee (Check the appropriate box):

  x   No fee required.
  o   Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

        1) Title of each class of securities to which transaction applies:

        2) Aggregate number of securities to which transaction applies:

        3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

        4) Proposed maximum aggregate value of transaction:

        5) Total fee paid:

        o   Fee paid previously with preliminary materials.

        o   Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

        1) Amount Previously Paid:

        2) Form, Schedule or Registration Statement No.:

        3) Filing Party:

        4) Date Filed:

SEC 1913 (02-02) Persons who potentially are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number.


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AIRGATE PCS, INC.

233 Peachtree Street, N.E.
Harris Tower, Suite 1700
Atlanta, Georgia 30303
(AIRGATE LOGO)
                    , 2003

Dear AirGate Shareowner:

      We are furnishing the accompanying Proxy Statement to you in connection with a proposed financial restructuring of our company. The restructuring, if completed, would substantially decrease the required payments under our current debt. 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.

      We plan to complete the restructuring through a recapitalization plan, which consists of our offer to exchange all of our existing 13.5% Senior Subordinated Discount Notes due 2009 (which we refer to as our old notes) for newly-issued shares of our common stock and newly-issued 9 3/8% Senior Subordinated Secured Notes due 2009 (which we refer to as our new notes); a consent solicitation to remove substantially all of the restrictive covenants in, and release the collateral securing our obligations under, the indenture governing our outstanding old notes; and a 1 for [     ] reverse stock split of shares of our common stock.

      If the recapitalization plan is not successful, we may accomplish the restructuring by filing a prepackaged plan of reorganization on substantially the same terms as the recapitalization plan, but under the supervision of a bankruptcy court. The holders of our old notes and our shareowners would receive treatment under the prepackaged plan similar to the treatment they would receive under the recapitalization plan.

      In order to effect the recapitalization plan, our shareowners must vote to:

  •  approve the issuance of up to 33,000,000 shares of our common stock in the restructuring; and
 
  •  amend and restate our restated certificate of incorporation to implement the reverse stock split of our common stock.

      We are also asking you to:

  •  accept the prepackaged plan of reorganization; and
 
  •  approve an increase in the number of shares of our common stock available for issuance under our 2002 AirGate PCS, Inc. Incentive Plan to approximately                     million shares, prior to giving effect to the reverse stock split.

      The restructuring will significantly dilute the percentage of outstanding stock owned by our common shareowners, from 100% (before the restructuring) to 44% (after the restructuring).

      Pursuant to the accompanying proxy statement, we are soliciting your proxy to be voted in favor of the recapitalization plan, the increase in shares available under our equity incentive plan and your vote to accept the prepackaged plan of reorganization. YOUR VOTE TO APPROVE THE RECAPITALIZATION PLAN AND THE INCREASE IN SHARES AVAILABLE UNDER OUR EQUITY INCENTIVE PLAN AND YOUR VOTE TO ACCEPT THE PREPACKAGED PLAN OF REORGANIZATION ARE VERY IMPORTANT. We urge you to review carefully the proxy statement and the other documents we refer you to in the proxy statement for a detailed description of the proposed restructuring and the dilutive effect it will have on our existing shareowners. Please take the time to


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complete the enclosed proxy and sign and return it in the enclosed, postage-paid envelope as soon as possible. We will not complete the recapitalization plan unless we obtain the approval of our shareowners.

      Our board of directors has unanimously approved the exchange offer, consent solicitation, reverse stock split and increase in shares reserved for issuance under our incentive plan. It has also unanimously approved our solicitation of your acceptance of the prepackaged plan.

  Sincerely,

 
  Thomas M. Dougherty
  President and Chief Executive Officer
 


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ABOUT THE SOLICITATION OF PROXIES AND ACCEPTANCES
RISK FACTORS
THE RESTRUCTURING
THE RECAPITALIZATION PLAN
PROPOSAL 1 ISSUANCE OF OUR COMMON STOCK IN THE EXCHANGE OFFER
PROPOSAL 2 AMENDMENT AND RESTATEMENT OF OUR RESTATED CERTIFICATE OF INCORPORATION TO EFFECT A REVERSE STOCK SPLIT
PROPOSAL 3 INCREASE IN THE NUMBER OF SHARES OF OUR COMMON STOCK AVAILABLE FOR ISSUANCE UNDER THE 2002 AIRGATE PCS, INC. INCENTIVE PLAN
EQUITY COMPENSATION PLAN INFORMATION
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
MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND OFFICERS
THE PREPACKAGED PLAN
SHAREOWNER PROPOSALS FOR NEXT YEAR’S ANNUAL MEETING
DELIVERY OF THIS PROXY STATEMENT
WHERE YOU CAN FIND MORE INFORMATION
OTHER MATTERS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF AIRGATE PCS, INC. AND ITS SUBSIDIARIES
ANNEX A
ANNEX B
ANNEX C PROPOSED AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF AIRGATE PCS, INC.
ANNEX D FIRST AMENDMENT TO THE AIRGATE PCS, INC. 2002 LONG-TERM INCENTIVE PLAN
ANNEX E


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(AIRGATE LOGO)


NOTICE OF SPECIAL MEETING OF SHAREOWNERS

To Be Held on                         ,                         , 2003


       You are cordially invited to attend our special meeting of shareowners, which will be held on                     ,                     , 2003, at 9:00 a.m. at 303 Peachtree Street, N.W., Suite 5300, Atlanta, Georgia. The special meeting is being held for the purpose of implementing a proposed restructuring of our company.

      At the special meeting, you will be asked to consider and vote upon the following proposals in connection with the restructuring, all of which are more fully described in the accompanying proxy statement:

        1. The issuance of an aggregate of up to 33,000,000 shares of our common stock in the restructuring transactions.
 
        2. The amendment and restatement of our certificate of incorporation to implement the approximate [          ] for 1 reverse stock split of our common stock.
 
        3. The acceptance of the prepackaged plan of reorganization.

      In addition, we will ask you to vote upon a proposed increase in the number of shares of our common stock available for issuance under our 2002 AirGate PCS, Inc. Incentive Plan to approximately                     million shares, prior to giving effect to the reverse stock split.

      Only shareowners of record at the close of business on                     , 2003 are entitled to vote at our special meeting. A list of shareowners entitled to vote will be available for examination for ten days prior to the special meeting, between the hours of 9:00 a.m. and 4:00 p.m., at our offices at 233 Peachtree Street, N.E., Harris Tower, Suite 1700, Atlanta, Georgia 30303.

      This notice of special meeting and proxy statement and accompanying proxy card are being first sent to shareowners on or about                     , 2003.

  By Order of the Board of Directors,

 
  Barbara L. Blackford
  Vice President, General Counsel, and
  Corporate Secretary

      Your vote is important. We urge you to sign and return your proxy before the special meeting so that your shares will be represented and voted at the special meeting, even if you cannot attend.


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(AIRGATE LOGO)


PROXY STATEMENT


General

      This proxy statement is being furnished to our shareowners in connection with the proposed restructuring of our company. We expect that the completion of the financial restructuring will improve our capital structure and reduce the financial risks in our business plan by substantially reducing the required payments under our outstanding indebtedness.

      We propose to effect the restructuring through an out-of-court restructuring, or “recapitalization plan,” which consists of:

  •  an offer to exchange all of our outstanding 13.5% senior subordinated discount notes due 2009, which we refer to as the “old notes,” for up to 33,000,000 newly-issued shares of our common stock and up to $160 million in aggregate principal amount of newly-issued 9 3/8% senior subordinated secured notes due 2009, which we refer to as the “new notes”;
 
  •  a consent solicitation to remove substantially all of the restrictive covenants in the indenture governing the old notes, release all collateral securing our obligations under the old notes indenture and obtain waivers of any defaults that may occur under the old notes indenture in connection with the restructuring; and
 
  •  a 1 for [     ] reverse stock split of shares of our common stock.

      If the recapitalization plan is not successful, we may accomplish the restructuring through an in-court restructuring, or “prepackaged plan,” which will attempt to accomplish the restructuring on substantially the same terms as the recapitalization plan, through the solicitation of acceptances under Chapter 11 of the Bankruptcy Code.

      We are furnishing this proxy statement to ask for your approval of the recapitalization plan, your vote for acceptance of the prepackaged plan and your approval of an increase in the number of shares reserved for issuance under our 2002 AirGate PCS, Inc. Incentive Plan.

      For a description of the recapitalization plan, see “The Recapitalization Plan” on page 48, and for a description of the prepackaged plan, see “The Prepackaged Plan,” beginning on page 109. This proxy statement is being furnished to our shareowners in connection with (1) our solicitation of proxies for use at the special meeting of shareowners to be held on                     ,                     , 2003 for the purpose of voting on the restructuring proposals set forth in detail below and (2) our solicitation of acceptances of the prepackaged plan of reorganization under Chapter 11 of the Bankruptcy Code.

      THE RESTRUCTURING WILL SIGNIFICANTLY DILUTE THE PERCENTAGE OF OUTSTANDING STOCK OWNED BY OUR SHAREOWNERS. WE BELIEVE, HOWEVER, THAT THE COMPLETION OF THE RESTRUCTURING IS CRITICAL TO OUR ABILITY TO IMPROVE OUR CAPITAL STRUCTURE. IF THE RESTRUCTURING IS NOT COMPLETED, WE MAY BE FORCED TO CONSIDER AN ALTERNATIVE PLAN OF RESTRUCTURING OR REORGANIZATION. ANY ALTERNATIVE PLAN OF RESTRUCTURING OR REORGANIZATION MAY RESULT IN OUR SHAREOWNERS RECEIVING LESS THAN PROPOSED IN THE RECAPITALIZATION PLAN, OR NOTHING.


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      The percentage ownerships set forth in this proxy statement, after giving effect to the restructuring, assume that all of our outstanding old notes are exchanged for common stock and new notes in the exchange offer, and do not give effect to any shares of our common stock that may be issued pursuant to employee options and warrants.

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RECAPITALIZATION PLAN

      The recapitalization plan for achieving our financial goals consists of the following transactions (the “restructuring transactions”):

        1. Exchange Offer and Consent Solicitation. Concurrently with the solicitation of proxies pursuant to this proxy statement, we are conducting an exchange offer and consent solicitation by means of a separate registration statement filed with the SEC. We are offering to exchange all of our outstanding old notes for an aggregate of (1) 33,000,000 shares of our common stock, par value $0.01 per share, representing 56% of the shares of our common stock to be issued and outstanding immediately after the financial restructuring, without giving effect 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 validly tendered in the exchange offer and not withdrawn.
 
        In connection with the exchange offer, we are soliciting the consent of each holder of our old notes to the adoption of certain amendments to the indenture governing the old notes, which we refer to as the “old notes indenture,” the release of the collateral securing our obligations thereunder and the waiver of any defaults and events of default under the old notes indenture that may occur in connection with the recapitalization plan. Pursuant to a support agreement, holders of approximately 67% in aggregate principal amount of our outstanding old notes have agreed to tender their old notes in the exchange offer and consent to the proposed amendments and waivers.
 
        2. Reverse Stock Split. We are proposing to amend and restate our restated certificate of incorporation to implement a 1 for [          ] reverse stock split of shares of our common stock.
 
        3. Increase in Number of Shares Available for Issuance Under the 2002 AirGate PCS, Inc. Incentive Plan (the “Plan”). We are proposing to increase the number of shares available for issuance under our 2002 AirGate PCS, Inc. Incentive Plan to approximately            million shares, prior to giving effect to the reverse stock split. This total amount may not be more than 10% of our outstanding shares, plus currently outstanding options with an exercise price in excess of $5.00. Any shares issued under the Plan will proportionately dilute existing shareowners and noteholders who tender their old notes in the exchange offer. The amounts and terms of any equity awards for executives established by our board of directors are subject to approval by a majority of the old noteholders who are party to the support agreement.

Stockholder Approval

      Pursuant to this proxy statement, we are soliciting proxies to be voted at the special meeting. The special meeting will be held to consider and vote upon the following proposals:

        1. The issuance of an aggregate of up to 33,000,000 shares of our common stock in connection with the exchange offer.
 
        2. The amendment and restatement of our restated certificate of incorporation to implement the reverse stock split.
 
        3. An increase in the number of shares of our common stock available for issuance under our 2002 AirGate PCS, Inc. Incentive Plan.

      Consummation of the recapitalization plan requires stockholder approval of proposals 1 and 2. IF EITHER OF PROPOSALS 1 OR 2 IS NOT APPROVED BY OUR SHAREOWNERS AT THE SPECIAL MEETING, THEN NEITHER OF THEM WILL BECOME EFFECTIVE. Shareowner approval of Proposal 3, the increase in shares available for issuance under our 2002 AirGate PCS, Inc. Incentive Plan, is not a condition to the consummation of the recapitalization plan.

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      Within 90 days of completion of the restructuring transactions, our board of directors will have seven members (nine members if certain former holders of iPCS, Inc. stock exercise their nomination right under the Agreement and Plan of Merger dated August 28, 2001 by and between us and iPCS pursuant to which we acquired iPCS) three (or four if such iPCS stockholders exercise their nomination right) of whom must be approved by the holders of the old notes that are signatories to the support agreement from a proposed list of candidates jointly developed by us and such holders of the old notes. Thereafter, these holders of the old notes have no further or ongoing designation or approval rights with respect to the composition of our board of directors.

Minimum Tender Condition

      The completion of the recapitalization plan is also conditioned upon, among other conditions and in addition to the approval of our shareowners required under the recapitalization plan, our receipt of valid tenders in the exchange offer of old notes, which have not been withdrawn, constituting at least 98% in aggregate principal amount of the old notes outstanding immediately prior to the expiration of the exchange offer. Under the support agreement, holders of 67% of the old notes have agreed to tender their old notes in the exchange offer.

Dilution

      Upon consummation of the restructuring, the equity interests of our existing shareowners, as a percentage of the total number of the outstanding shares of our common stock, will be significantly diluted.

      IF THE RESTRUCTURING IS NOT COMPLETED, WE MAY BE FORCED TO CONSIDER AN ALTERNATIVE PLAN OF RESTRUCTURING OR REORGANIZATION. ANY ALTERNATIVE PLAN OF RESTRUCTURING OR REORGANIZATION MAY RESULT IN OUR SHAREOWNERS RECEIVING LESS THAN PROPOSED IN THE RECAPITALIZATION PLAN, OR NOTHING.

      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).

                   
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(5)
    897,311       5,400,783  
     
     
 
 
Total shares reserved and available for issuance under stock incentive plans(3)(4)(5)
    3,088,520       7,591,992  
     
     
 
Warrants:
               
 
Total shares reserved for issuance pursuant to outstanding warrants(6)
    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.

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(3)  Includes 1,698,009 shares reserved for issuance pursuant to outstanding options having an exercise price in excess of $5 per share.
 
(4)  Includes 751,756 shares subject to “underwater” options surrendered and cancelled without consideration by executive officers on September 3, 2003.
 
(5)  Assumes that the reserve available for issuance under the AirGate PCS, Inc. 2002 Incentive Plan is increased to an amount equal to 10% of outstanding shares, plus options outstanding with an exercise price of more than $5.00 a share. The actual terms of any equity grants are subject to board approval and in the case of our executives, approval by a majority of the holders of old notes that are signatories to the support agreement.
 
(6)  Includes 669,110 shares reserved for issuance pursuant to outstanding warrants having an exercise price of $20.40 or more per share.

PREPACKAGED PLAN

      If we are not able to complete the recapitalization plan for any reason, including if the minimum tender condition to the exchange offer is not met, but we receive sufficient acceptances of the prepackaged plan of reorganization, we may seek confirmation of the prepackaged plan of reorganization in a Chapter 11 proceeding. If our board of directors decides to pursue the prepackaged plan of reorganization, which we refer to as the “prepackaged plan,” and the prepackaged plan is confirmed by the bankruptcy court, it will bind all of our claim and equity interest holders, including all holders of the old notes and common stock, regardless of whether they voted for or against the prepackaged plan, or did not vote at all. Under the prepackaged plan, the holders of our old notes and our shareowners would receive consideration similar to that which they would receive upon consummation of the recapitalization plan, assuming the exchange of all of the old notes in the exchange offer.

      Under the prepackaged plan, creditors and shareowners 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 class of our old noteholders) 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) 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 vote accept the prepackaged plan.

      THE SOLICITATION PERIOD FOR ACCEPTANCES OF THE PREPACKAGED PLAN WILL EXPIRE AT THE CONCLUSION OF THE SPECIAL MEETING OF SHAREOWNERS (UNLESS EXTENDED). VOTES ON THE PREPACKAGED PLAN MAY BE REVOKED, SUBJECT TO THE PROCEDURES DESCRIBED IN THIS PROXY STATEMENT, AT ANY TIME PRIOR TO THE SOLICITATION EXPIRATION DATE. Only shareowners of record at the close of business on                     , 2003 are entitled to vote at the special meeting and to vote to accept or reject the prepackaged plan.

      YOU MUST COMPLETE AND RETURN THE ENCLOSED PROXY IN ORDER TO VOTE FOR OR AGAINST THE RESTRUCTURING PROPOSALS AND IN ORDER TO VOTE TO ACCEPT OR REJECT THE PREPACKAGED PLAN.

      Shareowners are not required to vote at the special meeting in order to vote on the prepackaged plan. It is important that all shareowners vote to accept or reject the prepackaged plan because, under the Bankruptcy Code, only holders who vote will be counted for purposes of determining whether the requisite acceptances have been received. Failure by a stockholder to vote on the prepackaged plan will be deemed to constitute an abstention by such stockholder with respect to a vote on the prepackaged plan, and will not be counted as a vote for or against the prepackaged plan.

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TABLE OF CONTENTS

         
Page

About the Solicitation
    1  
Risk Factors
    4  
The Restructuring
    33  
The Recapitalization Plan
    48  
The Restructuring Proposals
    50  
Proposal 1 — Issuance of our Common Stock in the Restructuring Transactions
    50  
Proposal 2 — Amendment and Restatement of our Certificate of Incorporation to Effect a Reverse Stock Split and to Increase our Authorized Shares
    51  
Proposal 3 — Increase in the Number of Shares of our Common Stock Available for Issuance Under Our 2002 AirGate PCS, Inc. Incentive Plan
    57  
Equity Compensation Plan Information
    62  
Capitalization
    64  
Accounting Treatment of the Restructuring
    65  
Selected Consolidated Historical Financial Data
    66  
Unaudited Pro Forma Consolidated Financial Statements
    69  
Management’s Discussion and Analysis of Financial Condition and Results of Operations
    75  
Management
    97  
Security Ownership of Certain Beneficial Owners, Officers and Directors
    106  
The Prepackaged Plan
    109  
Shareowner Proposals for Next Year’s Annual Meeting
    148  
Delivery of This Proxy Statement
    148  
Where You Can Find More Information
    148  
Other Matters
    149  
Index to Consolidated Financial Statements
    F-1  
Annex A — Form of Support Agreement
    A-1  
Annex B — Opinion of Financial Advisor
    B-1  
Annex C — Proposed Amended and Restated Certificate of Incorporation of AirGate PCS, Inc. 
    C-1  
Annex D — Amendment to 2002 AirGate PCS, Inc. Incentive Plan
    D-1  
Annex E — Debtor’s Prepackaged Plan of Reorganization
    E-1  

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ABOUT THE SOLICITATION OF PROXIES AND ACCEPTANCES

      This proxy statement is furnished in connection with our solicitation of proxies to be voted:

  •  at the special meeting, and
 
  •  in connection with the prepackaged plan.

You must complete and return the enclosed Proxy in order to vote for or against the Restructuring Proposals, the increase in shares available under our 2002 AirGate PCS, Inc. Incentive Plan and in order to vote to accept or reject the Prepackaged Plan. Our Board of Directors recommends a vote “FOR” the Restructuring Proposals and the increase in shares available under our 2002 AirGate PCS, Inc. Incentive Plan and a vote to “ACCEPT” the Prepackaged Plan.

      Whether or not you are able to attend the special meeting, your vote by proxy is very important. Shareowners are encouraged to mark, sign and date the enclosed proxy and mail it promptly in the enclosed, postage-paid return envelope.

      Proxies are being solicited by and on behalf of our board of directors. We will bear all expenses of this solicitation, including the cost of preparing and mailing this proxy statement. We have retained [                    ] to assist in the solicitation of proxies. In addition to solicitation by use of the mails, proxies may be solicited by directors, officers, and employees in person or by telephone, telegram, or other means of communication. Such directors, officers, and employees will not be additionally compensated, but may be reimbursed for out-of-pocket expenses in connection with such solicitation. Arrangements will also be made with custodians, nominees, and fiduciaries for forwarding of proxy solicitation material to beneficial owners of our common stock held of record by such persons, and we may reimburse such custodians, nominees, and fiduciaries for reasonable expenses incurred in connection therewith.

Record Date

      The record date for purposes of determining which shareowners are eligible to vote at the special meeting and on the prepackaged plan is the close of business on                     , 2003. On the record date, there were [          ] shares of our common stock outstanding, and there were approximately [                    ] holders of record. We believe there are approximately [          ] beneficial owners of our common stock. There were no shares of our preferred stock outstanding on the record date.

Date, Time and Place of Special Meeting

      The special meeting will be held on                     , 2003, at 9:00 a.m. at 303 Peachtree Street, N.W., Suite 5300, Atlanta, Georgia.

Purpose of Special Meeting

      The purpose of the special meeting is to consider and vote on the following proposals:

        1. The issuance of an aggregate of up to 33,000,000 pre-reverse stock split shares of our common stock in connection with the restructuring transactions.
 
        2. The amendment and restatement of our restated certificate of incorporation to implement a 1 for [          ] reverse stock split of our common stock.
 
        3. The increase in the number of shares of our common stock available for issuance under our 2002 AirGate PCS, Inc. Incentive Plan to approximately                      million shares, prior to giving effect to the reverse stock split.

      Receipt of the affirmative vote of the holders of a majority of outstanding shares of common stock to approve the amendment and restatement of our restated certificate of incorporation and the issuance of our common stock in the exchange offer is a condition to the consummation of the recapitalization plan. Approval of the increase in the number of shares of common stock available for issuance under our 2002

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AirGate PCS, Inc. Incentive Plan is not a condition to the consummation of the recapitalization plan. For a full description of each of the restructuring proposals, see “The Restructuring Proposals” on page 50.

Voting on the Restructuring Proposals

 
Voting of Proxies

      All shares represented by a properly executed proxy will be voted at the special meeting in accordance with the directions on such proxy. If no direction is indicated on a properly executed proxy, the shares covered thereby will be voted in favor of each proposal.

      In the event that sufficient votes in favor of the restructuring proposals are not received by the time scheduled for the special meeting, or if any of the other conditions to the consummation of the recapitalization are not satisfied, the persons named as proxies may propose one or more adjournments of the special meeting to permit further solicitation of proxies with respect to such proposals or to permit the satisfaction of any such condition and may vote shares for which they are proxies in favor of such adjournments. Any such adjournment will require the affirmative vote of a majority of the voting power present or represented at the special meeting in person or by proxy.

 
Voting Rights; Quorum

      The holders of a majority of the voting power of all outstanding shares of common stock, present or represented by proxy, will constitute a quorum. If you attend the special meeting or return a proxy, your shares will be considered part of the quorum.

      Assuming a quorum of shareowners is present at the special meeting, the affirmative vote of the holders of a majority of our outstanding common stock is needed to approve the amendment and restatement of our certificate of incorporation, to approve the issuance of our common stock in the restructuring transactions, and to increase the number of shares of our common stock available for issuance under our 2002 AirGate PCS, Inc. Incentive Plan.

      Each share of our common stock is entitled to one vote.

 
No Dissenters’ Rights

      Shareowners have no appraisal or dissenters’ rights with respect to the restructuring proposals or the undertaking by us of any of the transactions described in this proxy statement.

 
Revocation of Proxies

      A stockholder who has executed and returned a proxy may revoke it at any time before it is voted by executing and returning a proxy bearing a later date, by giving written notice of revocation to our Corporate Secretary, Barbara L. Blackford, or by attending the special meeting and voting in person.

Voting on the Prepackaged Plan

 
Procedures for Voting on the Prepackaged Plan

      To vote to accept the prepackaged plan, you must properly execute a proxy in accordance with the directions on such proxy and return it by the conclusion of the special meeting of shareowners on                     ,                     , 2003, or any extension thereof (the “solicitation expiration date”).

      If you hold shares of common stock registered in your own name, you can vote on the prepackaged plan by completing the information requested on the proxy, signing, dating, and indicating your vote on the proxy, and returning the completed original proxy in the enclosed, pre-addressed, postage-paid envelope marked “proxy” so that it is actually received before the solicitation expiration date.

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      If you are a beneficial owner holding shares of our common stock through your broker, dealer, commercial bank, trust company, or other nominee (your “nominee”), you can vote on the prepackaged plan in one of the two following ways:

  •  If your proxy has already been signed (or “prevalidated”) by your nominee, you can vote on the prepackaged plan by completing the information requested on the proxy, indicating your vote on the proxy, and returning the completed original proxy in the enclosed, pre-addressed, postage-paid envelope so that it is actually received by the voting agent before the solicitation expiration date.
 
  •  If your proxy has not been signed (or “prevalidated”) by your nominee, you can vote on the prepackaged plan by completing the information requested on the proxy, indicating your vote on the proxy, and returning the completed original proxy to your nominee in sufficient time for your nominee then to forward your vote to the voting agent so that it is actually received by the voting agent before the solicitation expiration date.

      ONLY THE BENEFICIAL OWNERS OF OUR STOCK (OR THEIR AUTHORIZED SIGNATORIES) ARE ELIGIBLE TO VOTE ON THE PREPACKAGED PLAN. See “The Prepackaged Plan — Holders of Claims Entitled to Vote; Voting Record Date.”

Revocation of Votes on the Prepackaged Plan

      Votes on the prepackaged plan may be revoked at any time prior to the solicitation expiration date. If we file the prepackaged plan, the revocations of such votes may be effected thereafter only with the approval of the bankruptcy court. See “The Prepackaged Plan — Solicitation of Acceptances of the Prepackaged Plan Solicitation.”

Voting Agent and Information Agent

      [                    ] is the voting agent and information agent. Its address and telephone number is set forth on the back cover of this proxy statement.

      Questions and requests for assistance or for additional copies of this proxy statement, the proxy card and forms of ballots may be directed to the information agent at the address and telephone number set forth on the back cover of this proxy statement.

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RISK FACTORS

      You should carefully consider the following risk factors before you vote on the restructuring proposals and before you 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

      Consummation of the restructuring will result in significant dilution of our shareowners.

      Upon consummation of the restructuring, the equity interests of our existing shareowners, as a percentage of the total number of the outstanding shares of our common stock, will be significantly diluted. Whether the restructuring is completed pursuant to the recapitalization plan or the prepackaged plan, after giving effect to the reverse stock split:

  •  holders of the old notes will receive up to 33,000,000 newly issued shares of our common stock (without giving effect to the reverse stock split), representing 56% of our outstanding common stock; and
 
  •  our current shareowners will retain 44% of our outstanding common stock.

      In addition, we are requesting shareowners to approve an increase in the number of shares available for issuance under our 2002 AirGate PCS, Inc. Incentive Plan to                     shares. Such total amount reserved for issuance will not be more than 10% of our outstanding common stock, plus currently outstanding options with an exercise price in excess of $5.00. Any shares issued under the Plan will proportionately dilute the old noteholders who tender in the exchange offer and our current shareowners.

 
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.

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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 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 entered into by us and holders of approximately 67% of the old notes, 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. 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.

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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;
 
  •  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

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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 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

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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.

Risks Related to the Reverse Stock Split

 
We may not receive the intended benefits of the proposed reverse stock split.

      We believe that the reverse stock split will increase the price per share of our common stock and will encourage greater interest in our common stock by the financial community and the investing public. However, there can be no assurance that the reverse stock split, if completed, will result in these benefits. Specifically, there can be no assurance that the market price of the common stock immediately after implementation of the proposed reverse stock split would be maintained for any period of time or that such market price would approximate [          ] times the expected market price of the common stock before the proposed reverse stock split. There can also be no assurance that the reverse stock split will not further adversely impact the market price of the common stock. In addition, it is possible that the liquidity of the common stock could be adversely affected by the reduced number of shares outstanding after the reverse stock split.

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

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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 in exchange for our old notes has been registered with the SEC. As a consequence, those shares will, in general, be freely tradeable.

 
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;

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  •  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.
 
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.

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      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.

 
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 restated 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 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.

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      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 proxy statement or our prospectus and solicitation statement on Form S-4 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 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.

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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 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 proxy statement as required by the “feasibility test” of Section 1129 of the Bankruptcy Code. See “The Prepackaged Plan — Confirmation of

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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 proxy 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
 
  •  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

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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 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 proxy 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.

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      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.

      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

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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 proxy 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 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

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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.

 
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.

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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 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

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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.

Risks Particular to Our Indebtedness

 
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 $312.0 million in principal amount 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;

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  •  placing us at a competitive disadvantage compared to our competitors that have less debt;
 
  •  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.

 
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

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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.
 
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 proxy 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.

 
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.

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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 proxy 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.

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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;

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  •  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;

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  •  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 proxy 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

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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.

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      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.

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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.

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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

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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.

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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.

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THE RESTRUCTURING

Background

      Since the beginning of 2002, like others in the wireless communications industry, we have been challenged by a weaker operating environment and experienced significant declines in per share equity prices. Our business has been and continues to be affected by these market conditions. Due to our dependence on Sprint and the control Sprint exercises over our business, we are also confronted with additional factors that have had a negative impact on our operations.

      These factors have severely limited our ability to raise new capital and led us to revise our business plans to reflect this less-favorable operating environment. In the quarter ended December 31, 2002, we began a series of cost cutting measures designed to reduce operating expenses in order to improve our financial position. We began implementing these measures in December 2002 and continued to examine and implement changes to reduce operating costs through April 2003. As of the quarter ended December 31, 2002, we had less than $1.0 million in cash and cash equivalents.

      In February 2003 we engaged Broadview International, LLC and Masson & Co. (collectively, the “financial advisors”), investment banking firms, as our financial advisors to assess our business plan and, if needed, to assist us in exploring restructuring alternatives.

      Beginning in March 2003, with the assistance of the financial advisors, we assessed the operating position and outlook of AirGate from a comparative financial and operational perspective. We initiated an in-depth financial and business analysis to identify the best restructuring alternatives for AirGate based on a review of the wireless industry and our particular competitive dynamics within the industry. During the period from February through May 2003, some or all of the members of our board of directors met both formally and informally on at least five occasions to discuss the progress of management’s review of these alternatives as well as supporting financial analysis prepared by management with the assistance of the financial advisors.

      In the period between February and June 2003, our business began to improve over recent prior quarters. For the quarters ending March 31 and June 30, 2003, AirGate had aggregate EBITDA of $29.4 million. AirGate’s cash position improved from $0.9 million as of December 31, 2002 to $30.8 million as of June 30, 2003. We concluded that our sources of capital would be sufficient to cover our estimated funding needs through the end of 2004 and that we would be in compliance with covenants under our credit facility. Longer term, our board of directors and management were concerned that continued deterioration in the wireless industry and risks in our relationship with Sprint caused greater uncertainty about our ability to meet all of our working capital needs in 2005 and beyond due in part to the cash interest payments required on the old notes beginning in April 2005.

      On April 29, 2003, our board of directors met to discuss restructuring alternatives with management and the financial advisors. The board of directors was presented with a detailed summary of the analysis that management had conducted over the prior months with the assistance of the financial advisors. Our board of directors concluded, after consulting with the financial advisors, that a restructuring of our debt obligations involving the conversion of our old notes into a new debt instrument with a reduced interest rate and lower face amount combined with newly issued equity of AirGate was likely to provide the best alternative for us to reduce debt and create a stable capital structure to support our business plan. This alternative was selected because of the benefit to us and probability of completion relative to other alternatives.

      Our board of directors also considered raising additional funds from a third party investor through the issuance of additional equity or debt and authorized management, with the assistance of the financial advisors, to simultaneously explore a restructuring of our debt obligations and begin contacting financial and strategic investors regarding their interest in investing in us.

      The financial advisors contacted approximately 17 potential new investors regarding an investment in AirGate. Investors who expressed an interest signed confidentiality agreements, received material

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describing our business and were invited to conduct due diligence and participate in management discussions. Our board of directors met in June and July with management and the financial advisors to review the discussions with investors that had expressed potential interest in AirGate. Although we received initial proposals from two interested parties, our board of directors concluded that these proposals were inadequate to meet our objectives for restructuring.

      During this period, we also explored the feasibility of a restructuring by initiating a discussion with the administrative agent for our credit facility. We also began simultaneous discussions with the two largest holders of our old notes. During the month of July 2003, we proposed a term sheet to the administrative agent for our credit facility with modifications to our credit facility that would enable a restructuring of our old notes and provide us greater flexibility to achieve our business plan. We negotiated a term sheet proposal with the administrative agent and after general agreement on the terms, presented the negotiated proposal to our lenders. We reached agreement with over 51% of the lenders under the credit facility on August 29, 2003 regarding an amendment to our credit facility that would become effective upon, among other things, the completion of the exchange offer.

      In late August 2003, we presented a term sheet proposal for restructuring the old notes to holders who held approximately 40% of the old notes. Both parties indicated willingness to proceed with further discussions and we began an in-depth negotiation process. The group participating in the negotiations expanded in September 2003 to include holders of approximately 16% of additional old notes. The major subject of the negotiations was the face amount of new notes to be issued by us and its associated interest rate and the amount of our common stock to be issued to holders of the old notes in the exchange offer. These negotiations concluded with a proposal to exchange our outstanding old notes for 56% of our common stock and $160 million in aggregate principal amount of new notes.

      During the month of September 2003, we contacted additional noteholders to explore their willingness to discuss participating in the exchange offer. We reached agreement with approximately 67% of our noteholders on September 23, 2003 and entered into the support agreement with these note holders in which they agreed to tender, subject to the conditions set forth therein, their old notes into the exchange offer. Our board of directors reviewed and approved the proposed exchange offer and supporting documentation on September 16, 22 and 23 and we publicly announced the exchange offer on September 24, 2003.

Description of Support Agreement

      We entered into a support agreement, dated as of September 24, 2003, with certain of our noteholders, representing approximately 67% of the outstanding old notes, pursuant to which we agreed to use our commercially reasonable best efforts to complete, and the noteholders agreed to support and vote in favor of, subject to the terms and conditions of the support agreement, the restructuring as contemplated by the recapitalization plan. In addition, we and the noteholders agreed that we may seek confirmation of the prepackaged plan if we have received the required acceptances of the plan and any of the conditions to the exchange offer are not satisfied or waived. The form of the support agreement is attached hereto as Annex A.

      Pursuant to the support agreement, and in connection with and conditioned upon the successful consummation of the restructuring:

  •  the holders of approximately 67% in aggregate principal amount at maturity of our old notes agreed to tender their old notes in the exchange offer (and thereby deliver a consent to the proposed amendments, release and waivers and accept the prepackaged plan);
 
  •  each of the noteholders that is a party to the support agreement agreed, among other matters, (1) to tender its old notes in the exchange offer; (2) to vote to accept the prepackaged plan; (3) to grant its consent to the proposed amendments to the old notes indenture; and (4) to vote to reject any plan of reorganization of AirGate that does not contain the terms of the restructuring substantially as set forth in the support agreement; and

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  •  we agreed, among other matters, not to waive the minimum tender condition without the written consent of our board of directors and a majority of the noteholders that are a party to the support agreement.
 
Conditions

      The noteholders’ obligations under the support agreement are subject to satisfaction of the following conditions:

  •  the preparation of documentation, in form and substance approved by the noteholders, necessary to implement the exchange offer and the transactions contemplated by the support agreement, including, without limitation, (i) offering materials, (ii) indentures and agreements relating to the common stock and new notes to be issued in the exchange offer, and (iii) the prepackaged plan and any related documents;
 
  •  the amendment to our credit facility has become effective in a form substantially similar to that previously reviewed by counsel to the noteholders, and shall be further amended in a form reasonably acceptable to a majority of the noteholders that are a party to the support agreement;
 
  •  the offering documents not containing any misstatement of a material fact or omitting to state a material fact necessary to make the statements made therein, in the light of the circumstances under which they are made, not misleading;
 
  •  since June 30, 2003, there has not been any “material adverse change” (as defined in the support agreement);
 
  •  we have received all material third party consents and approvals contemplated by the support agreement or otherwise required to consummate the contemplated transactions; and
 
  •  there has been no breach of the covenants set forth in the support agreement.
 
Covenants

      In addition, we have agreed that:

  •  we will not, unless otherwise permitted, conduct our business other than in the ordinary course;
 
  •  we will not, except as may be required by our contractual obligations, issue or agree to issue any securities, make any distributions to our stockholders, or incur any indebtedness other than as described in the offering documents; and
 
  •  we will pay all reasonable costs and expenses incurred by the noteholders’ counsel.
 
Effective Date

      The effective date of our acceptance of any old notes tendered by the noteholders that are a party to the support agreement is subject to (1) the satisfaction of all of the conditions, (2) there being no material breach of the covenants, (3) the tender in the exchange offer of 98% in outstanding principal amount of the old notes, and (4) there being no material adverse change. The noteholders that are a party to the support agreement may waive any of the foregoing requirements.

      The effective date of the prepackaged plan is subject to (1) the satisfaction of all of the conditions, (2) there being no material breach of the covenants, (3) there being no material adverse change, except to the extent such a change results from us filing the prepackaged plan, and (4) court approval of the necessary documents, which have not been materially changed. The noteholders that are a party to the support agreement may waive any of the foregoing requirements.

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Termination

      Unless the restructuring has been completed, the support agreement, and the obligations of the parties to the support agreement, will terminate upon the earliest to occur of:

  •  the termination or expiration of the exchange offer;
 
  •  an order of a court or other governmental or regulatory authority that makes the exchange offer illegal or otherwise restricts, prevents or prohibits the exchange offer or the prepackaged plan in a way that cannot be reasonably remedied by us;
 
  •  a material breach by us of our obligations under the support agreement;
 
  •  the lenders for the credit facility having accelerated any amounts owed thereunder;
 
  •  December 31, 2003, if by then neither the exchange offer has been completed nor the prepackaged plan has been filed with the bankruptcy court;
 
  •  February 15, 2004;
 
  •  our failure to correct a material misstatement within 10 business days of receiving notice of it;
 
  •  a material alteration by us of the terms of the restructuring that was not permitted under the terms of the support agreement;
 
  •  written notice from us of our intention to terminate the support agreement;
 
  •  the prepackaged plan proceeding being dismissed or converted to a case under Chapter 7 of the Bankruptcy Code or a trustee being appointed in the prepackaged plan proceeding; and
 
  •  the occurrence of specified events that constitute a material adverse change.

      The foregoing is a summary of the material terms of the support agreement. It does not describe all the terms of the support agreement and is qualified by reference to the complete support agreement that we have filed with the Securities and Exchange Commission. We urge you to read the support agreement in its entirety.

Opinion of Broadview International, LLC

      Broadview rendered its opinion to the AirGate board of directors that, as of September 23, 2003, and based upon and subject to the factors and assumptions discussed in its opinion, the Exchange Offer is fair, from a financial point of view, to the current holders of AirGate common stock.

      The full text of the written opinion of Broadview, dated September 23, 2003, which includes the assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached to this prospectus and solicitation statement as Annex B and is incorporated in this proxy statement by reference. Shareowners should read the opinion in its entirety. Broadview provided its opinion for the information and assistances of the AirGate board of directors in connection with its consideration of the transaction contemplated by the support agreement. Broadview’s opinion is not a recommendation of how any holder of AirGate common stock should vote with respect to the exchange offer.

      In connection with rendering the opinion and performing its related financial analyses, Broadview reviewed, among other things:

  •  the amendment to AirGate’s credit facility;
 
  •  a draft of the support agreement, dated September 23, 2003;
 
  •  a draft of AirGate’s prospectus and solicitation statement, dated September 23, 2003;
 
  •  AirGate’s annual report on Form 10-K for the fiscal year ended September 30, 2002;

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  •  AirGate’s quarterly reports on Form 10-Q for the periods ended December 31, 2002, March 31, 2003 and June 30, 2003;
 
  •  unaudited financial statements for the one-month period ended July 31, 2003, prepared and furnished to Broadview by AirGate management; and
 
  •  certain internal financial and operating information for AirGate, including financial projections through September 30, 2008, prepared and furnished to Broadview by AirGate management, which financial projections include two scenarios, one in which the restructuring is not consummated and one in which the restructuring is consummated.

      Broadview also held discussions with members of senior management of AirGate regarding their assessment of the strategic rationale for, and the potential benefits of, the exchange offer and the past and current business operations, financial condition and future prospects of the AirGate on a standalone and an a restructured basis. In addition, Broadview:

  •  reviewed the recent reported closing prices and trading activity for AirGate’s common stock;
 
  •  reviewed the recent trading activity for the old notes;
 
  •  reviewed the recent trading activity for AirGate senior secured debt;
 
  •  reviewed and discussed with AirGate management recently announced restructuring transactions, involving other companies Broadview deemed comparable;
 
  •  compared certain aspects of the financial performance of AirGate with public companies Broadview deemed comparable;
 
  •  compared certain terms of the proposed new notes with those terms of debt for other public companies Broadview deemed comparable;
 
  •  reviewed a liquidation analysis prepared by AirGate management; and
 
  •  conducted other financial studies, analyses and investigations as Broadview deemed appropriate for the purposes of their opinion.

      In rendering its opinion, Broadview relied, without independent verification, on the accuracy and completeness of all the financial and other information (including without limitation the representations and warranties contained in the amended credit facility and support agreement) that was publicly available or furnished to Broadview by AirGate or its advisors. Broadview assumed that the financial projections that were provided to Broadview by AirGate management were reasonably prepared and reflected the best available estimates and good faith judgments of the management of AirGate, as to the future performance of AirGate. Broadview also assumed that the liquidation analysis that was prepared by AirGate management was reasonably prepared and reflected the best available estimate and good faith judgment of AirGate management as to the amount that would be available for distribution to creditors and the amount that would be available for distribution to current shareholders in a liquidation. Broadview neither made nor obtained an independent valuation of AirGate’s assets. In addition, Broadview relied upon the representations of management and assumed, without independent verification, that there has been no material change in the assets, financial condition, business or prospects of AirGate and its subsidiaries since the date of the most recent financial statements made available to Broadview.

      In rendering its opinion, Broadview considered that on February 23, 2003 AirGate’s wholly owned subsidiary, iPCS, Inc., and its subsidiaries filed a Chapter 11 bankruptcy petition. For the purpose of rendering its opinion, Broadview, with the permission of management, ascribed no value to the equity of iPCS, Inc. held by AirGate.

      Broadview relied on the advice of counsel to AirGate and AirGate management as to all legal, tax and financial reporting matters with respect to it and the restructuring. In rendering its opinion, Broadview considered the financial and liquidity issues facing AirGate if it does not consummate the restructuring. In this regard, Broadview assumed, based on financial estimates received from AirGate management, that if

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the restructuring is not consummated, AirGate could cease to be in compliance with its covenants under its existing credit agreement during the fiscal year ended September 30, 2005 and could face significant liquidity issues at such time.

      Broadview’s opinion expresses no opinion as to the price at which the common stock or debt securities of AirGate will trade at any time or as to the effect of the restructuring on the trading price of the common stock. Broadview’s opinion is necessarily based upon market, economic, financial and other conditions as they exist and can be evaluated as of the date of this opinion, and any change in such conditions would require a reevaluation of this opinion.

      Broadview’s opinion speaks only as of the date rendered. It is understood that the opinion is for the information of the Board of Directors in connection with its consideration of the exchange offer and does not constitute a recommendation to AirGate as to whether it should pursue any component of the restructuring, including the exchange offer, nor does it constitute a recommendation to any holder of the common stock as to how such holder should vote on any component of the restructuring.

      Broadview expressed no opinion as to the merits of any alternative transaction to the restructuring, including without limitation, any potential alternative third party transaction or a liquidation of AirGate, or as to whether any such alternative transaction might produce value to AirGate’s current shareholders in an amount in excess of that contemplated by the restructuring. In addition, Broadview’s opinion addresses only the fairness, from a financial point of view, to the current holders of common stock, of the exchange offer, and Broadview did not express any opinion as to any other component of the restructuring. Broadview’s opinion also does not address or take into account any contemplated issuance of shares or grant of options to AirGate management in connection with or following the restructuring. Broadview’s opinion does not address AirGate’s capital structure, ability to satisfy its obligations, ability to access the capital markets for future financing requirements, or solvency, in each case at any time, including currently and following the consummation of the restructuring. Broadview’s opinion also does not address AirGate’s underlying business decision to enter into the restructuring.

      The following is a summary explanation of the various sources of information, valuation methodologies and transaction analyses employed by Broadview in evaluating the fairness of the exchange offer from a financial point of view to existing holders of AirGate common stock. The analyses performed to evaluate the fairness of the exchange offer are based on, among other things, a Status Quo (“Status Quo”) scenario, in which AirGate does not consummate the restructuring and exchange offer and a Pro Forma (“Pro Forma”) scenario, in which AirGate does consummate the restructuring and exchange offer, assuming a 100% acceptance rate, per the terms and conditions outlined in AirGate’s draft registration statement provided to Broadview on September 23, 2003.

      Broadview employed analyses based on: (1) historical stock price performance; (2) public company comparables; (3) discounted cash flows; (4) proceeds to be received in a liquidation; (5) financial performance versus required covenants; (6) expected dilution to existing shareholders following the exchange offer; (7) avoided cash interest and principal repayments; (8) public debt comparables; and (9) the implied premium to AirGate’s share price.

Public Market Pricing

      Broadview considered the recent public market price of AirGate’s common stock at various points in time as one indicator to derive the current market value of AirGate. Broadview calculated the aggregate market value of AirGate’s equity by multiplying AirGate’s closing stock price on September 22, 2003 by its shares outstanding on a fully diluted basis as of September 20, 2003, which was 25,939,836 (which Broadview understood not to be materially different than AirGate’s shares outstanding as of the date of its opinion). Based upon a closing stock price of $2.85, the resulting market value of equity, as calculated by Broadview, totaled $73.9 million as of September 22, 2003.

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Pre-Transaction Valuation Analyses (the “Status Quo Equity Value”)

      To determine the estimated equity value of AirGate before taking the exchange offer into consideration, Broadview also used the following methodologies: (1) a public company comparables approach; and (2) a discounted cash flow analysis. Broadview also considered the liquidation analysis provided to Broadview by AirGate management that assumes an orderly, yet expedited sale, such as an auction or other similar-type sale, of the assets of AirGate. The analyses required studies of the overall market, economic and industry conditions in which AirGate operates and the historical operating results of AirGate.

      Public Company Comparables Analysis. Ratios of AirGate’s Equity Market Capitalization, adjusted for cash and debt when appropriate, to selected historical and projected operating metrics indicate the value public equity markets place on companies in a particular market segment. Broadview reviewed five public company comparables in the wireless service provider market with a Debt/ Equity ratio greater than 2.5x (debt-to-equity defined as the book value of debt less cash and cash equivalents divided by the market value of equity) from a financial point of view including each company’s:

  •  Trailing Twelve Month (“TTM”) Service Revenues;
 
  •  TTM Service Revenues growth rate versus the prior twelve months; Projected Calendar Year (“CY”) 2003 Service Revenues;
 
  •  Projected CY 2004 Service Revenues; TTM EBITDA (EBITDA meaning Earnings Before Interest Taxes Depreciation and Amortization) divided by TTM Service Revenues (“EBITDA Margin”);
 
  •  TTM EBITDA;
 
  •  Last Quarter Annualized EBITDA (“LQA” defined as the last quarter multiplied by four);
 
  •  Projected CY 2003 EBITDA; Projected CY 2004 EBITDA;
 
  •  Number of Subscribers; Number of Covered POPs (defined as the total population in the markets served);
 
  •  Equity Market Capitalization (“EMC”);
 
  •  Cash and Equivalents (“Cash”);
 
  •  Total Debt;
 
  •  Net Debt (defined as Total Debt minus Cash);
 
  •  Total Market Capitalization (“TMC” defined as EMC plus Net Debt);
 
  •  TMC/ TTM Service Revenues ratio;
 
  •  TMC/ Projected CY 2003 Service Revenues ratio;
 
  •  TMC/ Projected CY 2004 Service Revenues ratio;
 
  •  TMC/ TTM EBITDA ratio;
 
  •  TMC/ LQA EBITDA ratio;
 
  •  TMC/ Projected CY 2003 EBITDA ratio;
 
  •  TMC/ Projected CY 2004 EBITDA ratio;
 
  •  TMC/ Number of Subscribers ratio (“TMC/ Subscribers”); and
 
  •  Debt/ Equity ratio (defined as Net Debt divided by EMC)

      In order of ascending Debt/ Equity, the public company comparables consist of:

  •  Sprint PCS;

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  •  Triton PCS Holdings;
 
  •  Centennial Communications Corp.;
 
  •  US Unwired, Inc.; and
 
  •  Rural Cellular Corporation.

      These comparables exhibit the following median multiples and ranges for the applicable multiples:

                 
Median Range of
Multiple Multiples


TMC/ TTM Service Revenues
    2.4x       1.6x - 4.2x  
TMC/ Projected CY 2003 Service Revenues
    2.1x       1.4x - 2.3x  
TMC/ Projected CY 2004 Service Revenues
    2.0x       2.0x - 2.1x  
TMC/ TTM EBITDA
    8.6x       7.2x - NM  
TMC/ LQA EBITDA
    7.8x       6.5x - 13.0x  
TMC/ Projected CY 2003 EBITDA
    7.9x       6.9x - NM  
TMC/ Projected CY 2004 EBITDA
    6.4x       6.3x - 8.0x  
TMC/ Subscribers
  $ 1,947       $1,425 -  $2,563  

      These comparables imply the following values and ranges for implied value:

             
Median Implied Range of Implied
Equity Value Equity Value
per Share per Share


TMC/TTM Service Revenues
  $ 14.91     $4.98 - $37.05
TMC/Projected CY 2003 Service Revenues
  $ 11.35     $3.47 - $13.46
TMC/Projected CY 2004 Service Revenues
  $ 12.27     $11.53 - $13.00
TMC/TTM EBITDA
    NEG (1)   $(6.06) - NM
TMC/LQA EBITDA
  $ 2.96     $0.11 - $14.41
TMC/Projected CY 2003 EBITDA
  $ 2.14     $0.02 - NM
TMC/Projected CY 2004 EBITDA
    NEG (1)   $(0.72) - $2.84
TMC/Subscribers
  $ 13.20     $5.87 - $21.86


(1)  NEG indicates negative value.

      The public company comparables were selected from the Broadview Barometer, a proprietary database of publicly traded information technology (“IT”), communications and media companies maintained by Broadview and broken down by industry segment.

      Discounted Cash Flow Analysis. Broadview examined the Status Quo Equity Value of AirGate based on projected free cash flow estimates for the company derived from projections provided by management. The free cash flow estimates were generated from financial projections from December 31, 2003 through September 30, 2008, which were prepared by management

      Assuming a range of terminal value EBITDA multiples from 6.0x to 10.0x, and a range of discount rates of 10.8% to 19.8%, Broadview calculated implied total Status Quo Equity Values for the Company ranging from ($1.52) to $8.52 price per share with a $1.24 price per share assuming a terminal EBITDA multiple of 7.0x and discount rate of 15.8%. Broadview determined the discount rate based on an analysis of the weighted average cost of capital of selected public companies in the wireless service provider industry, making adjustments they deemed appropriate in light of AirGate’s capital structure, and determined terminal EBITDA multiples based on trading multiples of those companies.

      Liquidation Analysis. AirGate management provided Broadview with a liquidation analysis that assumes an orderly, yet expedited sale, such as an auction or other similar-type sale of the assets of AirGate occurring over a period of six months starting June 30, 2003. The computations were based on

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AirGate’s estimated balance sheet information as of June 30, 2003. The analysis assumes that all operating entities cease to operate as a going concern and the network is shut down. It is assumed that all leased facilities are closed and surrendered to the landlords and that the machinery and equipment will be removed from these locations and sold by a professional liquidator.

      The liquidation analysis was based upon a number of estimates and assumptions that are inherently subject to significant uncertainties and contingencies, many of which would be beyond the control of AirGate. Therefore, there can be no assurance that the assumptions and estimates employed in analyzing the liquidation values of the AirGate’s assets will result in an accurate estimate of the proceeds that would be realized were the company to undergo an actual liquidation. The liquidation analysis does not purport to be a valuation of AirGate’s assets and is not necessarily indicative of the values that may be realized in an actual liquidation that could, therefore, vary materially from the estimates provided above.

      The liquidation analysis yielded estimated liquidation proceeds available for distribution of $64.1 million to $135.3 million. As of June 30, 2003, the Company had liabilities in excess of $641.4 million.

Post-Transaction Valuation Analyses (the “Pro Forma Equity Value”)

      To determine the estimated Pro Forma Equity Value of AirGate after taking the exchange offer into consideration, Broadview primarily used the following methodologies: (1) a public company comparables multiple approach; and (2) a discounted cash flow analysis. The analyses required studies of the overall market, economic and industry conditions in which AirGate operates and the historical operating results of AirGate.

      Public Company Comparables Analysis. Broadview reviewed eight public company comparables in the wireless service provider market with a Debt/ Equity ratio less than 2.5x from a financial point of view including each company’s:

  •  TTM Service Revenues;
 
  •  TTM Service Revenues growth rate versus the prior twelve months;
 
  •  Projected CY 2003 Service Revenues;
 
  •  Projected CY 2004 Service Revenues;
 
  •  TTM EBITDA Margin;
 
  •  TTM EBITDA;
 
  •  LQA EBITDA;
 
  •  Projected CY 2003 EBITDA;
 
  •  Projected CY 2004 EBITDA;
 
  •  Number of Subscribers;
 
  •  Number of Covered POPs;
 
  •  EMC;
 
  •  Cash;
 
  •  Total Debt;
 
  •  Net Debt;
 
  •  TMC;
 
  •  TMC/TTM Service Revenues ratio;
 
  •  TMC/ Projected CY 2003 Service Revenues ratio;

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  •  TMC/ Projected CY 2004 Service Revenues ratio;
 
  •  TMC/ TTM EBITDA ratio;
 
  •  TMC/ LQA EBITDA ratio;
 
  •  TMC/ Projected CY 2003 EBITDA ratio;
 
  •  TMC/ Projected CY 2004 EBITDA ratio;
 
  •  TMC/ Subscribers; and
 
  •  Debt/ Equity ratio.

      In order of ascending Debt/ Equity, the public company comparables consist of:

  •  US Cellular Corporation;
 
  •  Nextel Communications, Inc.;
 
  •  AT&T Wireless, Inc.;
 
  •  Nextel Partners;
 
  •  Western Wireless Corp.;
 
  •  Alamosa Holdings, Inc.;
 
  •  Dobson Communications; and
 
  •  UbiquiTel, Inc.

      These comparables exhibit the following median multiples and ranges for the applicable multiples:

                 
Median Range of
Multiple Multiples


TMC/TTM Service Revenues
    3.0x       1.6x - 4.4x  
TMC/Projected CY 2003 Service Revenues
    2.5x       1.6x - 3.8x  
TMC/Projected CY 2004 Service Revenues
    2.7x       1.5x - 3.5x  
TMC/TTM EBITDA
    8.9x       6.2x - NM  
TMC/LQA EBITDA
    8.1x       5.6x - 25.3x  
TMC/Projected CY 2003 EBITDA
    8.3x       5.8x - 22.3x  
TMC/Projected CY 2004 EBITDA
    7.5x       5.2x - 11.4x  
TMC/Subscribers
  $ 2,214     $ 837 - $3,317  

      These comparables imply the following values and ranges for implied value:

                 
Median Implied Range of Implied
Equity Value per Equity Value
Share per Share


TMC/TTM Service Revenues
  $ 11.32       $3.90 - $19.24  
TMC/Projected CY 2003 Service Revenues
  $ 8.64       $4.24 - $15.80  
TMC/Projected CY 2004 Service Revenues
  $ 10.59       $4.19 - $15.10  
TMC/TTM EBITDA
    NEG (1)     $(1.57) - NM  
TMC/LQA EBITDA
  $ 3.25       $0.86 - $19.91  
TMC/Projected CY 2003 EBITDA
  $ 2.93       $0.67 - $15.57  
TMC/Projected CY 2004 EBITDA
  $ 2.40       $0.23 - $6.02  
TMC/Subscribers
  $ 9.09       $0.57 - $15.90  

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(1)  NEG indicates negative value.

      The public company comparables were selected from the Broadview Barometer, a proprietary database of publicly traded information technology, communications and media companies maintained by Broadview and broken down by industry segment.

      Discounted Cash Flow Analysis. Broadview examined the Pro Forma Equity Value of AirGate based on projected free cash flow estimates for the company derived from projections provided by management. The free cash flow estimates were generated from financial projections from December 31, 2003 through September 30, 2008, which were prepared by management.

      Assuming a range of terminal value EBITDA multiples from 6.0x to 10.0x, and a range of discount rates of 10.4% to 20.0% Broadview calculated implied total Pro Forma Equity Values for AirGate ranging from $0.55 to $5.13 price per share with a $2.98 price per share assuming a terminal EBITDA multiple of 7.0x and a discount rate of 10.4%. Broadview determined the discount rate based on an analysis of the weighted average cost of capital of selected public companies in the wireless service provider industry and determined terminal EBITDA multiples based on the trading multiples of the companies.

Covenant Analysis

      Using financial estimates for AirGate as provided by management, Broadview analyzed AirGate’s ability to comply with the financial covenants contained in its existing credit agreement, dated August 16, 1999, and the amended credit agreement, dated August 29, 2003.

      Broadview noted that based on this analysis, AirGate is likely to be in default of its covenants under the existing credit agreement during the fiscal year beginning October 1, 2004 under the Status Quo forecast and would likely be in compliance with its amended credit agreement covenants for the foreseeable future if the proposed restructuring is completed.

Dilution Analysis

      Broadview considered the dilution to existing AirGate shareholders that would result from the exchange offer. Prior to the exchange offer, the existing AirGate shareholders own 100% of the outstanding common stock. Following the exchange offer, assuming 100% acceptance of the offer and excluding any issuance of new equity to management, current shareholders would own 44% of the outstanding common stock and current holders of old notes would own 56% of the outstanding common stock. Because the terms of any incentive compensation package have not been determined as of the date hereof, Broadview excluded the potential future impact of such incentives in conducting its analyses.

Present Value of Avoided Payments of Cash Interest and Principal

      Broadview considered the interest payments and principal repayments that would be avoided, assuming a 100% acceptance rate in the exchange offer, and the present value of such cash interest payments and principal repayments as a result of the exchange offer. For this analysis, Broadview first calculated the cumulative amount of cash interest and principal that will be avoided by AirGate as a result of the exchange offer.

Status Quo Cash Interest Payments and Principal Repayment from April 1, 2005 to Maturity:

         
Principal Amount of Debt:
  $ 300.0   million
Coupon:
    13 1/2 %
Total Cumulative Interest on Old Note through Maturity:
  $ 202.5   million

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Pro Forma Cash Interest Payments and Principal Payment from August 31, 2004 through Maturity:

         
Principal Amount of Debt:
  $ 160.0   million
Coupon:
    9 3/8 %
Total Cumulative Cash Interest through Maturity:
  $ 85.0   million

      The resulting cumulative cash savings is $257.5 million, with $117.5 million in cash interest savings and $140.0 million in principal savings. Broadview then estimated a present value of avoided cash interest and principal of between $103.8 million and $159.0 million, by applying a range of discount rates from 10% to 20% to the cumulative savings.

Market Value of New Debt to be Received by Noteholders

      Broadview estimated the range of market value for the new notes to be received by holders of the old notes in the exchange offer based on the high, low and median spread of market yields to the current yield curve for securities issued by the U.S. Government exhibited by the public debt of the companies listed below. The companies used in the analysis have similar credit ratings to AirGate, on a Status Quo basis, and the public debt of these companies have comparable credit terms including maturity date, coupon and call provisions to the new notes to be issued in the proposed exchange offer. For the purpose of this analysis Broadview assumed that AirGate’s credit rating remains the same following consummation of the exchange offer.

      In order of descending Yield-to-Worst ratio, the public company debt comparables consist of:

        1) US Unwired, Inc.;
 
        2) Alamosa Holdings, Inc.;
 
        3) Rural Cellular Corporation;
 
        4) Centennial Communications Corp.;
 
        5) Western Wireless Corp.; and
 
        6) Nextel Partners.

      This analysis resulted in an implied market value of the New Notes ranging from $134.0 million to $158.8 million.

      This analysis indicated that the implied market value of the new notes to be received by noteholders in the exchange offer is lower than the value attributed to the debt in the exchange offer. Broadview noted that there can be no assurance as to the market price of the New Notes at any time in the future.

Implied Premium Analysis

      Broadview reviewed both the book value and the market value of the old notes to be exchanged in the exchange offer to derive an implied price per share for the common stock to be issued in the exchange. As of December 31, 2003, the old notes will have a book value of $262.1 million. Holders of the old notes who participate in the exchange offer (which is assumed at 100%) will receive a package of new notes and AirGate common stock in the exchange. The new notes will have a book value of $160.0 million and based on the market value of publicly traded comparable debt a market value ranging from $134.0 million to $158.8 million, with a median value of $143.5 million. The implied value of the equity issued in the transaction, which will represent 56% of the pro forma AirGate equity ownership based on a 100% acceptance rate, is the difference between the value of the old notes and the value of the new notes. Based on the proposed 56% equity ownership by the holders of the old notes, AirGate will issue 33.0 million shares in the transaction, yielding an implied value per share of $3.09. In conducting the analyses, Broadview considered that the market value of the old notes was less than the book value. Using the market value of the old notes and the median value for the new notes, the analysis yielded an implied value per share of $2.43.

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      Broadview then compared the implied value per share with the recent closing share prices for AirGate one day prior to the date of the opinion, twenty trading days prior to the date of the opinion and sixty trading days prior to the date of the opinion. Broadview also compared the implied value per share with AirGate’s twenty trading day average closing share price and AirGate’s sixty trading day average closing share price. Each of the comparisons was performed on both a book value and market value basis. The implied premium analysis yields a range of premiums ranging from (14.6%) to 187.9%.

Determination of AirGate Implied Share Price and Implied Premium

                 
Based on
Based on Book Estimated Market
Value of Debt Value of Debt


Old Notes
  $ 262.1  million     $ 223.8  million (1)
Old Notes Swapped For New Notes
  $ 160.0  million     $ 143.5  million (2)
Implied Value of Old Notes Exchanged For AirGate Equity
  $ 102.1  million     $ 80.3 million  
New AirGate Shares Issued in the Exchange Offer (represents 56% of pro forma shares outstanding)
    33.0 million       33.0 million  
Implied Equity Value per share of Common Stock
  $ 3.09     $ 2.43  
Implied Premium/(Discount) to AirGate Share Price 1 Day Prior to the Date of the Opinion
    8.5 %     (14.6 )%
Implied Premium/(Discount) to AirGate Share Price 20 Trading Days Prior to the Date of the Opinion
    99.5 %     56.9 %
Implied Premium/(Discount) to AirGate Share Price 60 Trading Days Prior to the Date of the Opinion
    153.5 %     99.4 %


Notes:

(1)  Market value derived from Bloomberg based on a price of 72% of par.
 
(2)  Derived using median financial metrics from similar debt issues of wireless service providers with comparable credit ratings, maturity, principal, coupon and call provisions. The analysis yielded a range of market values for the notes of $134.0 million to $158.8 million.

Conclusion

      Taken together, the information and analyses employed by Broadview lead to Broadview’s overall opinion that the exchange offer is fair from a financial point of view to the current holders of common stock.

      No company used in the public comparable valuations described above is identical to AirGate. Accordingly, an examination of the results of the analyses described above necessarily involves complex considerations and judgments concerning differences in financial and operating characteristics of the businesses and other facts that could affect the public trading value of the companies to which they are being compared.

      The preparation of a fairness opinion is a complex process not susceptible to partial analysis or summary descriptions. The summary presented above is not a complete description of the analyses underlying Broadview’s opinion or its presentation to the Board of Directors. Broadview believes that its analyses and the summary presented above must be considered as a whole and that selecting portions of its analyses and the factors considered by it, without considering all such analyses and factors, could create an incomplete view of the processes underlying the analyses set forth in its opinion.

      In performing its analyses, Broadview made numerous assumptions with respect to industry performance, general business, financial, market and economic conditions and other matters, many of which are beyond the control of AirGate. The analyses that Broadview performed are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than

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suggested by the analyses. The analyses were prepared solely as part of Broadview’s analysis of the fairness, from a financial point of view, of the exchange offer, to shareholders of AirGate as of September 23, 2003. The analyses do not purport to be appraisals or to reflect the prices at which a company might actually be sold or the prices at which any securities may trade at the present time or at any time in the future.

      Pursuant to the letter agreements dated February 27, 2003 and September 24, AirGate engaged Broadview to act as its financial advisor in connection with a potential financial restructuring. Pursuant to the terms of the engagement letter, Broadview will receive a fee of $4,129,283, $600,000 which was payable upon delivery of its fairness opinion and $3,529,383 which is payable upon completion of the exchange offer. AirGate also paid Broadview a retainer fee of $75,000 per month and agreed to reimburse Broadview for all out-of-pocket expenses and costs incurred in connection with the engagement including, but not limited to, travel, document production and similar costs. Such expenses also included fees from lawyers and other professional advisers that were engaged during the process. Broadview will be paid its retainer fee for a period of 10 months and one half the total amount (or $375,000) will be credited against the fee deliverable upon completion of the exchange offer.

Recommendation of the Board of Directors; Reasons of the Board of Directors

      At a meeting held on September 23, 2003, our board of directors unanimously declared advisable and approved the terms of the restructuring and the transactions contemplated thereby and recommended that our stockholders approve the recapitalization plan and vote to accept the prepackaged plan. In evaluating the proposed restructuring, our board of directors identified and considered, among other things, the following factors:

  •  the benefits that would be produced by the recapitalization, including:

  •  an improved capital structure and the lower financial risk resulting from the reduction of required debt payments;
 
  •  approximately $257.5 million lower debt-service payments, including an approximate $140 million reduction in principal amount;
 
  •  improved liquidity metrics that are comparable to other wireless industry companies;
 
  •  improved position to seek the best outsourcing alternatives and the optimal financial relationship with Sprint;
 
  •  an exchange of equity for debt that compares favorably to market measures;
 
  •  a debt/ equity ratio that is superior to that of all other Sprint affiliates;
 
  •  that we would be better able to carry out our business plan;
 
  •  the absence of any other viable restructuring alternatives;
 
  •  the fact that, because the transaction results from extensive negotiations with our noteholders, the recapitalization has the greatest chance of being completed and has the most favorable impact on us;

  •  potential for defaults on covenants under our credit facility and uncertainty regarding our ability to provide operating cash flow to pay debt service and fund capital needs in 2005 and beyond;
 
  •  the recapitalization plan presents a timely opportunity for us to improve our financial position;
 
  •  that the retention by the existing holders of our common stock of 44% of the outstanding common stock after the recapitalization represents the maximum amount of common stock that holders of old notes would agree to permit such holders to retain in connection with the recapitalization plan;
 
  •  the opinion of Broadview as to the fairness from a financial point of view of the recapitalization plan to our common stockholders;

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  •  the fact that the support agreement may be terminated by us at any time if our board of directors determines that such termination is in our best interests;
 
  •  the fact that the issuance of options for 10% of our outstanding stock after the completion of the recapitalization was negotiated with holders of 50% of the old notes;
 
  •  the fact that our completion of the restructuring is subject to approval by our stockholders; and
 
  •  the significant common stock dilution that will occur as a result of the transactions contemplated by the recapitalization plan, and the fact that such transactions will result in our creditors owning 56% of our common stock.

      The board of directors did not attempt to quantify, rank or otherwise assign relative weights to the factors considered in connection with its evaluation of the restructuring and the transactions contemplated thereby. Furthermore, the board of directors did not undertake to make any specific determination as to whether any particular factor was essential to its decision to approve the terms of the restructuring. Instead, the board of directors conducted an overall analysis of the factors described above, which included a thorough discussion of all of the above-listed factors with its legal and financial advisors. The board of directors relied on the experience and expertise of our financial advisor for quantitative analysis of the financial terms of the restructuring. In considering the factors described above, individual directors may have given different weights to different factors or reached different conclusions as to whether a specific factor weighed in favor of or against approving the restructuring.

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THE RECAPITALIZATION PLAN

      The exchange offer and consent solicitation are a part of the recapitalization plan for achieving our financial restructuring goals. Consummation of the recapitalization plan will result in decreased principal and interest payments for our notes. The recapitalization plan consists of the several concurrent transactions described below. Consummation of each of the following transactions is conditioned upon the consummation of the others as set forth below. The percentage ownerships set forth below after giving effect to the financial restructuring assume that all of the old notes are exchanged for common stock and new notes in the exchange offer and, unless otherwise stated, do not give effect to any shares of our common stock that may be issued pursuant to stock options or warrants.

Exchange Offer and Consent Solicitation

 
General

      Subject to the terms and conditions set forth in this proxy 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, without giving effect 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 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.

      In connection 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 under which the old notes were issued 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.

      The completion of the exchange offer is conditioned upon, among other conditions, the satisfaction or waiver of the minimum tender condition and the completion of each of the other transactions contemplated by the recapitalization plan, including the approval by our existing stockholders of certain aspects of the restructuring transactions pursuant to this proxy solicitation.

 
Terms of the New Notes

      General. In the exchange offer, we are proposing to issue up to $160.0 million aggregate principal amount of our new 9 3/8% senior subordinated secured notes due September 1, 2009. We expect to pay accrued interest on these new notes semi-annually in arrears, on each                     and                     , beginning                     , 2004.

      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 and senior in right of payment to all of our future indebtedness that by its terms is junior in right of payment to the new notes. 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.

      Optional Redemption. At any time and from time to time on or after January 1, 2006, we may redeem the new notes in whole or in part, at specified redemption prices, plus accrued and unpaid interest, if any, to the redemption date.

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      Guarantee. Our obligations under the new notes will be guaranteed on a senior subordinated secured basis by all of our 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 indebtedness of the guarantors that is not, by its terms, expressly subordinated in right of payment to the 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.

Proxy Solicitation

      Concurrently with the exchange offer and consent solicitation, we are soliciting proxies from our stockholders by means of this proxy statement which we have filed with the SEC.

iPCS Stock Trust

      In connection with the issuance of common stock in the exchange offer described in this proxy 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 will request 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.

Acceptance of Prepackaged Plan

      We are also soliciting acceptances of the prepackaged plan from our common stockholders in conjunction with the proxy solicitation. The effectiveness of the acceptances of the prepackaged plan is not conditioned on the consummation of any transactions under the recapitalization plan. Acceptance of the prepackaged plan by our stockholders and other equity interest holders in Class 7 requires the affirmative vote of the holders of at least two-thirds in amount of the equity interests in such class who cast votes with respect to the prepackaged plan.

      As of September 30, 2002, our officers and directors and their affiliates held 806,280 shares of our common stock, which represents approximately 3.11% of the issued and outstanding common stock as of that date. If we determine to seek confirmation of the prepackaged plan in bankruptcy court and our stockholders and other holders of Class 7 equity interests do not accept the prepackaged plan, we may seek confirmation of the prepackaged plan using the “cram down” provisions of the Bankruptcy Code. In any such case, we would pursue a plan in which our stockholders and noteholders would receive consideration similar to that specified by the recapitalization plan, including the issuance of common stock and new notes in exchange for the old notes.

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THE RESTRUCTURING PROPOSALS

      Consummation of the recapitalization plan requires stockholder approval of each of proposals 1 and 2. The issuance of shares of our common stock in the restructuring transactions will not become effective unless and until the amendment and restatement of our restated certificate of incorporation is approved and the amended and restated certificate of incorporation filed with the Secretary of State of the State of Delaware and the recapitalization plan is consummated. IF EITHER OF PROPOSALS 1 OR 2 IS NOT APPROVED BY OUR SHAREOWNERS AT THE SPECIAL MEETING, THEN NEITHER OF THEM WILL BECOME EFFECTIVE. Shareowner approval of proposal 3 is not a condition to the consummation of the recapitalization plan.

PROPOSAL 1

ISSUANCE OF OUR COMMON STOCK

IN THE EXCHANGE OFFER

      On                     , 2003, our board of directors unanimously adopted a resolution approving, in connection with the transactions contemplated by the recapitalization plan, the issuance of up to 33,000,000 shares of our common stock pursuant to the exchange offer under the recapitalization plan.

      Our board of directors believes it is advisable and in the company’s best interests to issue new shares of our common stock in the restructuring transactions. Although the restructuring will result in significant dilution of our common shareowners, the completion of the restructuring is critical to our ability to improve our capital structure. 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. If the restructuring is not completed, we may be forced to consider an alternative plan of restructuring or reorganization. ANY ALTERNATIVE PLAN OF RESTRUCTURING OR REORGANIZATION MAY RESULT IN OUR SHAREOWNERS RECOVERING LESS THAN PROPOSED IN THE RECAPITALIZATION PLAN, OR NOTHING. For a discussion of the factors considered by our board of directors in recommending the recapitalization plan, see “The Restructuring — Recommendation of the Board of Directors; Reasons of the Board of Directors” and for a discussion of the factors considered by us in assessing the fairness from a financial point of view of the terms of the recapitalization plan to holders of our common stock, see “The Restructuring — Opinion of Broadview International, LLC.”

      Upon consummation of the restructuring, the equity interests of our existing shareowners, as a percentage of the total number of the outstanding shares of our common stock, will be significantly diluted. As of June 30, 2003, there were 25,939,836 shares of our common stock issued and outstanding.

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      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).

                   
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(5)
    897,311       5,400,783  
     
     
 
 
Total shares reserved and available for issuance under stock incentive plans(3)(4)(5)
    3,088,520       7,591,992  
     
     
 
Warrants:
               
 
Total shares reserved for issuance pursuant to outstanding warrants(6)
    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)  Assumes that the reserve available for issuance under the AirGate PCS, Inc. 2002 Incentive Plan is increased by an amount equal to 10% of outstanding shares, plus options outstanding with an exercise price of more than $5.00 a share. The actual terms of any equity grants are subject to board approval, and in the case of our executives, approval by a majority of the holders of old notes that are signatories to the support agreement.
 
(6)  Includes 669,110 shares reserved for issuance pursuant to outstanding warrants having an exercise price of $20.40 or more per share.

      The Board of Directors unanimously recommends a vote “FOR” this Proposal.

PROPOSAL 2

AMENDMENT AND RESTATEMENT OF OUR RESTATED CERTIFICATE OF INCORPORATION

TO EFFECT A REVERSE STOCK SPLIT

      On                     , 2003, our board of directors unanimously adopted a resolution approving and declaring advisable the amendment and restatement of our restated certificate of incorporation to implement the [          ] for 1 reverse stock split and to incorporate all previous amendments to our certificate of incorporation into one amended and restated certificate.

      The form of the proposed amended and restated certificate of incorporation is attached to this proxy statement as Annex C. If the amendment and restatement is approved by our shareowners, each [                    ] shares of our common stock issued and outstanding on the effective date of the amendment and restatement of our certificate of incorporation (the “old common stock”) will be automatically

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reclassified into and become one share of our new common stock, $0.01 par value per share. The par value per share of common stock will remain at $0.01 per share. See “Effects of the Reverse Stock Split.” As of                     , 2003, we had                      shares of common stock issued and outstanding, and following the completion of the reverse stock split, if approved, we would have approximately                      shares of common stock issued and outstanding.

Background of and Reasons for the Reverse Stock Split

      The board of directors has determined that, based upon our current capital structure, as described below, and the current trading price of our common stock on the OTC Bulletin Board, the reverse stock split is the best alternative currently available to us to meet each of the following objectives:

  •  to gain relisting on The Nasdaq National Market; and
 
  •  to encourage greater interest in our common stock by the financial community and the investing public.

      Shares of our common stock began trading on The Nasdaq National Market on September 28, 1999, under the symbol “PCSA”. Prior to 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 same symbol “PCSA.OB”. On                     , 2003, the last trading day before the date of this proxy statement, the last reported sales price per share of our common stock on the OTC Bulletin Board was $[          ]. On [                    ], 2003, there were [          ] holders of record of our common stock.

      Nasdaq rules require that, as a condition of the initial and continued listing of a company’s securities on The Nasdaq National Market, a company satisfy certain listing requirements relating to its financial condition, results of operation, and the trading market for its listed securities, including a requirement that the closing price of a company’s common stock be above $5.00 per share prior to relisting and, for continued listing, that a company maintain an average closing price of its common stock of at least $1.00. On [                    ], 2003, the closing price of our common stock on the OTC Bulletin Board was $[                    ]. It is our intent to bring the average closing price of the common stock well above $5.00 per share through the completion of the reverse stock split.

      If the reverse stock split is not approved by the shareowners at the special meeting, then it is likely, depending on the volatility of the common stock and our ability to meet the listing criteria described above, that we may not satisfy the requirements for re-listing on The Nasdaq National Market. The continued de-listing of our common stock from The Nasdaq National Market would adversely affect the liquidity of the common stock. If our common stock is quoted only on the OTC Bulletin Board, the spread between the bid and ask price of the shares of the common stock is likely to be greater than the spread would be on The Nasdaq National Market. Consequently, shareowners may experience a greater difficulty in trading shares of the common stock.

      We believe that if the amendment and restatement is approved by the shareowners at the special meeting, and the reverse stock split is implemented, the shares of common stock are much more likely to consistently have an average closing price sufficient to satisfy the Nasdaq listing criteria. The reduction in the number of outstanding shares of common stock caused by the reverse stock split is anticipated to increase the per share market price of the common stock, although not necessarily on a proportional basis. However, some investors may view the reverse stock split negatively since it reduces the number of shares available in the public market. In addition, other reasons, such as our financial results, market conditions, the market perception of our industry in general and Sprint affiliates in particular, and other factors may adversely affect the market price of the common stock. As a result, there can be no assurance that the market price of the common stock will not decline in the future.

      In addition to satisfying the minimum average closing price requirement, we would also need to continue to satisfy all other applicable Nasdaq listing criteria.

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      For initial listing, the Nasdaq National Market also requires a company to comply with a stockholders’ equity test, a net income test or a market capitalization test. We currently have significant negative stockholders’ equity and net losses. Therefore, in the event our board of directors decides to apply for re-listing of our common stock on the Nasdaq National Market, we will rely on the market capitalization test.

      Specifically, for initial listing, a company must have market capitalization of up to $20 million prior to applying for re-listing. For continued listing, a company must maintain a market capitalization of up to $15 million (or up to $50 million if certain asset and revenue tests are not met). As of                     , 2003, the date prior to the date of this proxy statement, our market capitalization was $                    .

      Even if we were to satisfy all of the substantive listing requirements described above, The Nasdaq National Market has broad discretion to de-list a company’s securities for any reason if, in the opinion of Nasdaq, events or circumstances have made listing of a company’s securities on The Nasdaq National Market inadvisable or unwarranted. As a result, there can be no assurance that we will be successful in meeting these and other listing criteria of The Nasdaq National Market.

      Our board of directors also believes that the reverse stock split will encourage greater interest in the common stock by the investment community. Our board of directors believes that the current market price of the common stock has impaired its acceptability to institutional investors, professional investors, and other members of the investing public. Many institutional and other investors look upon stock trading at low prices as unduly speculative in nature and, as a matter of policy, avoid investment in such stocks. Further, various brokerage house policies and practices tend to discourage individual brokers from dealing in low priced stocks. If effected, the reverse stock split would reduce the number of shares of our common stock issued and outstanding. Our board of directors expects that the reduction would result in an increase in the trading price of our common stock. The board of directors also believes that raising the expected market price of the common stock would increase the attractiveness of the common stock to the investment community and possibly promote greater liquidity for our shareowners.

      In addition, because broker commissions on low-priced stocks generally represent a higher percentage of the stock price than commissions on higher priced stocks, the current share price of the common stock, in the absence of the reverse stock split, may continue to result in individual shareowners paying transaction costs (commissions, markups or markdowns) which are a higher percentage of their total share value than would be the case if the share price was substantially higher. This factor may further limit the willingness of institutions to purchase the common stock at its current market price. Although any increase in the market price of the common stock resulting from the reverse stock split may be proportionately less than the decrease in the number of shares outstanding, the proposed reverse stock split could result in a market price that would be high enough for the shares of the common stock to overcome the reluctance, policies and practices of brokerage firms and investors referred to above and to diminish the adverse impact of correspondingly higher trading commissions for the shares.

      There can be no assurance, however, that the reverse stock split, if completed, will result in the benefits described above. See “Risk Factors — Risks Related to the Reverse Stock Split”.

Board Discretion to Implement Reverse Stock Split

      If the reverse stock split is approved by our shareowners at the special meeting, the reverse stock split will be effected, if at all, only upon a determination by our board of directors, in its sole discretion, that the reverse stock split is in the best interests of our company and our shareowners. Such determination shall be based upon certain factors, including but not limited to, existing and expected marketability and liquidity of the common stock, Nasdaq listing requirements, prevailing market conditions, and the likely effect on the market price of the common stock. No further action on the part of the shareowners would be required to either effect or abandon the reverse stock split. Notwithstanding approval of the reverse stock split by the shareowners, the board of directors may, in its sole discretion, determine to delay the effectiveness of the reverse stock split for up to twelve (12) months following stockholder approval thereof.

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Effects of the Reverse Stock Split

 
General

      If the amendment and restatement is approved by our shareowners and we determine to effect the reverse stock split, the principal effect will be to decrease the number of outstanding shares of common stock. As a result of the reverse stock split, each holder of [                    ] shares of common stock immediately prior to the effectiveness of the reverse stock split would become the holder of one share of common stock after the effectiveness of the reverse stock split.

      The common stock is currently registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and we are subject to the periodic reporting and other requirements of the Exchange Act. The reverse stock split will not affect the registration of the common stock under the Exchange Act or the listing of the common stock on the OTC Bulletin Board. Following the reverse stock split, the common stock will continue to be listed on the OTC Bulletin Board under the symbol “PCSA.OB”.

      Proportionate voting rights and other rights of the holders of common stock will not be affected by the reverse stock split, other than as a result of the elimination of fractional shares as described below. For example, not taking into account the effects of the recapitalization, a holder of 2.0% of the voting power of the outstanding shares of old common stock immediately prior to the effective time of the reverse stock split will generally continue to hold 2.0% of the voting power of the outstanding shares of new common stock after the reverse stock split.

      The number of authorized shares of the common stock and the number of shareowners of record will not be reduced as the result of the reverse stock split. The par value of the common stock would remain at $0.01 per share following the reverse stock split.

      If approved and implemented, the reverse stock split may result in some shareowners owning “odd lots” of less than 100 shares of new common stock. Odd lot shares may be more difficult to sell, and brokerage commissions and other costs of transactions in odd lots are generally somewhat higher than the costs of transactions in “round lots” of even multiples of 100 shares. The board of directors believes, however, that these potential effects are outweighed by the benefits of the reverse stock split.

 
Effect on Stock Option Plans

      As of June 30, 2003, there were outstanding options to purchase 2,191,209 shares of common stock issued or committed to be issued pursuant to stock options granted by us (which number includes 1,698,009 shares reserved for issuance pursuant to outstanding options having an exercise price in excess of $5.00 per share and 751,756 shares subject to “underwater” options surrendered and cancelled without consideration by executive officers on September 3, 2003). All of the outstanding options to purchase common stock under our various stock incentive plans include provisions for adjustments on the number of shares covered thereby, as well as the exercise price thereof. If the reverse stock split is implemented, each outstanding and unexercised option to purchase shares of our old common stock would be automatically converted into an economically equivalent option to purchase shares of the new common stock by decreasing the number of shares underlying the option and increasing the exercise price appropriately. Assuming the recapitalization plan, including the reverse stock split, is approved and effected, there would be reserved for future issuance upon exercise of all outstanding options a total of approximately [                    ] shares of common stock (prior to giving effect to the proposed increase in the number of shares available for issuance under our Plan). Each of the outstanding options would thereafter evidence the right to purchase [          ]% of the shares of new common stock previously covered thereby, and the exercise price per share would be [          ] times the previous exercise price.

 
Effect on Warrants

      As of June 30, 2003, we had outstanding warrants currently convertible into an aggregate of 709,280 shares of common stock. The warrants include provisions for adjustments on the number of shares

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issuable following a reverse stock split, as well as the conversion price thereof. If the reverse stock split is effected, there would be reserved for issuance upon conversion of all outstanding warrants a total of approximately [                    ] shares of common stock. Holders of the outstanding warrants would thereafter be entitled to receive [          ]% of the shares of common stock previously issuable upon conversion of such outstanding warrants and the conversion price of such warrants would be [          ] times the previous conversion price.
 
Changes in Shareowners’ Equity

      The following table illustrates the principal effects of the reverse stock split discussed in the preceding paragraphs. The table assumes [                    ] shares of common stock are issued and outstanding at the time of the reverse stock split.

                         
Number of Shares of Number of Shares of
Common Stock Common Stock
Number of Shares of After Reverse Stock After Reverse Stock
Common Stock Split (Without Split (Giving
Prior to Reverse Giving Effect to the Effect to the
Stock Split Recapitalization) Recapitalization)



Authorized
    155,000,000       155,000,000       155,000,000  
Outstanding
    [                  ]     [                  ]     [                  ]
Reserved for future issuance upon exercise of currently outstanding options
    [                  ]     [                  ]     [                  ]
Reserved for issuance upon exercise of warrants
    [                  ]     [                  ]     [                  ]

Fractional Shares

      We do not intend to issue fractional shares in connection with the reverse stock split. No certificates representing fractional shares shall be issued. Shareowners who otherwise would be entitled to receive fractional shares because the number of shares of the common stock they hold is not evenly divisible by the reverse stock split ratio will receive the next higher whole number of shares.

Exchange of Stock Certificates

      If the proposal to implement the reverse stock split is adopted and effectuated, shareowners will be required to exchange their stock certificates for new certificates representing the shares of new common stock. Shareowners of record on the effective date will be furnished the necessary materials and instructions for the surrender and exchange of share certificates at the appropriate time by American Stock Transfer and Trust Company, our transfer agent. As soon as practicable after the effective date, the transfer agent will send a letter of transmittal to each stockholder advising such holder of the procedure for surrendering certificates representing shares of old common stock in exchange for new certificates representing the ownership of new common stock.

      YOU SHOULD NOT SEND YOUR STOCK CERTIFICATES NOW. YOU SHOULD SEND THEM ONLY AFTER YOU RECEIVE THE LETTER OF TRANSMITTAL FROM OUR TRANSFER AGENT.

      As soon as practicable after the surrender to the transfer agent of any certificate which represents shares of old common stock, together with a duly executed letter of transmittal and any other documents the transfer agent may specify, the transfer agent shall deliver to the person in whose name such certificate had been issued certificates registered in the name of such person representing the number of full shares of new common stock into which shares of old common stock represented by the surrendered certificate shall have been reclassified. Each certificate representing shares of the new common stock will continue to bear any legends restricting the transfer of such shares that were borne by the surrendered certificates representing the shares of old common stock held prior to the reverse stock split.

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      Until surrendered as contemplated herein, each certificate which immediately prior to the reverse stock split represented shares of old common stock shall be deemed at and after the reverse stock split to represent the number of full shares of new common stock contemplated by the preceding paragraph. Until they have surrendered their stock certificates for exchange, shareowners will not be entitled to receive any dividends or other distributions that may be declared and payable to holders of record.

      Any stockholder whose certificate for old common stock has been lost, destroyed or stolen will be entitled to issuance of a certificate representing the shares of new common stock into which such shares of old common stock are to be converted upon compliance with such requirements as we and the transfer agent customarily apply in connection with lost, stolen or destroyed certificates.

      No service charges, brokerage commissions, transfer taxes or transfer fees will be charged to any holder of any certificate which represented any shares of our old common stock to implement the exchange of shares, except that if any certificates representing the new common stock are to be issued in a name other than that in which the certificates for shares of our old common stock surrendered are registered, it is a condition of such issuance that (1) the person requesting such issuance will pay any transfer taxes payable by reason thereof (or prior to transfer of such certificate, if any) or establish to our satisfaction that such taxes have been paid or are not payable, (2) such transfer comply with all applicable federal and state securities laws, and (3) such surrendered certificate be properly endorsed and otherwise be in proper form for transfer.

Appraisal Rights

      No appraisal rights are available under the Delaware General Corporation Law of the State of Delaware or under our Restated Certificate of Incorporation and our Amended and Restated Bylaws to any stockholder who dissents from the proposal to approve the amendment and restatement of our restated certificate of incorporation to effect the reverse stock split and the increase in authorized shares.

Federal Income Tax Consequences of the Reverse Stock Split

      The following discussion is a summary of the material United States federal income tax consequences of the proposed reverse stock split to us and the individual shareowners who exchange their old common stock for new common stock. This discussion only addresses shareowners who held their old common stock as a capital asset and does not address all of the United States federal income tax consequences that may be relevant to particular shareholders in light of their individual circumstances or to shareowners who are subject to special rules (including, without limitation, financial institutions, regulated investment companies, real estate investment trusts, tax-exempt organizations, insurance companies, dealers in securities or foreign currencies, foreign holders, persons who hold their old common shares as part of hedge against currency risk, a conversion transaction, a straddle, a constructive sale, or holders who acquired their shares pursuant to the exercise of an employee stock option or otherwise as compensation). No ruling has been, or will be, sought from the International Revenue Service, and no opinion has been, or will be sought from counsel, as to the United States federal income tax consequences of the reverse stock split. The following summary is not binding on the Internal Revenue Service or a court. It is based upon the Internal Revenue Code, laws, regulations, rulings, and decisions in effect on the date hereof, all of which are subject to change possibly with retroactive effect. Tax consequences under state, local, and foreign laws are also not addressed.

      The following discussion is not intended to be a complete analysis or description of all potential United States federal income tax consequences of the reverse stock split. In addition, the discussion does not address tax consequences that may vary with, or are contingent on, your individual circumstances. Holders of old common stock are strongly urged to consult their own tax advisors as to the specific tax consequences to them of the reverse stock split, including the applicability and effect of federal, state, local, and foreign income, estate and gift tax laws on their particular circumstances.

      Based on the above assumptions and qualifications, we will not recognize any gain or loss as a result of the reverse stock split. No gain or loss will be recognized by a holder of old common stock who receives

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only new common stock upon the reverse stock split. The Federal income tax treatment of the receipt of the additional fractional interest by a shareowner is not clear and may result in tax liability not material in amount in view of the low value of such fractional interest. A stockholder’s aggregate tax basis in the shares of new common stock received in the reverse stock split will equal the stockholder’s aggregate basis in the old common stock exchanged therefor and such stockholder’s holding period for the new common stock received in the reverse stock split will include the holding period for the old common stock exchanged therefor. Shareowners should consult their tax advisors to the basis and holding period of any particular shares.

      We reserve the right to abandon the proposed amendment and restatement without further action by our shareowners at any time prior to the filing of the amended and restated certificate of incorporation with the Secretary of State of the State of Delaware, notwithstanding authorization of the proposed amendment and restatement by our shareowners.

      The Board of Directors unanimously recommends a vote “FOR” this Proposal.

PROPOSAL 3

INCREASE IN THE NUMBER OF SHARES OF OUR COMMON STOCK

AVAILABLE FOR ISSUANCE UNDER THE 2002 AIRGATE PCS, INC. INCENTIVE PLAN

General

      The 2002 AirGate PCS, Inc. Long Term Incentive Plan (the “Plan”) became effective on February 26, 2002. Upon effectiveness of the Plan, our ability to grant awards under any of our other incentive plans ceased. Under the Plan as currently in effect, up to 1,500,000 shares of our common stock may be issued to participants. As of                     , 2003, there were approximately [                    ] employees, officers, consultants and directors eligible to participate in the Plan.

Summary of the Plan

      Purpose. The purpose of the Plan is to promote our success by linking the personal interests of our employees, officers, directors and consultants to those of our shareowners, and by providing participants with an incentive for outstanding performance.

      Permissible Awards. The Plan authorizes the granting of awards in any of the following forms:

  •  options to purchase shares of common stock;
 
  •  restricted stock;
 
  •  performance awards payable in stock or cash; or
 
  •  other stock-based awards.

      Limitations on Awards. No more than 20% of the shares authorized under the Plan may be granted as awards of restricted or unrestricted stock awards or performance shares. Any awards of restricted stock and performance shares that exceed 10% of the shares authorized under the Plan will either be subject to a minimum vesting period of three years, or one year if the vesting is based on performance criteria other than continued employment, or be granted only in exchange for foregone salary, bonus or director compensation. Any awards of unrestricted stock that, together with awards of restricted stock or performance shares, exceed 10% of the shares authorized under the Plan, may be granted only in exchange for foregone salary, bonus or director compensation. The maximum number of shares of common stock with respect to one or more options or other qualified performance-based awards that may be granted during any one calendar year under the Plan to any one person is 250,000. The maximum fair market value of any cash-based performance units that may be received by a participant (less any consideration paid by the participant for such award) during any one calendar year under the Plan is $1,500,000.

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      Administration. The Plan is administered by the compensation committee of our board of directors. The committee has the authority to designate participants; determine the type or types of awards to be granted to each participant and the number, terms and conditions thereof; establish, adopt or revise any rules and regulations as it may deem advisable to administer the Plan; and make all other decisions and determinations that may be required under the Plan. The board of directors may at any time administer the Plan. If it does so, it will have all the powers of the committee.

      Formula Grants to Non-Employee Directors. The Plan provides for the grant of non-qualified stock options and or restricted stock to our non-employee directors according to the parameters established in the AirGate PCS, Inc. 2001 Non-Employee Director Compensation Plan, or any successor plan for the compensation of non-employee directors. The committee cannot make other discretionary grants to non-employee directors under the Plan. All grants under the 2001 Non-Employee Director Compensation Plan will be issued under the authority of the Plan.

      Stock Options. The committee is authorized to grant incentive stock options or non-qualified stock options under the Plan. The terms of an incentive stock option must meet the requirements of Section 422 of the Code. The exercise price of an option may not be less than the fair market value of the underlying stock on the date of grant and no option may have a term of more than 10 years. The committee may grant options with a reload feature, which provides for the automatic grant of a new option for the number of shares that the optionee delivers as full or partial payment of the exercise price of the original option. Such new option must have an exercise price equal to the fair market value of the stock on the new grant date, would vest after six months and would have a term equal to the unexpired term of the original option.

      Restricted Stock Awards. The committee may make awards of restricted stock to participants, which will be subject to such restrictions on transferability and other restrictions as the committee may impose (including, without limitation, limitations on the right to vote restricted stock or the right to receive dividends, if any, on the restricted stock).

      Performance Awards. The committee may grant performance awards that are designated in cash (performance units) or in shares of common stock (performance shares). The committee will have the complete discretion to determine the number of performance awards granted to any participant and to set performance goals and other terms or conditions to payment of the performance awards in its discretion which, depending on the extent to which they are met, will determine the number and value of performance awards that will be paid to the participant.

      Other Stock-Based Awards. The committee may, subject to limitations under applicable law, grant to participants such other awards that are payable in, valued in whole or in part by reference to, or otherwise based on or related to shares of common stock as deemed by the committee to be consistent with the purposes of the Plan, including, without limitation, shares of common stock awarded purely as a bonus and not subject to any restrictions or conditions, convertible or exchangeable debt securities, other rights convertible or exchangeable into shares of common stock, and awards valued by reference to book value of shares of common stock or the value of securities of or the performance of specified parents or subsidiaries. The committee will determine the terms and conditions of any such awards.

      Performance Goals. The committee may designate any award as a qualified performance-based award in order to make the award fully deductible without regard to the $1,000,000 deduction limit imposed by Code Section 162(m). If an award is so designated, the committee must establish objectively determinable performance goals for the award based on one or more of the following performance criteria, which may be expressed in terms of company-wide objectives or in terms of objectives that relate to the performance of a division, affiliate, department, region or function within the company or an affiliate such as earnings per share; EBITDA (earnings before interest, depreciation, taxes and amortization); EBIT (earnings before interest and taxes); economic profit; cash flow; transaction counts; customer turnover; gross or net additional customers; cost per gross additional customers; customer satisfaction ratings; comparable sales growth; net profit before tax; gross profit; operating profit; cash generation; unit volume; return on equity; return on assets; changes in working capital; return on capital; or shareowner return.

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      The committee must establish such goals prior to the beginning of the period for which such performance goal relates (or such later date as may be permitted under applicable tax regulations) and the committee may not increase any award or, except in the case of certain qualified terminations of employment, waive the achievement of any specified goal. Any payment of an award granted with performance goals will be conditioned on the written certification of the committee in each case that the performance goals and any other material conditions were satisfied.

      Limitations on Transfer; Beneficiaries. No award will be assignable or transferable by a participant other than by will or the laws of descent and distribution or, except in the case of an incentive stock option, pursuant to a qualified domestic relations order; provided, however, that the committee may (but need not) permit other transfers where the committee concludes that such transferability does not result in accelerated taxation, does not cause any option intended to be an incentive stock option to fail to qualify as such, and is otherwise appropriate and desirable, taking into account any factors deemed relevant, including without limitation, any state or federal tax or securities laws or regulations applicable to transferable awards. A participant may, in the manner determined by the committee, designate a beneficiary to exercise the rights of the participant and to receive any distribution with respect to any award upon the participant’s death.

      Acceleration Upon Certain Events. Unless otherwise provided in an award certificate, if a participant’s employment is terminated without cause or the participant resigns for good reason (as such terms are defined in the Plan) within two years after a change in control of the company (as defined in the Plan), all of such participant’s outstanding options will become fully vested and exercisable and all restrictions on his or her outstanding awards will lapse. The committee may in its discretion at any time accelerate the vesting of an award upon the death, disability, retirement or termination of service of a participant, or the occurrence of a change of control. The committee may also in its discretion accelerate the vesting of awards for any other reason, unless the aggregate number of awards so accelerated exceeds 5% of the total number of shares authorized under the Plan. The committee may discriminate among participants or among awards in exercising its discretion.

      Adjustments. In the event of a stock split, a dividend payable in shares of our common stock, or a combination or consolidation of our common stock into a lesser number of shares, the share authorization limits under the Plan will automatically be adjusted proportionately, and the shares then subject to each award will automatically be adjusted proportionately without any change in the aggregate purchase price for such award. If we are involved in another corporate transaction or event that affects our common stock, such as an extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination or exchange of shares, the share authorization limits under the Plan will be adjusted proportionately, and the committee may adjust outstanding awards to preserve the benefits or potential benefits of the awards.

Termination and Amendment

      Our board of directors or the committee may, at any time and from time to time, terminate or amend the Plan without shareowner approval; but if an amendment to the Plan would, in the reasonable opinion of the board or the committee, materially increase the benefits accruing to participants, materially increase the number of shares of stock issuable under the Plan, or materially modify the requirements for eligibility, then such amendment will be subject to shareowner approval. In addition, the board or the committee may condition any amendment on the approval our shareowners for any other reason, including necessity or advisability under tax, securities or other applicable laws, policies or regulations. No termination or amendment of the Plan may adversely affect any award previously granted under the Plan without the written consent of the participant. The committee may amend or terminate outstanding awards. However, such amendments may require the consent of the participant and, unless approved by our shareowners or otherwise permitted by the antidilution provisions of the Plan, the exercise price of an outstanding option may not be reduced, directly or indirectly, and the original term of an option may not be extended.

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Certain Federal Tax Effects

      Nonqualified Stock Options. There will be no federal income tax consequences to the optionee or to us upon the grant of a nonqualified stock option under the Plan. When the optionee exercises a nonqualified option, however, he or she will realize ordinary income in an amount equal to the excess of the fair market value of the common stock received upon exercise of the option at the time of exercise over the exercise price, and we will be allowed a corresponding deduction. Any gain that the optionee realizes when he or she later sells or disposes of the option shares will be short-term or long-term capital gain, depending on how long the shares were held.

      Incentive Stock Options. There typically will be no federal income tax consequences to the optionee or to us upon the grant or exercise of an incentive stock option. If the optionee holds the option shares for the required holding period of at least two years after the date the option was granted or one year after exercise, the difference between the exercise price and the amount realized upon sale or disposition of the option shares will be long-term capital gain or loss, and we will not be entitled to a federal income tax deduction. If the optionee disposes of the option shares in a sale, exchange, or other disqualifying disposition before the required holding period ends, he or she will realize taxable ordinary income in an amount equal to the excess of the fair market value of the option shares at the time of exercise over the exercise price (or if the value of the stock decreases after grant, the amount realized on such sale over the adjusted basis of the shares) and we will be allowed a federal income tax deduction equal to such amount. While the exercise of an incentive stock option does not result in current taxable income, the excess of the fair market value of the option shares at the time of exercise over the exercise price will be an item of adjustment for purposes of determining the optionee’s alternative minimum taxable income.

      Transfers of Options. The committee may, but is not required to, permit the transfer of nonqualified stock options granted under the Plan. Based on current tax and securities regulations, such transfers, if permitted, are likely to be limited to gifts to members of the optionee’s immediate family or certain entities controlled by the optionee or such family members. The following paragraphs summarize the likely income, estate, and gift tax consequences to the optionee, us, and any transferees, under present federal tax regulations, upon the transfer and exercise of such options.

  •  Federal Income Tax. There will be no federal income tax consequences to the optionee, us, or the transferee upon the transfer of a nonqualified stock option. However, the optionee will recognize ordinary income when the transferee exercises the option, in an amount equal to the excess of the fair market value of the option shares upon the exercise of such option over the exercise price, and we will be allowed a corresponding deduction. The gain, if any, realized upon the transferee’s subsequent sale or disposition of the option shares will constitute short-term or long-term capital gain to the transferee, depending on the transferee’s holding period. The transferee’s basis in the stock will be the fair market value of such stock at the time of exercise of the option.
 
  •  Federal Estate and Gift Tax. If an optionee transfers a nonqualified stock option to a transferee during the optionee’s life but before the option has become exercisable, the optionee will not be treated as having made a completed gift for federal gift tax purposes until the option becomes exercisable. However, if the optionee transfers a fully exercisable option during the optionee’s life, he or she will be treated as having made a completed gift for federal gift tax purposes at the time of the transfer. If the optionee transfers an option to a transferee by reason of death, the option will be included in the decedent’s gross estate for federal estate tax purposes. The value of such option for federal estate or gift tax purposes may be determined using a “Black-Scholes” or other appropriate option pricing methodology, in accordance with IRS requirements.

      Restricted Stock. Unless a participant makes an election to accelerate recognition of the income to the date of grant as described below, the participant will not recognize income, and we will not be allowed a tax deduction, at the time a restricted stock award is granted. When the restrictions lapse, the participant will recognize ordinary income equal to the fair market value of the common stock as of that date (less any amount he paid for the stock), and we will be allowed a corresponding federal income tax deduction at that time, subject to any applicable limitations under Code (S)162(m). If the participant files an election under Code (S)83(b) within 30 days after the date of grant of the restricted stock, he or she will recognize ordinary income as of the date of grant equal to the fair market value of the stock as of that

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date (less any amount paid for the stock), and we will be allowed a corresponding federal income tax deduction at that time, subject to any applicable limitations under Code (S)162(m). Any future appreciation in the stock will be taxable to the participant at capital gains rates. However, if the stock is later forfeited, the participant will not be able to recover the tax previously paid pursuant to the Code (S)83(b) election.

      Performance Awards. A participant generally will not recognize income, and we will not be allowed a tax deduction, at the time performance awards are granted, so long as the awards are subject to a substantial risk of forfeiture. When the participant receives or has the right to receive payment of cash or shares under the performance award, the cash amount or the fair market value of the shares of stock will be ordinary income to the participant, and we will be allowed a corresponding federal income tax deduction at that time, subject to any applicable limitations under Code (S)162(m).

Proposed Amendment

      On                     , 2003, the board of directors adopted an amendment to the Plan that, subject to shareowner approval, would increase the total number of shares of common stock authorized for issuance under the Plan by                      shares (from                     to                     ) prior to giving effect to the proposed reverse stock split. The total number of shares available for issuance after giving effect to the proposed increase may not be more than 10% of our outstanding shares, plus currently outstanding options with an exercise price in excess of $5.00. Any shares issued under the Plan will proportionately dilute existing shareowners and the tendering holders of old notes in the exchange offer. The amounts and terms of any equity awards for executives established by our board of directors are subject to approval by a majority of the holders of old notes that are parties to a support agreement entered into by us and holders of approximately 67% of the old notes. The board of directors has directed that the proposal to approve the amendment of the Plan in order to increase the number of shares of our common stock authorized for issuance under the Plan be submitted to our shareowners for their approval. A copy of the amendment is attached to this Proxy Statement as Annex D.

      The board of directors believes that the number of common shares currently available for issuance under the Plan is not sufficient in view of our compensation structure and strategy. The board of directors has concluded that our ability to attract, retain and motivate top quality management and employees is material to our success and would be enhanced by our continued ability to grant equity compensation. In addition, the board of directors believes that our interests and the interests of our shareowners will be advanced if we can continue to offer to our, and our subsidiaries’ and affiliates’, employees, advisors, consultants, and non-employee directors the opportunity to acquire or increase their proprietary interests in us. The board of directors believes that the availability of the additional                      common shares for issuance under the Plan will ensure that we continue to have a sufficient number of common shares authorized for issuance under the Plan. Shareowner approval of the increase in the number of common shares under the Plan is necessary to ensure that flexibility is maintained so that the additional common shares may be granted as incentive stock options, as defined in Section 422 of the Code.

Benefits to Named Executive Officers and Others of the Increase in Shares Available Under the Plan

      As of June 30, 2003, grants with respect to 730,439 common shares have been granted under the Plan; of which 603,689 were still outstanding. As of such date, options with respect to an aggregate of 158,750 shares of our common stock have been granted to non-employee directors pursuant to the terms of our 2001 Non-Employee Director Compensation Plan; of which 66,250 were still outstanding. Any future awards will be made at the discretion of the committee, other than grants of options or restricted stock to non-employee directors pursuant to the terms of the 2001 Non-Employees Director Compensation Plan. Therefore, it is not presently possible to determine the benefits or amounts that will be received by any individuals or groups pursuant to the Plan in the future.

      On September 3, 2003, Thomas M. Dougherty, Barbara L. Blackford, Jonathan M. Pfohl, Charles S. Goldfarb and David C. Roberts forfeited options to acquire an aggregate of 751,456 shares of our common stock.

      The Board of Directors unanimously recommends a vote “FOR” this Proposal.

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EQUITY COMPENSATION PLAN INFORMATION

      The following table gives information about our common stock that may be issued under all of our existing equity compensation plans as of September 30, 2002, which include:

  •  the AirGate PCS, Inc. 1999 Stock Option Plan,
 
  •  the AirGate PCS, Inc. Amended and Restated 2000 Long-Term Incentive Plan, which the Company assumed when it acquired iPCS in November 2001,
 
  •  the AirGate PCS, Inc. 2001 Non-Executive Stock Option Plan, and
 
  •  the AirGate PCS, Inc. 2002 Long-Term Incentive Plan.

      GRANTS MADE UNDER THE AIRGATE PCS, INC. 2001 NON-EMPLOYEE DIRECTOR COMPENSATION PLAN WERE ISSUED UNDER EITHER THE AIRGATE PCS, INC. 1999 STOCK OPTION PLAN OR THE AIRGATE PCS, INC. 2002 LONG-TERM INCENTIVE PLAN AND THUS ARE NOT SEPARATELY STATED IN THE TABLE.

                                   
(c) Number of Securities
Remaining Available for
(a) Number of Future Issuance Under
Securities to be Issued (b) Weighted Average Equity Compensation
Upon Exercise of Exercise Price of Plans (Excluding (d) Total of Securities
Outstanding Options, Outstanding Options, Securities Reflected Reflected in
Plan Category Warrants and Rights Warrants and Rights in Column (a)) Columns (a) and (c)





Equity Compensation Plans Approved by Shareowners
    1,295,964 (2)   $ 37.66       (1)     1,295,964  
      644,147 (3)   $ 34.41       (1)     644,147  
      231,039 (4)   $ 7.79       1,268,961       1,500,000  
Equity Compensation Plans Not Approved by Shareowners
    88,613 (5)   $ 44.52       (1)     88,613  
     
     
     
     
 
 
TOTAL
    2,259,763     $ 33.95       1,268,961 (6)     _3,528,724  
     
     
     
     
 


(1)  The right to issue options under this plan terminated upon shareholder approval of the 2002 Long-Term Incentive Plan.
 
(2)  Issued under the AirGate PCS, Inc. 1999 Stock Option Plan.
 
(3)  Issued under the AirGate PCS, Inc. Amended and Restated 2000 Long-Term Incentive Plan.
 
(4)  Issued under the AirGate PCS, Inc. 2002 Long-Term Incentive Plan.
 
(5)  Issued under the AirGate PCS, Inc. 2001 Non-Executive Stock Option Plan.
 
(6)  In addition, 181,657 shares of AirGate’s common stock remained for issuance under the AirGate PCS, Inc. 2001 Employee Stock Purchase Plan.

AirGate PCS, Inc. 2001 Non-Executive Stock Option Plan

      On January 31, 2001, our board of directors approved the AirGate PCS, Inc. 2001 Non-Executive Stock Option Plan, pursuant to which non-qualified stock options could be granted to our employees who are not officers or directors. This plan was not submitted to our shareowners for approval. As of September 30, 2002, options to acquire 88,613 shares were outstanding under this plan, out of the 150,000 shares originally reserved for issuance. No further grants may be made under the 2001 Non-Executive Stock Option Plan.

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      The plan authorized the granting of non-qualified stock options only. The exercise price of an option could not be less than the fair market value of the underlying stock on the date of grant and no option could have a term of more than ten years. All of the options that are currently outstanding under the plan vest ratably over a four-year period beginning at the grant date and expire ten years from the date of grant.

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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 proxy 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.

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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.

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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 statement.

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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  

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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.

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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 proxy 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 our 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.

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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  
     
     
     
 

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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  

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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  

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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 proxy 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

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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.

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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 proxy 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,

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  •  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.

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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

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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.

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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

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  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 )
     
     
     
     
     
     
 

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      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  

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      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.

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      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.

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      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.

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      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,

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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

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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.

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      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

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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.

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      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.

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      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

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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

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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

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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.

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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

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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.

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MANAGEMENT

Our Executive Officers and Directors

      The following table presents information with respect to our executive officers and directors:

             
Name Age Position



Thomas M. Dougherty
    59     President and Chief Executive Officer and Director
Robert A. Ferchat
    68     Chairman
Stephen R. Stetz
    61     Director
Barbara L. Blackford
    46     Vice President, General Counsel and Secretary
Charles S. Goldfarb
    39     Vice President of Sales — Southeast Region
Dennis D. Lee
    53     Vice President, Human Resources
Jonathan M. Pfohl
    37     Vice President, Finance
David C. Roberts
    41     Vice President of Engineering and Network Operations
William H. Seippel
    47     Vice President and Chief Financial Officer

      Thomas M. Dougherty has been our president and chief executive officer since April 1999. From March 1997 to April 1999, Mr. Dougherty was a senior executive of Sprint PCS. From June 1996 to March 1997, Mr. Dougherty served as executive vice president and chief operating officer of Chase Telecommunications, a personal communications services company. Mr. Dougherty served as president and chief operating officer of Cook Inlet BellSouth PCS, L.P., a start-up wireless communications company, from November 1995 to June 1996. Prior to October 1995, Mr. Dougherty was vice president and chief operating officer of BellSouth Mobility DCS Corporation, a PCS company.

      Robert A. Ferchat has served as the chairman of our board of directors since June 2003 and as one of our directors since October 1999. From November 1994 to January 1999, Mr. Ferchat served as the chairman of the board of directors, president and chief executive officer of BCE Mobile Communications, a wireless telecommunications company. From January 1999 until May 1999, Mr. Ferchat was chairman of BCE Mobile Communications. Mr. Ferchat is also a director and non-executive chairman of GST Telecommunications and a director of Brookfield Properties Corp., as well as one other company that is traded on the Toronto Exchange.

      Stephen R. Stetz is President and Managing Director of Matterhorn Strategic Partners, LLC, a strategic and financial advisory firm co-founded by Mr. Stetz that specializes in mergers and acquisitions, and has held such position since May 2002. From July 2000 to April 2002, Mr. Stetz consulted on strategic and financial issues with a number of companies. From 1965 until June 2000, Mr. Stetz served in various positions at Monsanto Company. From September 1999 until June 2000, Mr. Stetz served as Vice President, Strategic Initiatives. From November 1998 until August 1999, Mr. Stetz served as Vice President and Chief Financial Officer of Monsanto’s Agriculture Company and from October 1996 until September 1998, Mr. Stetz served as Vice President, Mergers & Acquisitions/ Licensing. During this time, Monsanto announced more than fifty transactions with an aggregate value of over $75 billion. Prior to 1996, Mr. Stetz held various positions at Monsanto Company in Corporate Finance and Budgeting, Treasury, International, Strategic Planning, Research and Development and Manufacturing. He has a Bachelor of Science in Chemical Engineering from the University of Notre Dame and a Masters in Business Administration from the University of West Florida.

      Barbara L. Blackford has been our vice president, general counsel and secretary since September 2000. From October 1997 to September 2000, Ms. Blackford was associate general counsel and assistant secretary with Monsanto Company, serving in a variety of roles, including head of the corporate securities and mergers and acquisitions law groups and general counsel of Cereon Genomics. Prior to joining Monsanto Company, Ms. Blackford was a partner with the private law firm McKenna, Long & Aldridge in Atlanta, Georgia. Ms. Blackford spent twelve years with the law firm Kutak Rock, which is consistently ranked among the top ten public finance firms nationally.

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      Charles S. Goldfarb has been our vice president of sales, southeast region, since January 2000. From September 1991 to January 2000, Mr. Goldfarb worked at Paging Network Inc., most recently as its area vice president and general manager for the Virginia, North Carolina and South Carolina region. Mr. Goldfarb has over 10 years of wireless experience and has been successful in numerous start-up markets. Prior to his wireless experience, Mr. Goldfarb worked at ITT Financial Services as its assistant vice president of operations in the Washington, D.C. area.

      Dennis D. Lee has been our vice president of human resources since September 2002. Prior to joining AirGate, from May 2000 to August 2002, Mr. Lee was senior vice president of compensation and executive benefits at SunTrust Banks, Inc., where he was responsible for the design, development and administration of all broad-based employee compensation and executive benefits programs. From May 1978 to May 2000, Mr. Lee served in a number of leadership roles at Wachovia Corporation, including manager of direct compensation, director of compensation and benefits, human resources manager for the Corporate Financial Services Division and senior consultant in the Executive Services Group. From 1973 to 1978 Mr. Lee held various positions at John Harland Company in the Printing Operations Division and the Personnel Department. Mr. Lee has 29 years of diversified human resources experience. SunTrust Banks, Inc. and Wachovia Corporation are both parent companies. Mr. Lee holds a B.B.A. (1973) from the University of Georgia.

      Jonathan M. Pfohl has been our vice president, finance, since December 2002 and was vice president sales and operations from January 2001 to December 2002. Mr. Pfohl joined us in June 1999 as our vice president, financial operations. Prior to joining AirGate, Mr. Pfohl was responsible for oversight of regional financial and planning activities at Sprint PCS. He has over 13 years of wireless telecommunications industry experience, including financial and strategic planning roles at Frontier Corporation.

      David C. Roberts has been our vice president of engineering and network operations since July 1998. From July 1995 to July 1998, Mr. Roberts served as director of engineering for AirLink II LLC, an affiliate of our predecessor company.

      William H. Seippel joined the Company as its vice president and chief financial officer in October 2002. From 2000 until joining the Company, Mr. Seippel provided merger and acquisition and strategic business and financial planning consulting services to various boards of directors and senior executives. From 1999 to 2000, Mr. Seippel served as chief financial officer and chief operating officer of Digital Commerce Corporation, where he recruited and led a core team of six upper-level management executives in finance, marketing and sales and managed a staff of over 350 individuals in supporting roles. Beginning in 1996, Mr. Seippel was employed with Global Telesystems as executive vice president and director of strategic planning and marketing, moving on to become Global’s executive vice president and chief financial officer from 1997 to 1999. From 1992 to 1996, Mr. Seippel served as vice president of finance and chief financial officer of Landmark Graphics Corporation. Early in his career, Mr. Seippel held a number of senior management positions with Midcon Corporation, Digital Equipment Corporation and Covia Partnerships-United Airlines, respectively.

Directors’ Compensation

      In 2001, our board adopted the AirGate PCS, Inc. 2001 Non-Employee Director Compensation Plan (the “Director Plan”). Under the Director Plan, non-employee directors receive an annual retainer for each plan year, which may be comprised of cash, restricted stock or options to purchase shares of our common stock. A director may elect to receive 50% or more of such amount in the form of restricted stock or options to purchase shares of our common stock.

      In addition, under the Director Plan, each non-employee director that joins our board of directors receives an initial grant of options to acquire shares of our common stock. The options vest in three equal annual installments beginning on the first day of the plan year following the year of grant. Each participant also receives an annual grant of options to acquire our common stock, which vest on the first day of the plan year following the year of grant. In lieu of this annual grant, the recipient may elect to receive three year’s worth of annual option grants in a single upfront grant of options to acquire our common stock

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exercisable in three equal annual installments on the first day of each of the three succeeding plan years. All options have an exercise price equal to the fair market value of our common stock on the date of grant. We also reimburse each of our non-employee directors for reasonable travel expenses to board and committee meetings and for approved continuing director education. We do not pay retirement, charitable contributions or other benefits to our directors.

      A combination of factors, including the loss of three independent directors during 2002, led us to engage an outside compensation consulting firm to review the adequacy of the compensation to be paid under our Director Plan. Some of the factors that led to this review are the same as those facing every public company, including the increased demand on directors’ time required to satisfy increasing requirements for process and oversight of management of public companies, and the greater demand for independent directors and directors with financial and accounting expertise. In addition to these general conditions are factors specific to our industry and company, including the turmoil in the telecommunications industry in general and the challenges facing partners or affiliates of wireless carriers in particular.

      The consulting firm reviewed, among other things, director compensation practices of similarly sized companies within and outside our industry and factors specific to us. Based on this review and the recommendations of management and the consulting firm, we amended the Director Plan on January 22, 2003 to increase compensation for non-employees directors. As amended, for each plan year (beginning on the day of an annual meeting of our shareowners and ending on the day before our next annual meeting) each non-employee director that chairs one or more committees of our board of directors will receive an annual retainer of $15,000, up from $12,000, and all other non-employee directors will receive $10,000. The amendment also added meeting fees for board and committee meetings as follows: (i) full-day (more than 4 hours) meetings, $3,000; half-day meetings, $1,500; full-day telephonic meetings, $1,500 and half-day telephonic meetings, $750. In addition, as an inducement for and recognition of board service during this difficult period in our development, current directors who continue to serve will be paid an additional retainer every six months of $12,500 until December 1, 2004. Finally, the initial option grant to non-employee directors has been increased to 10,000 from 5,000 and the annual option grant to 7,500 from 5,000.

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Summary Compensation Table

      The following table shows the cash compensation paid by us, as well as certain other compensation paid or accrued, to the chief executive officer and our four other highest paid executive officers who were serving as such on September 30, 2002 and who received compensation in excess of $100,000. We refer to each of these persons as “Named Executive Officers” and set forth their compensation information for the fiscal years ended September 30, 2002, 2001 and 2000.

                                           
Long Term
Compensation Awards

Restricted Securities
Annual Compensation Stock Underlying

Award(s) Options/
Year Salary ($) Bonus ($) ($)(3) SARs(#)





Thomas M. Dougherty
    2002     $ 314,038     $ 785,800 (1)   $ 70,040       75,000  
 
President and Chief Executive Officer
    2001       272,789       1,020,000 (1)           41,408  
      2000       231,250       1,432,125 (1)            
Barbara L. Blackford
    2002       212,808       28,100       28,016       27,000  
 
Vice President, General Counsel and
    2001       201,126       148,500             46,056  
 
Secretary
    2000       3,912                   90,000  
Alan B. Catherall
    2002       208,211       27,700 (2)     31,518       27,000  
 
Chief Financial Officer
    2001       186,509       142,500             13,944  
      2000       160,750       105,866              
Jonathan M. Pfohl
    2002       183,000       24,000       38,522       27,000  
 
Vice President, Finance
    2001       164,769       123,600             49,225  
      2000       115,773       94,080              
David C. Roberts
    2002       196,199       25,500       28,016       27,000  
 
Vice President of Engineering and Network
    2001       179,231       135,000             13,521  
 
Operations
    2000       154,250       103,819              


(1)  For fiscal year 2002, includes a $65,800 performance-based annual incentive award and $720,000 earned under a retention bonus agreement. For fiscal year 2001, includes a $300,000 performance-based annual incentive award and $720,000 earned under a retention bonus agreement. For fiscal year 2000, includes a $202,125 performance-based annual incentive award and $1,230,000 earned under a retention bonus agreement, $900,000 of which was paid during fiscal 2000 and $330,000 of which was paid during fiscal 2001.
 
(2)  This bonus amount will be paid to Mr. Catherall as provided in his separation agreement which is described more fully below under “Employment and Severance Agreements”. In addition, Mr. Catherall is also entitled to receive $300,000 in severance payments pursuant to his separation agreement which are not included in the bonus amount above. Mr. Catherall resigned as Chief Financial Officer effective October 21, 2002.
 
(3)  Amounts included above represent the fair value of the restricted stock on the date they were awarded, January 10, 2002, based upon the closing price of our common stock on that date, which was $35.02. 50% of these restricted stock awards vested on November 1, 2002 and the remaining 50% will vest on November 30, 2003. Dividends will not be paid on the restricted stock. As of September 30, 2002, Mr. Dougherty held 2000 shares of restricted stock worth $880, Ms. Blackford held 800 shares of restricted stock worth $352, Mr. Catherall held 900 shares of restricted stock worth $396, Mr. Pfohl held 1,100 shares of restricted stock worth $484 and Mr. Roberts held 800 shares of restricted stock worth $352. These values are based on the closing price of our common stock on September 30, 2002, which was $0.44.

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Employment and Severance Agreements

      We have entered into an employment agreement with Thomas M. Dougherty, our chief executive officer. Mr. Dougherty’s employment agreement is for a five-year term ending April 15, 2004. Mr. Dougherty is eligible under his employment agreement to receive an annual bonus of at least 50% of his base salary. Mr. Dougherty’s base salary was set at $275,000 by the compensation committee of our board of directors. Under his employment agreement, Mr. Dougherty has a minimum guaranteed annual increase in his base salary of at least $20,000. Mr. Dougherty may participate in any executive benefit/perquisite we establish at a minimum aggregate payment of $15,000 per year. Pursuant to his employment agreement, Mr. Dougherty initially was awarded a stock option exercisable for 300,000 shares of common stock. Under the agreement, the initial stock option vested with respect to 25% of the underlying shares of common stock on the date Mr. Dougherty commenced his employment with us, April 15, 1999, and such vested options became exercisable on April 15, 2000. The remaining 75% of the shares of common stock subject to the initial stock option vest in 15 equal quarterly installments beginning June 30, 2000. Upon a change in control, Mr. Dougherty’s options will become vested with respect to 50% of the underlying shares of common stock that remain unvested at the time of the change in control. The exercise price of the initial stock option granted to Mr. Dougherty is $14.00 per share. In addition, Mr. Dougherty is eligible to participate in all employee benefit plans and policies.

      The employment agreement provides that Mr. Dougherty’s employment may be terminated with or without cause, as defined in the agreement, at any time upon four weeks prior written notice. If Mr. Dougherty is terminated without cause, he is entitled to receive (1) six months’ base salary, plus one month’s salary for each year employed, (2) all stock options vested on the date of termination and (3) six months of health and dental benefits. In the event of Mr. Dougherty’s death, Mr. Dougherty’s legal representative is entitled to twelve months’ base pay, plus a bonus of 20% of base pay. Under the employment agreement, Mr. Dougherty agreed to a restriction on his present and future employment. Mr. Dougherty agreed not to (1) disclose confidential information or trade secrets during employment with us and for two years after termination, (2) compete in the business of wireless telecommunications services either directly or indirectly in our territory during his employment and for a period of 18 months after his employment is terminated and (3) solicit our employees to terminate their employment with us or solicit certain of our customers to purchase competing products during his employment with us and for a period of 18 months after termination of his employment.

      On May 4, 2000, we entered into a retention bonus agreement with Mr. Dougherty. Unless Mr. Dougherty voluntarily terminates employment or is terminated for cause, he is entitled to periodic retention bonuses totaling $3.6 million, payable on specified payment dates from April 15, 2000 to January 15, 2004, which are generally paid quarterly. In fiscal year 2002, Mr. Dougherty earned $720,000 under this agreement. Under the terms of the retention bonus agreement, 50% of unpaid retention bonus payments would be accelerated upon a change of control of the company.

      We have also entered into an employment agreement with Barbara L. Blackford, our vice president, general counsel and secretary. Ms. Blackford is eligible under her employment agreement to receive an annual bonus based upon our incentive plans and policies, but at a target of not less than 35% of her then current base pay. Ms. Blackford may participate in any executive benefit/perquisite program we establish on the same terms as other executives, at a minimum aggregate benefit of $10,000 per year. Ms. Blackford’s base salary pursuant to the agreement is currently $208,500 per year. Such amount is subject to review for an increase at least annually. Pursuant to her employment agreement, Ms. Blackford initially was awarded a stock option exercisable for 90,000 shares of our common stock, which option became vested with respect to 25% of the underlying shares of common stock at the end of Ms. Blackford’s first year with us and the remainder of the shares vest in 5% increments for each three month period after the initial year that she remains employed by us. If, however, Ms. Blackford’s employment is actually or constructively terminated upon a change of control of us, the initial stock option will vest with respect to 50% of the underlying shares of common stock that remain unvested at the time of the change in control, and additional vesting may occur as provided in the agreement. The exercise price of the initial

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stock option granted to Ms. Blackford is $66.94 per share. In addition, Ms. Blackford is eligible to participate in all employee benefit plans and policies.

      The employment agreement provides that Ms. Blackford’s employment may be terminated with or without cause, as defined in the agreement, at any time upon four weeks prior written notice. If Ms. Blackford is terminated without cause, she is entitled to receive six months’ base salary, plus one month’s salary for each year employed by us. Under the employment agreement, Ms. Blackford agreed, during her employment with us and for a period of two years after the termination of her employment, not to (1) disclose confidential information or trade secrets, (2) solicit certain of our employees to terminate their employment with us or (3) solicit certain of our customers to purchase competing products during her employment with us and for a period of two years after the termination of her employment. Ms. Blackford’s agreement further provides that if we enter into an agreement with any member of our senior management other than our chief executive officer which agreement contains change of control provisions more favorable than those given to Ms. Blackford pursuant to her agreement, then such provisions (other than with respect to salary, bonus, and other dollar amounts) will be made available to Ms. Blackford.

      We have also entered into an employment agreement with David C. Roberts, our vice president of engineering and network operations. Mr. Roberts is eligible under his employment agreement to receive an annual bonus based upon our incentive plans and policies but at a target of not less than 35% of his then current base salary. Mr. Roberts may participate in any executive benefit/perquisite program that we establish for a minimum aggregate benefit equal to $10,000 per year. Mr. Roberts’ base salary pursuant to the agreement is currently $189,000 per year. Such amount shall be adjusted annually to increase it by the greater of the consumer price index for all urban consumers, U.S. City Average, All Items or 5%. Pursuant to his employment agreement, Mr. Roberts initially was awarded a stock option exercisable for 75,000 shares of our common stock, which option became vested with respect to 25% of the underlying shares of common stock after the first two years Mr. Roberts was employed by us and the remainder of the underlying shares vest in 6 1/4% quarterly increments thereafter. The exercise price of the initial stock option granted to Mr. Roberts is $14.00 per share. In addition, Mr. Roberts is eligible to participate in all employee benefit plans and policies.

      Mr. Roberts’ employment may be terminated with or without cause at any time by Mr. Roberts or us upon four weeks prior written notice, except that if termination is for cause, no notice by us is required. If we terminate Mr. Roberts’ employment without cause, he is entitled to receive (1) six months base salary and (2) six months of health, disability, life and dental benefits. Any unvested options granted to Mr. Roberts fully vest and become exercisable upon Mr. Roberts’ involuntary termination other than for cause. Cause is limited to breach of the noncompete obligations described below. In the event of Mr. Roberts’ death, Mr. Roberts’ legal representative is entitled to twelve months’ base pay, plus a bonus of 20% of base pay.

      Under the employment agreement, Mr. Roberts agreed to a restriction on his present and future employment. Mr. Roberts agreed not to (1) disclose confidential information or trade secrets during employment with us and for two years after termination, (2) compete in the business of wireless telecommunications either directly or indirectly in our territory during his employment and for a period of 18 months after his employment is terminated and (3) solicit our employees to terminate their employment with us or solicit certain of our customers to purchase competing products during his employment with us and for a period of 18 months after termination of his employment.

      Effective October 24, 2002, the Company hired William H. Seippel as vice president and chief financial officer, pursuant to the terms of an offer letter. Mr. Seippel’s initial base salary pursuant to the offer letter is $250,000 per year. Mr. Seippel’s performance will be evaluated during the first six months of his employment and if he has successfully achieved or made satisfactory progress towards the achievement of agreed upon performance objectives and expectations during this period, his annual base salary will be increased to $275,000. Mr. Seippel is eligible under his offer letter to receive an annual bonus based on our incentive plans and policies, but at a target of not less than 50% of his base salary. The offer letter

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guarantees Mr. Seippel an annual incentive award payment for the 2003 plan year equal to 50% of his base earnings during the 2003 plan year, even if the Company terminates his employment prior to October 1, 2003. This award payment would be made on November 30, 2003. If Mr. Seippel terminates his employment with the Company prior to October 1, 2003, he will not be eligible for any portion of this award payment. Pursuant to his offer letter, Mr. Seippel initially received a grant of 70,000 non-qualified stock option shares and an award of 30,000 shares of time-based restricted stock. Mr. Seippel’s stock option shares will vest in four equal annual installments with the initial 25% annual installment vesting on October 24, 2003 and each remaining 25% annual installment vesting on each anniversary thereafter. The time restrictions on Mr. Seippel’s restricted stock award will lapse over a four-year period such that 25% of the shares will vest on October 24, 2003 and the remaining shares will vest in 25% annual installments on each anniversary. The exercise price of the initial stock option granted to Mr. Seippel is $0.64 per share. In addition, Mr. Seippel is eligible to participate in all employee benefit plans and policies. Pursuant to the offer letter, the Company will pay Mr. Seippel’s relocation expenses to Atlanta, Georgia.

      The offer letter provides that Mr. Seippel’s employment may be terminated with or without cause. If Mr. Seippel’s employment is terminated prior to October 23, 2003, the Company is required to pay him an amount equal to his annual base salary and target bonus until October 31, 2003, payable bi-weekly. If Mr. Seippel continues to remain employed with the Company after May 1, 2003 and he and the CEO agree that his employment will continue and that he will relocate to Atlanta, Mr. Seippel is entitled to severance payments if he is terminated without cause in an amount equal to six months’ base salary and a pro-rated bonus at target. It is a condition to the payment of this severance that Mr. Seippel agree not to directly or indirectly (1) engage in a senior management capacity in the business of wireless telecommunications in our territory for a period of six months after his employment is terminated or (2) solicit our employees to terminate their employment with us or solicit certain of our customers to purchase competing products for a period of one year after termination of his employment.

      Mr. Seippel’s offer letter further provides that if Mr. Seippel continues to remain employed with the Company after May 1, 2003 and he and the CEO agree that his employment will continue and that he will relocate to Atlanta, the Company will enter into an agreement with him entitling him to receive certain payments if his employment is terminated (voluntarily or involuntarily) for specified reasons, other than for cause, as a result of a change of control of the Company. The change of control agreement would provide that if such termination occurs during the first year of the agreement, he would receive two times his annual base salary and bonus at target, less the amounts already paid since employment, and continuation of benefits for two years. If such termination occurred after the first year of the agreement, he would receive his annual base salary and bonus at target and continuation of benefits for one year. In either case, Mr. Seippel would also receive unpaid salary and accrued and unpaid bonus for the year in which termination occurs and outplacement services for up to one year.

      We have entered into a separation agreement and release with Alan B. Catherall, who was employed by the Company as chief financial officer. Mr. Catherall resigned as our chief financial officer effective October 21, 2002, and as our employee effective October 31, 2002. Pursuant to the separation agreement, we agreed to pay to Mr. Catherall a severance payment in the amount equal to $300,000, half of which was paid bi-weekly for six months. The remainder will be paid in a lump sum payment at the end of the six-month period. Mr. Catherall received a bonus for fiscal year 2002 in the same percentage of base salary as paid on average to all senior management who report directly to our chief executive officer. If Mr. Catherall elects the continuation of coverage under our group health plans, we will pay the COBRA premium on his behalf for twelve months following the separation date, provided that Mr. Catherall does not obtain comparable health benefits from another source during the twelve-month period.

      The separation agreement provides that certain options granted to Mr. Catherall will continue to be exercisable in accordance with their terms, but will automatically convert to nonqualified stock options on January 30, 2003. Mr. Catherall is entitled to any vested benefits he may have under the AirGate PCS 401(k) Retirement Plan. In addition, we agreed to provide Mr. Catherall with certain career transition services until the earlier of acceptance of new employment or a period of twelve months.

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      Mr. Catherall agreed to cooperate and provide assistance on transitional and other matters until October 31, 2003 without additional compensation, other than reimbursement of any out-of-pocket expenses. After October 31, 2003 the Company agreed to pay Mr. Catherall an hourly rate of compensation commensurate with his base salary as of the separation date for these services. It is a condition to the receipt of these payments and benefits that Mr. Catherall agree not to directly or indirectly (1) engage in a senior management capacity in the business of wireless telecommunications in our territ