As filed with the Securities and Exchange Commission on October 16, 2001
Registration No. 333-69866
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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AIRGATE PCS, INC.
(Exact name of registrant as specified in its charter)
Delaware 4812 58-2422929
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
----------------
Harris Tower
233 Peachtree Street NE, Suite 1700
Atlanta, Georgia 30303
(404) 525-7272
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
----------------
Barbara L. Blackford
Vice President, General Counsel and Corporate Secretary
Harris Tower
233 Peachtree Street NE, Suite 1700
Atlanta, Georgia 30303
(404) 525-7272
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
----------------
With copies to:
Robert F. Wall, Esq. Paul W. Theiss, Esq.
R. Cabell Morris, Jr., Esq. Robert J. Wild, Esq.
Winston & Strawn Mayer, Brown & Platt
35 West Wacker Drive 190 South LaSalle Street
Chicago, Illinois 60601 Chicago, Illinois 60603
(312) 558-5600 (312) 782-0600
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this registration statement becomes effective and all other
conditions to the proposed merger described herein have been satisfied.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment that specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until this registration statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
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PROXY STATEMENT/PROSPECTUS
October 16, 2001
Dear AirGate Stockholder:
You are cordially invited to attend a special meeting of stockholders of
AirGate PCS, Inc., which we will hold on Tuesday, November 27, 2001 at 1:00
p.m., local time, at the Marriott Marquis, 265 Peachtree Center Avenue, N.E.,
Atlanta, Georgia 30303.
At the special meeting, we will ask you to vote to authorize, approve and
adopt an Agreement and Plan of Merger, dated as of August 28, 2001, by and
between AirGate PCS, Inc., a Delaware corporation, and iPCS, Inc., a Delaware
corporation, as it may be amended from time to time, and the contemplated
transactions, including the issuance of up to 13.5 million shares of AirGate
common stock to the holders of common stock and other securities of iPCS in the
merger of a wholly owned subsidiary of AirGate into iPCS. As a result of the
merger, iPCS will become a wholly owned subsidiary of AirGate.
We cannot issue the AirGate common stock required to be issued to complete
the merger unless the holders of a majority of all shares of AirGate common
stock casting votes, either in person or by proxy, at the special meeting
approve the merger, the merger agreement and the issuance of the shares of
AirGate common stock in the merger.
AirGate's common stock is traded on The Nasdaq National Market under the
symbol "PCSA."
WE STRONGLY URGE YOU TO READ AND CONSIDER CAREFULLY THIS PROXY
STATEMENT/PROSPECTUS IN ITS ENTIRETY, INCLUDING THE MATTERS DISCUSSED UNDER
"RISK FACTORS" BEGINNING ON PAGE 16.
AFTER CAREFUL CONSIDERATION, THE AIRGATE BOARD OF DIRECTORS HAS UNANIMOUSLY
AUTHORIZED, APPROVED AND ADOPTED THE MERGER, THE MERGER AGREEMENT AND THE
ISSUANCE OF THE SHARES OF AIRGATE COMMON STOCK IN THE MERGER, AND DEEMED THE
MERGER AND THE OTHER TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT TO BE
ADVISABLE AND FAIR TO AND IN THE BEST INTERESTS OF AIRGATE AND ITS
STOCKHOLDERS. THE AIRGATE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU
VOTE FOR APPROVAL OF THE MERGER, THE MERGER AGREEMENT AND THE ISSUANCE OF THE
SHARES OF AIRGATE COMMON STOCK IN THE MERGER.
Your vote is important. Whether or not you plan to attend the meeting,
please complete, sign, date and return your proxy.
Sincerely,
Thomas M. Dougherty
President and Chief Executive
Officer
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Neither the SEC nor any state securities commission has approved or
disapproved the AirGate common stock to be issued in connection with the
merger, as described in this proxy statement/prospectus, or determined if this
proxy statement/prospectus is accurate, adequate or complete. Any
representation to the contrary is a criminal offense.
This proxy statement/prospectus is dated October 16, 2001 and is first being
mailed to AirGate stockholders on or about October 18, 2001.
REFERENCES TO ADDITIONAL INFORMATION
This proxy statement/prospectus incorporates by reference important business
and financial information about AirGate that is not included in, or delivered
with, this proxy statement/prospectus. This information is available to AirGate
stockholders without charge upon written or oral request. Copies of the
documents incorporated by reference in this proxy statement/prospectus can be
obtained through the SEC's website at http://www.sec.gov or by requesting them
in writing or by telephone from AirGate at the following address and telephone
number:
AirGate PCS, Inc.
Harris Tower
233 Peachtree Street NE, Suite 1700
Atlanta, Georgia 30303
Tel: (404) 525-7272
Attn.: Sharon Kushner
If you are an AirGate stockholder and would like to request documents,
please do so by November 16, 2001 in order to obtain them before the special
meeting of AirGate stockholders. If you request any documents from AirGate,
AirGate will mail them to you by first class mail, or another equally prompt
means, within one business day after AirGate receives your request.
All information in this document concerning AirGate has been furnished by
AirGate. All information in this document concerning iPCS has been furnished by
iPCS. AirGate has represented to iPCS, and iPCS has represented to AirGate,
that the information furnished by and concerning it is true and complete.
See "Where You Can Find More Information" on page 158.
AIRGATE PCS, INC.
HARRIS TOWER
233 PEACHTREE STREET NE, SUITE 1700
ATLANTA, GEORGIA 30303
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NOTICE OF SPECIAL MEETING OF AIRGATE STOCKHOLDERS
TO BE HELD ON NOVEMBER 27, 2001
----------------
To the Stockholders of AirGate PCS, Inc.:
A special meeting of the stockholders of AirGate PCS, Inc. will be held on
Tuesday, November 27, 2001, at 1:00 p.m., local time, at the Marriott Marquis,
265 Peachtree Center Avenue, N.E., Atlanta, Georgia 30303 to authorize, approve
and adopt an Agreement and Plan of Merger, dated as of August 28, 2001, by and
between AirGate PCS, Inc., a Delaware corporation, and iPCS, Inc., a Delaware
corporation, as it may be amended from time to time, and the contemplated
transactions, including the issuance of up to 13.5 million shares of AirGate
common stock to the holders of common stock and other securities of iPCS in the
merger of a wholly owned subsidiary of AirGate into iPCS. As a result of the
merger, iPCS will become a wholly owned subsidiary of AirGate.
These items of business are described in detail in the accompanying proxy
statement/prospectus. Only holders of record of shares of AirGate common stock
at the close of business on October 12, 2001, the record date of the special
meeting, are entitled to notice of, and to vote at, the special meeting and any
adjournments or postponements thereof.
A list of stockholders entitled to vote at the special meeting will be
available for examination by AirGate stockholders, for any purpose relevant to
the meeting, during ordinary business hours beginning 10 days prior to the date
of the special meeting, at AirGate's executive offices at Harris Tower, 233
Peachtree Street NE, Suite 1700, Atlanta, Georgia 30303.
Whether or not you plan to attend the special meeting, please complete, sign
and date the enclosed proxy and return it promptly in the enclosed postage-paid
envelope. If you are a holder of record, you may also cast your vote in person
at the special meeting. If your shares are held at a brokerage firm or bank,
you must provide them with instructions on how to vote your shares.
By Order of the Board of Directors,
Barbara L. Blackford
Vice President, General Counsel and
Corporate Secretary
Atlanta, Georgia
October 16, 2001
TABLE OF CONTENTS
Page
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QUESTIONS AND ANSWERS ABOUT THE MERGER FOR AIRGATE STOCKHOLDERS........... 1
SUMMARY................................................................... 4
SUMMARY SELECTED HISTORICAL FINANCIAL DATA................................ 12
Market Price Information................................................ 12
AirGate PCS, Inc. and Subsidiaries Selected Financial Data.............. 12
iPCS, Inc. and Subsidiaries and Predecessor Selected Financial Data..... 13
AirGate PCS, Inc. and Subsidiaries Selected Unaudited Pro Forma
Financial Data......................................................... 13
Comparative Per Share Data.............................................. 15
RISK FACTORS.............................................................. 16
Risks Related to the Merger............................................. 16
The integration of AirGate and iPCS following the merger will present
significant challenges............................................... 16
The issuance of AirGate common stock in the merger may cause dilution
to AirGate stockholders.............................................. 16
Future sales of shares of AirGate common stock, including sales of
shares in the proposed underwritten public offering or following the
expiration of "lock-up" arrangements, may negatively affect AirGate's
stock price.......................................................... 16
We expect to incur significant costs associated with the merger....... 17
Because the former iPCS stockholders will not be providing AirGate any
indemnification following the merger, the combined company will
become responsible for any undisclosed liabilities of iPCS........... 17
Risks Related to the Combined Company's Business, Strategy and
Operations............................................................. 18
Given the limited operating history of AirGate and iPCS, if we do not
successfully manage the combined company's operations and expected
growth, our operating performance may be adversely impacted.......... 18
AirGate's stock price may be volatile................................. 18
The failure of iPCS to timely complete the build-out of its network
may result in a decrease in the number of expected new PCS
subscribers and adversely affect our results of operations........... 18
Our territory has limited amounts of licensed spectrum, which may
adversely affect the quality of our service and our results of
operations........................................................... 19
If we lose the right to install our equipment on certain wireless
towers or are unable to renew expiring leases for wireless towers on
favorable terms, our business and results of operations could be
adversely impacted................................................... 19
The loss of the officers and skilled employees who we depend upon to
operate our business could adversely affect our results of
operations........................................................... 19
Expanding our territory may have a material adverse effect on our
business and reduce the market value of our securities............... 19
Risks Particular to the Combined Company's Indebtedness................. 20
Both AirGate and iPCS have substantial debt that neither company may
be able to service; a failure to service such debt may result in the
lenders under such debt controlling AirGate's or iPCS' assets........ 20
If either AirGate or iPCS does not meet all of the conditions required
under its respective credit facility, such company may not be able to
draw down all of the funds it anticipates receiving from its senior
lenders and we may not be able to fund operating losses and working
capital needs........................................................ 20
The ability of AirGate and iPCS to operate as a combined company will
be limited by the separate public debt indentures and credit
facilities of AirGate and iPCS....................................... 21
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If either AirGate or iPCS fails to pay the debt under its respective
credit facility, Sprint PCS has the option of purchasing such
company's loans, giving Sprint PCS certain rights of a creditor to
foreclose on such company's assets................................... 21
Risks Particular to the Combined Company's Relationship With Sprint
PCS.................................................................... 21
The termination of AirGate's or iPCS' affiliation with Sprint PCS or
Sprint PCS' failure to perform its obligations under the Sprint PCS
agreements would severely restrict our ability to conduct our
business............................................................. 21
Sprint PCS may make business decisions that are not in our best
interests, which may adversely affect our relationships with
customers in our territory, increase our expenses and/or decrease our
revenues............................................................. 22
The inability of Sprint PCS to maintain high quality back office
services, or our inability to use Sprint PCS' back office services
and third party vendors' back office systems, could lead to customer
dissatisfaction, increase churn or otherwise increase our costs...... 22
If Sprint PCS does not complete the construction of its nationwide PCS
network, we may not be able to attract and retain customers.......... 22
Certain provisions of the Sprint PCS agreements may diminish the value
of AirGate's common stock and restrict the sale of our business...... 23
We may have difficulty in obtaining an adequate supply of certain
handsets from Sprint PCS, which could adversely affect our results of
operations........................................................... 23
Non-renewal or revocation by the Federal Communications Commission of
the Sprint PCS licenses would significantly harm our business........ 23
If Sprint PCS does not maintain control over its licensed spectrum,
the Sprint PCS agreements may be terminated, which would result in
our inability to provide service..................................... 23
Risks Particular to the Combined Company's Industry..................... 24
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................................................. 24
Alternative technologies and current uncertainties in the wireless
market may reduce demand for PCS..................................... 24
An increase in our rate of customer turnover would increase our costs
of operations and reduce our revenue................................. 25
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......................... 25
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............................................................... 25
We may be subject to potential litigation relating to the use of
wireless phones while driving........................................ 25
SPECIAL NOTE CONCERNING FORWARD-LOOKING STATEMENTS........................ 26
THE AIRGATE SPECIAL MEETING............................................... 27
Date, Time and Place.................................................... 27
Purpose................................................................. 27
Record Date............................................................. 27
Quorum.................................................................. 27
Votes Required.......................................................... 27
Voting of Proxies....................................................... 28
Revocability of Proxies................................................. 28
Solicitation of Proxies................................................. 28
THE MERGER................................................................ 29
Structure of the Merger................................................. 29
Background of the Merger................................................ 29
AirGate's Reasons for the Merger........................................ 31
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Recommendation of AirGate's Board of Directors........................... 33
Opinion of AirGate's Financial Advisor................................... 33
Interests of Certain AirGate Persons in the Merger....................... 37
Interests of Certain iPCS Persons in the Merger.......................... 38
Description of iPCS 2000 Long-Term Incentive Stock Plan.................. 39
Regulatory and Third Party Approvals..................................... 39
Dissenters' Rights of Appraisal.......................................... 40
Accounting Treatment..................................................... 40
Nasdaq Listing........................................................... 41
Material United States Federal Income Tax Consequences of the Merger..... 41
THE MERGER AGREEMENT AND RELATED AGREEMENTS................................ 43
The Merger Agreement..................................................... 43
The Merger............................................................. 43
Treatment of iPCS Common Stock......................................... 43
Treatment of iPCS Options.............................................. 44
Treatment of iPCS Warrants............................................. 44
Fractional Shares...................................................... 44
Exchange of Certificates............................................... 44
Joint Closing Conditions of AirGate and iPCS........................... 45
Closing Conditions of AirGate and the AirGate Merger Subsidiary........ 46
Closing Conditions of iPCS............................................. 46
Covenants and Other Agreements......................................... 47
Termination............................................................ 51
Termination Fee........................................................ 52
Representations and Warranties......................................... 52
Expenses............................................................... 54
Indemnification........................................................ 54
Amendment.............................................................. 54
Waiver................................................................. 54
Support Agreements....................................................... 55
Lock-Up Agreements....................................................... 55
Underwritten Public Offering; Registration Rights........................ 56
SELLING STOCKHOLDERS....................................................... 58
PLAN OF DISTRIBUTION....................................................... 60
SELECTED HISTORICAL FINANCIAL DATA......................................... 62
AirGate PCS, Inc. and Subsidiaries Selected Financial Data............... 62
iPCS, Inc. and Subsidiaries and Predecessor Selected Financial Data...... 63
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED).......... 65
DESCRIPTION OF AIRGATE..................................................... 74
Business Overview........................................................ 74
AirGate's History........................................................ 74
Sprint PCS............................................................... 74
Markets.................................................................. 74
Products and Services.................................................... 75
Marketing Strategy....................................................... 76
Sales and Distribution................................................... 76
Suppliers and Equipment Vendors.......................................... 77
Network Operations....................................................... 77
iii
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Technology............................................................. 77
CDMA Technology........................................................ 78
Research and Development............................................... 78
Intellectual Property.................................................. 78
Competition............................................................ 79
Employees and Labor Relations.......................................... 79
Properties............................................................. 79
Legal Proceedings...................................................... 80
AIRGATE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................... 81
DESCRIPTION OF AIRGATE CAPITAL STOCK..................................... 90
General................................................................ 90
Common Stock........................................................... 90
Preferred Stock........................................................ 90
Delaware Law and Certain Charter and By-Law Provisions................. 90
Transfer Agent and Registrar........................................... 92
Listing................................................................ 92
MARKET FOR AIRGATE'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS....... 93
AIRGATE'S EXECUTIVE OFFICERS AND DIRECTORS............................... 94
SECURITY OWNERSHIP OF CERTAIN AIRGATE BENEFICIAL OWNERS, DIRECTORS AND
OFFICERS................................................................ 97
DESCRIPTION OF iPCS...................................................... 99
Business Overview...................................................... 99
iPCS' History.......................................................... 99
Markets................................................................ 99
Network Operations..................................................... 101
Trinity Build-To-Suit Agreement........................................ 101
Nortel Equipment Agreement............................................. 102
Lucent Equipment Agreement............................................. 102
Products and Services.................................................. 102
Marketing Strategy..................................................... 102
Sales and Distribution................................................. 103
Competition............................................................ 104
Environmental Compliance............................................... 105
Employees.............................................................. 105
CERTAIN RELATIONSHIPS AND TRANSACTIONS OF iPCS........................... 106
Formation of Illinois PCS, LLC......................................... 106
Issuance of Convertible Participating Preferred Stock.................. 106
Investment Agreement................................................. 106
Stockholders Agreement............................................... 107
Registration Rights Agreement........................................ 107
PRINCIPAL iPCS STOCKHOLDERS.............................................. 109
iPCS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................... 112
DESCRIPTION OF CERTAIN iPCS INDEBTEDNESS................................. 122
DESCRIPTION OF iPCS CAPITAL STOCK........................................ 130
General................................................................ 130
iv
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Common Stock.......................................................... 130
Preferred Stock....................................................... 130
Warrants.............................................................. 132
Delaware Law and Certain Charter and By-Law Provisions................ 134
Transfer Agent and Registrar.......................................... 135
SPRINT PCS AGREEMENTS................................................... 136
Overview of Sprint PCS Relationship and Agreements.................... 136
The Management Agreement.............................................. 136
The Services Agreements............................................... 141
The Trademark and Service Mark License Agreements..................... 141
Consents and Agreements in Connection with the Senior Credit
Facilities........................................................... 142
REGULATION OF THE WIRELESS TELECOMMUNICATIONS INDUSTRY.................. 150
Interconnection....................................................... 151
Universal Service Requirements........................................ 151
Transfers, Assignments and Control of PCS Licenses.................... 151
Enhanced 911.......................................................... 152
Communications Assistance for Law Enforcement Act..................... 152
PCS License Renewal................................................... 152
Build-Out Conditions of PCS Licenses.................................. 152
Other Federal Regulations............................................. 152
Wireless Facilities Siting............................................ 153
Equal Access.......................................................... 153
State Regulation of Wireless Service.................................. 153
COMPARISON OF CERTAIN RIGHTS OF COMMON STOCKHOLDERS OF AIRGATE AND
COMMON STOCKHOLDERS OF iPCS............................................ 154
LEGAL AND TAX MATTERS................................................... 157
EXPERTS................................................................. 157
OTHER MATTERS........................................................... 157
WHERE YOU CAN FIND MORE INFORMATION..................................... 158
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.............................. F-1
ANNEXES:
Annex A Agreement and Plan of Merger.................................... A-1
Annex B Form of Support Agreement....................................... B-1
Annex C Form of Registration Rights Agreement........................... C-1
Annex D Opinion of UBS Warburg LLC...................................... D-1
v
QUESTIONS AND ANSWERS ABOUT THE MERGER FOR AIRGATE STOCKHOLDERS
Q: Why are AirGate stockholders receiving these materials?
A: AirGate has agreed to acquire iPCS by merging a wholly owned subsidiary of
AirGate into iPCS. The merger cannot be completed without the approval of
the holders of a majority of the outstanding shares of AirGate common stock
that cast votes, either in person or by proxy, at the AirGate special
meeting.
Q: Why is AirGate seeking to acquire iPCS through the merger?
A: In light of the developing trends in the telecommunications industry and
consolidation in the wireless personal communications services, or PCS,
market, AirGate's board of directors believes that the merger represents a
strategic opportunity to significantly expand the size and scope of
AirGate's operations. By acquiring iPCS, AirGate would become the nation's
largest Sprint PCS network partner based on planned covered population, with
approximately 12 million residents expected to be covered by the combined
company's network by December 31, 2001. AirGate's board of directors
believes that, following the merger, AirGate will have greater financial
flexibility, operational efficiencies and growth potential than it would
have on its own.
To review AirGate's reasons for the merger in greater detail, please see
pages 31 through 33.
Q: What will AirGate stockholders receive as a result of the merger?
A: AirGate stockholders will continue to hold the same number of shares of
AirGate common stock after the merger. Shares of AirGate common stock will
be issued only to the iPCS stockholders.
Q: What will iPCS stockholders receive as a result of the merger?
A: Each share of iPCS common stock owned by iPCS stockholders (other than those
exercising dissenters' rights of appraisal, if any) immediately prior to the
merger will be exchanged in the merger for approximately 0.1594 of a share
of AirGate common stock, referred to as the exchange ratio. For example, if
an iPCS stockholder owns 1,000 shares of iPCS common stock, that iPCS
stockholder will receive 159 shares of AirGate common stock in the merger.
iPCS stockholders will receive only whole shares of AirGate common stock,
and cash in lieu of any fractional shares. The exchange ratio is subject to
adjustment if, among other things, iPCS issues additional securities,
including options and warrants, prior to the effective time of the merger.
Immediately prior to the effective time of the merger, each outstanding
share of iPCS preferred stock will automatically convert into one share of
iPCS common stock.
Q: What are AirGate stockholders being asked to vote upon?
A: AirGate stockholders are being asked to approve the merger, the merger
agreement and the issuance of up to 13.5 million shares of AirGate common
stock in the merger, which, assuming the exercise of all outstanding AirGate
and iPCS warrants and options, would represent approximately 47.5% of
AirGate's common stock immediately following the merger. This approval is
required under the rules of The Nasdaq National Market, the stock market on
which AirGate's common stock is listed and traded. AirGate's board of
directors unanimously authorized, approved and adopted the merger, the
merger agreement and the issuance of shares of AirGate common stock in the
merger, and unanimously recommends that AirGate stockholders vote for
approval of these matters.
Q: Will the iPCS stockholders who receive shares of AirGate common stock in the
merger be able to immediately resell their shares in the open market?
A: Substantially all of the iPCS stockholders will enter into lock-up
agreements with AirGate prior to the effective time of the merger. The lock-
up agreements will impose restrictions on the ability of such iPCS
stockholders to sell or otherwise dispose of their shares of AirGate common
stock for a minimum of 120 days after the effective time of the merger,
other than in connection with the proposed underwritten public offering of
AirGate common stock. Those iPCS stockholders not entering into lock-up
agreements with AirGate will be able to immediately resell their shares of
AirGate common stock after the merger in the
open market under this proxy statement/prospectus. For the founding iPCS
stockholders and their affiliates, 20% of their shares of AirGate common
stock generally will be released from all lock-up restrictions 120 days
after the effective time of the merger, an additional 30% will be released
211 days after the effective time, and the remaining 50% will be released
301 days after the effective time. For iPCS stockholders that are
affiliates of The Blackstone Group, referred to as Blackstone, and the
Trust Company of the West, referred to as TCW, the lock-up period will
apply for a period of 120 days after the effective time of the merger.
Q: When will the proposed underwritten public offering of AirGate common stock
occur?
A: AirGate will enter into a registration rights agreement at the effective
time of the merger with Blackstone, TCW and certain iPCS founding
stockholders. The registration rights agreement will require AirGate, upon
the request of Blackstone, to use its best efforts to complete an
underwritten public offering of shares of AirGate common stock within 120
days after the effective time of the merger. The offering will provide the
iPCS stockholders that sign the registration rights agreement an
opportunity to sell in an underwritten public offering a significant number
of the shares of AirGate common stock that they receive in the merger.
AirGate can give no assurance that it will be able to complete such
offering.
Q: How will the underwritten public offering affect the lock-up restrictions?
A: The managing underwriter of the underwritten public offering may require
each former iPCS stockholder that signs the registration rights agreement
to enter into a lock-up agreement that restricts such stockholder's ability
to sell or otherwise dispose of his, her or its remaining shares of AirGate
common stock for a period not to exceed 90 days after the completion of the
offering. This lock-up agreement will prohibit these former iPCS
stockholders during such period from selling or otherwise disposing of
their shares of AirGate common stock that otherwise would have been
released from the lock-up agreement with AirGate 120 days after the
effective time of the merger.
Q: Which AirGate stockholders are entitled to vote?
A: Each AirGate stockholder that owned shares of AirGate common stock as of
the close of business on October 12, 2001, the record date, is entitled to
vote, in person or by proxy, at the AirGate special meeting.
Q: What vote is required to approve the merger, the merger agreement and the
issuance of shares of AirGate common stock in the merger?
A: The proposal to be voted on at the AirGate special meeting requires the
approval of the holders of a majority of the outstanding shares of AirGate
common stock that cast votes, either in person or by proxy, at the meeting,
provided that the holders of a majority of the outstanding shares of
AirGate common stock vote or are represented at the AirGate special
meeting.
Q: What do AirGate stockholders need to do now?
A: After carefully reading and considering the information contained in this
proxy statement/prospectus, if you are an AirGate stockholder, please
complete and sign your proxy and return it in the enclosed return envelope
as soon as possible, so that your shares may be represented at the AirGate
special meeting. If you sign and send in your proxy and do not indicate how
you want to vote, AirGate will count your proxy as a vote in favor of the
merger, the merger agreement and the issuance of shares of AirGate common
stock in the merger.
The AirGate special meeting will take place on November 27, 2001. If your
shares are held at a brokerage firm or bank, you must provide them with
instructions on how to vote your shares. If you are a holder of record, you
may attend the AirGate special meeting and vote your shares in person
rather than signing and mailing your proxy.
Q: What if AirGate stockholders do not vote?
A: Failure by an AirGate stockholder to either vote at the meeting or return
his, her or its proxy will result in such stockholder's shares not being
counted for purposes of determining the presence of a quorum at the
2
AirGate special meeting or determining whether AirGate has received the
votes required to approve the merger, the merger agreement and the issuance
of shares of AirGate common stock in the merger.
. If you are an AirGate stockholder and return your proxy signed but do not
indicate how you want to vote, your proxy will be counted as a vote FOR
the merger, the merger agreement and the issuance of the shares of
AirGate common stock in the merger.
. If you are an AirGate stockholder and return your proxy and abstain from
voting, your proxy will not be counted as a vote cast on, and therefore
will not affect the outcome of, the proposal to approve the merger, the
merger agreement and the issuance of the shares of AirGate common stock
in the merger.
Q: If my broker or bank holds my shares in "street name," will my broker or
bank vote my shares?
A: If you are an AirGate stockholder, your broker or bank will vote your
shares for the merger, the merger agreement and the issuance of the shares
in the merger only if you provide them with instructions on how to vote.
You should follow the directions provided by your broker or bank regarding
how to instruct them to vote your shares. If you do not provide your broker
or bank with instructions on how to vote your shares, they will not vote
your shares and their failure to do so will have no effect in determining
whether the merger, the merger agreement and the issuance of shares of
AirGate common stock in the merger will be approved.
Q: Can I change my vote after I have mailed my signed proxy?
A: Yes. If you are an AirGate stockholder, you can change your vote at any
time before your proxy is voted at the AirGate special meeting. You can do
this in one of three ways. First, you can send a written notice stating
that you would like to revoke your proxy. Second, you can complete and
submit a new proxy. If you choose either of these two methods, you must
submit your notice of revocation or your new proxy to AirGate at the
address on page 159. Third, you can attend the AirGate special meeting and
vote in person.
If your shares are held in "street name" through an account at a brokerage
firm or bank, you should contact your brokerage firm or bank to change your
vote.
Q: When does AirGate expect to complete the merger?
A: AirGate is working to complete the merger as quickly as possible and
intends to do so shortly after the AirGate special meeting, provided that
AirGate has obtained the consents and regulatory approvals necessary for
the merger.
Q: Who can help answer the questions of AirGate stockholders?
A: If you are an AirGate stockholder and have any questions about the merger
or if you need additional copies of this proxy statement/prospectus or the
enclosed proxy, you should contact:
AirGate PCS, Inc.
Harris Tower
233 Peachtree Street NE, Suite 1700
Atlanta, Georgia 30303
Attention: Sharon Kushner
Telephone: (404) 525-7272
email: investorrelations@airgatepcsa.com
or
Georgeson Shareholder Communications Inc.
17 State Street
New York, New York 10004
Telephone: (800) 223-2064
Banks and Brokers (collect): (212) 440-9800
3
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROXY
STATEMENT/PROSPECTUS AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS
IMPORTANT TO YOU. TO UNDERSTAND THE MERGER FULLY AND FOR A MORE COMPLETE
DESCRIPTION OF THE LEGAL TERMS OF THE MERGER, YOU SHOULD CAREFULLY READ THIS
ENTIRE PROXY STATEMENT/PROSPECTUS, INCLUDING THE ANNEXES AND THE OTHER
DOCUMENTS TO WHICH WE HAVE REFERRED YOU. SEE "WHERE YOU CAN FIND MORE
INFORMATION" ON PAGE 158 FOR MORE DETAILS. WE HAVE INCLUDED PAGE REFERENCES
PARENTHETICALLY TO DIRECT YOU TO A MORE COMPLETE DESCRIPTION OF THE TOPICS
PRESENTED IN THIS SUMMARY.
The Companies (pages 74 and 99)
AirGate PCS, Inc.
Harris Tower
233 Peachtree Street NE, Suite 1700
Atlanta, Georgia 30303
(404) 525-7272
AirGate markets and provides digital personal communications services,
referred to as PCS. AirGate is a network partner of Sprint PCS, the personal
communications services group of Sprint Corporation. Sprint PCS, directly and
indirectly through network partners such as AirGate, provides wireless services
in more than 4,000 cities and communities across the country. Through AirGate's
management agreement with Sprint PCS, AirGate has the right to provide Sprint
PCS products and services under the Sprint and Sprint PCS brand names in a
territory that covers almost the entire state of South Carolina, parts of North
Carolina and the eastern Georgia cities of Augusta and Savannah. AirGate's
Sprint PCS territory encompasses 21 contiguous basic trading areas, referred to
as markets, with approximately 7.1 million residents.
AirGate launched Sprint PCS service in select markets in January 2000 and
currently offers service in all of its 21 Sprint PCS markets. AirGate's Sprint
PCS network currently covers approximately 5.9 million, or 82%, of the 7.1
million residents in its Sprint PCS territory. The number of residents covered
by AirGate's Sprint PCS network does not represent the actual number of its
subscribers that it expects to have in its territory, but instead represents
the maximum number of potential subscribers in that territory. As of June 30,
2001, AirGate provided Sprint PCS service to 179,403 subscribers within its
Sprint PCS territory.
AirGate's website is located at www.airgatepcsa.com. Information contained
on its website does not constitute a part of this proxy statement/prospectus.
iPCS, Inc.
1900 East Golf Road, Suite 900
Schaumburg, Illinois 60173
(847) 944-2900
iPCS markets and provides digital personal communications services. iPCS is
a network partner of Sprint PCS. Through iPCS' management agreement with Sprint
PCS, iPCS has the right to provide Sprint PCS products and services under the
Sprint and Sprint PCS brand names in a territory that covers mid-sized cities
and rural areas in Illinois, Michigan, Iowa and eastern Nebraska. iPCS' Sprint
PCS territory encompasses 37 markets with approximately 7.4 million residents.
4
iPCS launched Sprint PCS service in select markets in December 1999 and as
of June 30, 2001 offered service in 28 of its Sprint PCS markets. iPCS plans to
have substantially completed its network build-out by December 31, 2001. As of
June 30, 2001, iPCS' Sprint PCS network covered approximately 5.0 million, or
67%, of the 7.4 million residents in iPCS' Sprint PCS territory. As of June 30,
2001, iPCS was providing PCS service to 107,412 subscribers within its Sprint
PCS territory.
The Merger (page 29)
In the merger, iPCS will merge with a wholly owned subsidiary created by
AirGate for the purposes of this transaction. Following the merger, AirGate
will own 100% of iPCS. The merger agreement is attached to this proxy
statement/prospectus as Annex A. We encourage you to read the merger agreement
carefully. It is the principal document governing the merger.
What AirGate Stockholders Will Receive in the Merger
AirGate stockholders will continue to hold the same number of shares of
AirGate common stock after the merger. Only iPCS stockholders will receive
shares of AirGate common stock in the merger.
What iPCS Stockholders Will Receive in the Merger
Each share of iPCS common stock owned by iPCS stockholders (other than those
exercising dissenters' rights of appraisal, if any) immediately prior to the
merger will be exchanged in the merger for approximately 0.1594 of a share of
AirGate common stock, referred to as the exchange ratio. iPCS stockholders will
receive only whole shares of AirGate common stock, and cash in lieu of any
fractional shares. The exchange ratio is subject to adjustment if, among other
things, iPCS issues additional securities, including options and warrants,
prior to the effective time of the merger. Immediately prior to the effective
time of the merger, each outstanding share of iPCS preferred stock will
automatically convert into one share of iPCS common stock.
Ownership of AirGate after the Merger
Holders of common stock and other securities of iPCS will receive up to 13.5
million shares of AirGate common stock in the merger. Based on that number and
assuming the exercise of all outstanding AirGate and iPCS options and warrants,
former iPCS securityholders will own in the aggregate approximately 47.5%, and
existing AirGate securityholders will own approximately 52.5%, of AirGate's
common stock immediately following the merger.
AirGate Board of Directors Recommendation (page 33)
The AirGate board of directors has determined that the merger and the other
transactions contemplated by the merger agreement are advisable and fair to and
in the best interests of AirGate and its stockholders and unanimously
recommends that AirGate stockholders vote FOR approval of the merger, the
merger agreement and the issuance of the shares of AirGate common stock in the
merger.
To review the background and reasons for the merger in greater detail, as
well as certain risks related to the merger, please see pages 29 through 31, 31
through 33 and 16 through 18.
Fairness Opinion of AirGate's Financial Advisor (page 33)
AirGate's financial advisor, UBS Warburg LLC, has delivered a written
opinion to the AirGate board of directors as to the fairness of the exchange
ratio, from a financial point of view, to the AirGate stockholders. UBS
Warburg's written opinion, as of August 28, 2001, is attached to this proxy
statement/prospectus as
5
Annex D. We encourage you to read this opinion carefully in its entirety for a
description of the procedures followed, assumptions made, matters considered
and limitations on the review undertaken. The opinion does not constitute a
recommendation to any AirGate stockholder as to any matters relating to the
merger.
The AirGate Special Meeting (page 27)
The special meeting of AirGate stockholders will be held at the Marriott
Marquis, 265 Peachtree Center Avenue, N.E., Atlanta, Georgia 30303, at 1:00
p.m., local time, on November 27, 2001. At the AirGate special meeting,
stockholders will be asked to authorize, approve and adopt the merger, the
merger agreement and the issuance of shares of AirGate common stock in the
merger.
AirGate Record Date; Voting Power (page 27)
AirGate stockholders are entitled to vote at the AirGate special meeting if
they owned shares of AirGate common stock as of the close of business on
October 12, 2001, the record date.
On October 12, 2001, there were 13,364,980 shares of AirGate common stock
entitled to vote at the AirGate special meeting. AirGate stockholders will have
one vote at the AirGate special meeting for each share of AirGate common stock
that they owned on the record date.
AirGate Votes Required (page 27)
The affirmative vote of the holders of a majority in voting power of all
shares of AirGate common stock casting votes, either in person or by proxy, at
the AirGate special meeting is required to approve the merger, the merger
agreement and the issuance of shares of AirGate common stock in the merger,
provided that the holders of a majority of the outstanding shares of AirGate
common stock vote or are represented at the meeting.
Shares representing approximately 1.0% of the voting power of the issued and
outstanding shares of AirGate common stock currently are beneficially owned by
AirGate's directors, executive officers and their respective affiliates, all of
whom AirGate expects will vote their shares for approval of the merger, the
merger agreement and the issuance of shares of AirGate common stock in the
merger.
iPCS Votes Required
The affirmative vote of the holders of a majority of all issued and
outstanding shares of iPCS voting stock is required to approve the merger and
the merger agreement.
Shares representing approximately 90.0% of the voting power of the issued
and outstanding shares of iPCS voting stock currently are beneficially owned by
iPCS' directors, executive officers and their respective affiliates, all of
whom iPCS expects will vote their shares of iPCS voting stock for approval of
the merger and the merger agreement.
Support Agreements with Certain iPCS Stockholders (page 55)
AirGate has entered into support agreements with iPCS stockholders that
beneficially own approximately 79.4% of the issued and outstanding shares of
iPCS voting stock. These stockholders have agreed to vote all of their iPCS
shares, at any meeting of iPCS stockholders or on every action by written
consent of iPCS stockholders, in favor of adoption of the merger agreement and
the other transactions contemplated by the merger agreement, and against any
competing proposal.
6
Conditions to the Completion of the Merger (page 45)
AirGate and iPCS will complete the merger only if they satisfy or, in some
cases, waive, the conditions set forth in the merger agreement, including the
following:
. AirGate stockholders approve the issuance of the shares of AirGate
common stock to the iPCS stockholders;
. iPCS stockholders approve and adopt the merger agreement and the merger;
. the registration statement of which this proxy statement/prospectus is a
part is declared effective and is not the subject of any stop order or
related proceeding;
. all consents, permits, licenses and approvals required by any
governmental authority have been obtained;
. no legal restraints or prohibitions exist which prevent the completion
of the merger;
. AirGate common stock issuable to iPCS stockholders in the merger has
been approved for listing on The Nasdaq National Market, subject to
official notice of issuance;
. AirGate and iPCS have satisfied the representations, warranties and
obligations contained in the merger agreement in all material respects,
except where the failure to do so would not have a material adverse
effect on AirGate or iPCS;
. the consent or approval of Sprint PCS, which has been obtained;
. the consent or approval of the lenders under the AirGate and iPCS senior
credit facilities, which have been obtained;
. AirGate and certain iPCS stockholders have entered into a registration
rights agreement that provides such iPCS stockholders with rights to
have their shares of AirGate common stock received in the merger
registered under the Securities Act; and
. no event of default by either AirGate or iPCS exists under their
respective credit facilities and no material default exists under their
respective management agreements with Sprint PCS.
AirGate cannot be certain when, or if, the conditions to the merger will be
satisfied or waived, or that the merger will be completed.
Termination of the Merger Agreement (page 51)
AirGate and iPCS can jointly agree to terminate the merger agreement and not
complete the merger at any time before the effective time of the merger. The
effective time of the merger will be no later than three business days after
the date on which AirGate and iPCS have satisfied, or in some cases, waived,
the closing conditions to the merger described above under the paragraph "--
Conditions to the Completion of the Merger."
Either AirGate or iPCS can terminate the merger agreement on its own before
the effective time of the merger if:
. the merger is not completed by March 1, 2002, provided that failure to
complete the merger is not the result of a failure by the party seeking
to terminate the merger agreement to perform the covenants and
agreements of such party;
. any required approval of the AirGate stockholders or the iPCS
stockholders has not been obtained by reason of the failure to obtain
the required vote at a duly held meeting of such stockholders, provided
that the party seeking to terminate the merger agreement is not in
material breach of any of its obligations under the merger agreement;
7
. the other party is in material breach of any of its representations and
warranties contained in the merger agreement that is not cured within 30
days after notice of such breach, unless such breach has not had a
material adverse effect on such other party;
. the other party is in material breach of any of its material covenants
or agreements contained in the merger agreement that is not cured within
30 days after notice of such breach; or
. any decree, permanent injunction, judgment, order or other action by any
governmental authority preventing the merger becomes final and
nonappealable.
Termination Fees (page 52)
AirGate must pay iPCS a termination fee of 257,000 shares of AirGate common
stock if iPCS terminates the merger agreement because of the failure of AirGate
to obtain the required approval of its stockholders to the issuance of shares
of AirGate common stock in the merger.
Directors of AirGate Following the Merger (page 51)
In accordance with the merger agreement, AirGate has caused two of the eight
members of its board of directors to resign and will increase the authorized
number of members of its board of directors to nine, effective as of the
effective time of the merger. In addition, AirGate has agreed to cause its
remaining directors to fill the resulting vacancies so that its board of
directors will include one member designated by iPCS for a term to expire at
AirGate's 2002 annual meeting, one member designated by Blackstone for a term
to expire at AirGate's 2003 annual meeting, and one member, to be an
independent director, designated by iPCS with the approval of AirGate, for a
term to expire at AirGate's 2004 annual meeting. AirGate has agreed to nominate
for re-election at its 2002 annual meeting the director designated by iPCS
whose term expires at the 2002 annual meeting for a term to expire at AirGate's
2005 annual meeting. At the effective time of the merger, the AirGate board of
directors will appoint at least one of the directors designated by iPCS or
Blackstone to all AirGate board committees.
Lock-Up Agreements (page 55)
Substantially all of the iPCS stockholders have agreed to enter into lock-up
agreements with AirGate prior to the effective time of the merger. The lock-up
agreements will prohibit such former iPCS stockholders from selling or
otherwise disposing of the shares of AirGate common stock that they receive in
the merger for a minimum of 120 days after the effective time of the merger,
other than in connection with the proposed underwritten public offering of
AirGate common stock. Those iPCS stockholders that do not enter into a lock-up
agreement with AirGate will be able to immediately resell their shares of
AirGate common stock in the open market under this proxy statement/prospectus.
For the founding iPCS stockholders, 20% of their shares of AirGate common
stock generally will be released from the lock-up restrictions 120 days after
the effective time of the merger, an additional 30% will be released 211 days
after the effective time and the remaining 50% will be released 301 days after
the effective time. For iPCS stockholders that are affiliates of Blackstone and
TCW, the lock-up period will apply for a period of 120 days after the effective
time of the merger. The expiration of the lock-up period for the founding iPCS
stockholders, Blackstone and TCW is subject to the expiration of an additional
lock-up period not to exceed 90 days following the completion of the proposed
underwritten public offering of AirGate common stock that the managing
underwriter may require for those former iPCS stockholders that sign the
registration rights agreement.
Underwritten Public Offering; Registration Rights (page 56)
AirGate will enter into a registration rights agreement at the effective
time of the merger with iPCS stockholders that will receive approximately 92.7%
of the shares of AirGate common stock issued in the
8
merger, assuming the exercise of all outstanding iPCS options and warrants.
The registration rights agreement will require AirGate, upon the request of
Blackstone, to use its best efforts to complete within 120 days of the
effective time of the merger an underwritten public offering of shares of
AirGate common stock held by the former iPCS stockholders that have signed the
registration rights agreement. The number of shares of AirGate common stock to
be sold in the offering will be subject to market conditions and depend upon
the number of shares of AirGate common stock that the former iPCS stockholders
request to be included in such offering. Generally, 75% of the shares included
in the offering will be shares owned by Blackstone and TCW and 25% will be
shares owned by the founding iPCS stockholders. The registration rights
agreement prohibits AirGate from effecting any public sale or distribution of
its common stock during a period of 90 days after the completion of the
offering.
Each former iPCS stockholder that signs the registration rights agreement
may be required by the managing underwriter not to sell or otherwise dispose
of such stockholder's remaining shares of AirGate common stock for a period
not to exceed 90 days after the completion of the offering. This underwriter's
lock-up will prohibit these former iPCS stockholders during such period from
selling or otherwise disposing of his, her or its shares of AirGate common
stock that otherwise would have been released from the lock-up agreement with
AirGate 120 days after the effective time of the merger.
The registration rights agreement also will give Blackstone the right, at
any time after the first anniversary of the effective time of the merger, to
require AirGate to effect the registration of all or part of the AirGate
common stock then owned by the former iPCS stockholders that have signed the
registration rights agreement. In the event that Blackstone transfers 75% of
the shares of AirGate common stock held by it immediately after the effective
time of the merger without exercising this demand right, Geneseo
Communications, Inc., one of the iPCS founding stockholders, will have the
ability to exercise such demand right. The stockholder exercising the demand
right may require that AirGate complete an underwritten public offering of the
shares of AirGate common stock requested to be registered. AirGate has no
obligation, however, to complete an underwritten public offering unless the
sale of shares of AirGate common stock requested to be included in such
offering would result in initial aggregate proceeds of at least $40 million.
Regulatory and Third Party Approvals (page 39)
Regulatory Approvals. United States antitrust laws prohibit AirGate and
iPCS from completing the merger until AirGate, iPCS and certain stockholders
of iPCS have furnished certain information and materials to the Antitrust
Division of the Department of Justice and the Federal Trade Commission and a
30-day waiting period has expired or been earlier terminated. The required
notification and report forms were filed with the Antitrust Division and the
Federal Trade Commission by AirGate and iPCS on October 4, 2001 and by certain
stockholders of iPCS on October 11, 2001.
Third Party Approvals. AirGate is prohibited from completing the merger
unless it has obtained the following third party approvals:
. approval from its stockholders for the issuance of shares of AirGate
common stock in the merger, which approval is being sought at the
AirGate special meeting; and
. approval under its senior credit facility for the creation of the
AirGate merger subsidiary and consummation of the transactions
contemplated by the merger agreement, which has been obtained.
iPCS is prohibited from completing the merger unless it has obtained the
following third party approvals:
. approval from its stockholders of the merger and the merger agreement;
. approval from Sprint PCS under its Sprint PCS management agreement of
the merger, which has been obtained; and
9
. approval under its senior credit facility to the change of control of
iPCS that will occur as a result of the merger and the consummation of
the transactions contemplated by the merger agreement, which has been
obtained.
Accounting Treatment (page 40)
The merger will be accounted for as a "purchase," as such term is used under
generally accepted accounting principles. Accordingly, from and after the
effective time of the merger, iPCS' consolidated results of operations will be
included in AirGate's consolidated results of operations. For purposes of
preparing AirGate's consolidated financial statements, AirGate will establish a
new accounting basis for iPCS' assets and liabilities based upon their
estimated fair market values and AirGate's purchase price, including the costs
of the acquisition. Accordingly, the purchase accounting adjustments made in
connection with the development of the unaudited pro forma condensed
consolidated financial information appearing elsewhere in this proxy
statement/prospectus are preliminary. These adjustments have been made solely
for purposes of developing such pro forma condensed consolidated financial
information to comply with disclosure requirements of the SEC. Although the
final purchase price allocation may differ, the pro forma condensed
consolidated financial information reflects AirGate management's best estimate
based upon currently available information.
Material United States Federal Income Tax Consequences of the Merger (page 41)
The merger has been structured so that, in general, iPCS stockholders will
not recognize gain or loss for U.S. federal income tax purposes, except to the
extent they receive cash in lieu of fractional shares of AirGate common stock.
Tax consequences will depend upon each iPCS stockholder's individual
circumstances. Each iPCS stockholder is strongly urged to consult his, her or
its own tax advisor as to the specific applicable tax consequences of the
merger, including federal, state, local and foreign income and other tax
consequences.
Dissenters' Rights of Appraisal (page 40)
Under the Delaware General Corporation Law, AirGate stockholders are not
entitled to dissenters' rights of appraisal in connection with the merger.
Under Delaware law, iPCS stockholders are entitled to dissenters' rights of
appraisal. iPCS stockholders who do not vote for the merger and who satisfy
certain other conditions described on page 40 of this proxy
statement/prospectus are entitled to be paid the "fair value" of their shares
of iPCS common or preferred stock, as determined by the Delaware Court of
Chancery. Dissenters' rights of appraisal are only available to iPCS
stockholders who satisfy certain conditions, as described further in this proxy
statement/prospectus under "The Merger--Dissenters' Rights of Appraisal."
Expenses (page 54)
Whether or not the merger is completed, each of AirGate and iPCS will pay
its own costs and expenses incurred by it in connection with the negotiation
and preparation of the merger agreement and its performance and compliance
thereunder. AirGate, however, will be solely responsible for certain filing
fees and costs in connection with the registration statement on Form S-4, of
which this proxy statement/prospectus forms a part, and federal antitrust law
filings.
Indemnification (page 54)
The merger agreement does not provide AirGate with any contractual
indemnification from the iPCS stockholders following the merger for any
breaches of the representations and warranties of iPCS or any failure of iPCS
to comply with its obligations under the merger agreement.
10
Selling Stockholders; Plan of Distribution (pages 58 and 60)
This document also relates to the offer and resale by the iPCS stockholders
of up to 13,316,382 shares of AirGate common stock issued to them in the
merger. The selling stockholders have not advised AirGate of any specific plans
for the distribution of the resale shares. It is anticipated that the sale or
distribution of all or any portion of the resale shares offered hereby may be
effected from time to time by the selling stockholders directly, indirectly to
or through brokers or dealers, or in a distribution by one or more underwriters
on a firm commitment or best efforts basis, on The Nasdaq National Market, in
the over-the-counter market, on any national securities exchange on which the
shares are listed or traded, in privately negotiated transactions, or
otherwise, at market prices prevailing at the time of sale, at prices related
to such prevailing market prices or at negotiated prices. In addition to sales
by the selling stockholders pursuant to this document, it is contemplated that
AirGate will undertake an underwritten public offering, within 120 days of the
effective time of the merger, of the shares of AirGate common stock issued to
certain of the iPCS stockholders in the merger.
11
SUMMARY SELECTED HISTORICAL FINANCIAL DATA
Market Price Information
Shares of AirGate 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 AirGate common stock. On August 28, 2001, the last trading
day prior to public announcement of the proposed merger, the last reported
sales price per share of AirGate common stock on The Nasdaq National Market was
$59.47. On October 15, 2001, the last trading day before the date of this proxy
statement/prospectus, the last reported sales price per share of AirGate common
stock on The Nasdaq National Market was $58.81. On October 15, 2001, there were
57 holders of record of AirGate common stock.
AirGate PCS, Inc. and Subsidiaries Selected Financial Data
The selected statement of operations and balance sheet data presented below
is derived from AirGate's audited consolidated financial statements as of and
for the years ended December 31, 1996, 1997 and 1998, the nine months ended
September 30, 1999, and the year ended September 30, 2000 and AirGate's
unaudited consolidated financial statements as of June 30, 2001 and for the
nine months ended June 30, 2000 and 2001.
The unaudited financial statements include all adjustments, consisting of
normal recurring accruals, that management considers necessary to a fair
presentation of financial position and results of operations. Operating results
for the nine-month period ended June 30, 2001 are not necessarily indicative of
the results that may be expected for the entire year ending September 30, 2001.
The data set forth below should be read in conjunction with AirGate's
consolidated financial statements and accompanying notes and "AirGate
Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this proxy statement/prospectus.
For the Year Ended
December 31,
-------------------------
For the Nine For the Year For the Nine Months
Months Ended Ended Ended June 30,
September 30, September 30, ---------------------
1996 1997 1998 1999 2000 2000 2001
------- ------- ------- ------------- ------------- -------- -----------
(In thousands, except for per share and subscriber data)
(unaudited)
Statement of Operations
Data:
Revenues................ $ -- $ -- $ -- $ -- $ 24,502 $ 8,252 $104,798
Cost of service, roaming
and equipment.......... -- -- -- -- (32,892) (17,760) (85,828)
Total operating
expenses............... (1,271) (2,099) (3,801) (6,241) (89,026) (48,870) (169,835)
Operating loss.......... (1,271) (2,099) (3,801) (6,241) (64,524) (40,618) (65,037)
Net loss................ (1,853) (2,916) (5,193) (15,599) (81,323) (52,128) (85,978)
Basic and diluted net
loss per share of
common stock........... $ (0.55) $ (0.86) $ (1.54) $ (4.57) $ (6.60) $ (4.27) $ (6.61)
======= ======= ======= ======== ======== ======== ========
Other Data:
Number of subscribers at
end of period.......... -- -- -- -- 56,689 23,482 179,403
As of
As of December 31, As of September 30, June 30,
------------------------- --------------------------- -----------
1996 1997 1998 1999 2000 2001
------- ------- ------- ------------- ------------- -----------
(In thousands)
(unaudited)
Balance Sheet Data:
Cash and cash
equivalents............ $ 6 $ 147 $ 2,296 $258,900 $ 58,384 $ 7,846
Property and equipment,
net.................... 11 17 12,545 44,206 183,581 203,157
Total assets............ 2,196 13,871 15,450 317,320 268,948 257,816
Long-term debt.......... -- 11,745 7,700 165,667 180,727 242,122
Total stockholders'
equity (deficit)....... (3,025) (1,750) (5,350) 127,846 49,873 (29,265)
12
iPCS, Inc. and Subsidiaries and Predecessor Selected Financial Data
The selected statement of operations and balance sheet data presented below
is derived from iPCS' audited consolidated financial statements as of and for
the period from January 22, 1999 (date of inception) through December 31, 1999,
as of and for the year ended December 31, 2000 and iPCS' unaudited consolidated
financial statements as of June 30, 2001 and for the six months ended June 30,
2000 and 2001.
The unaudited financial statements include all adjustments, consisting of
normal recurring accruals, that management considers necessary to a fair
presentation of financial position and results of operations. Operating results
for the six-month period ended June 30, 2001 are not necessarily indicative of
the results that may be expected for the entire year ending December 31, 2001.
The data set forth below should be read in conjunction with iPCS'
consolidated financial statements and accompanying notes and "iPCS Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this proxy statement/prospectus.
For the Period from For the Six
January 22, 1999 Months Ended June
(date of inception) For the Year 30,
through Ended ------------------
December 31, 1999 December 31, 2000 2000 2001
------------------- ----------------- -------- --------
(In thousands, except for per share and subscriber
data)
(unaudited)
Statement of Operations
Data:
Revenues................ $ 215 $ 23,978 $ 5,105 $ 42,011
Cost of service, roaming
and equipment.......... (2,179) (27,488) (7,291) (42,346)
Total operating
expenses............... (4,858) (71,078) (25,220) (68,926)
Operating loss.......... (4,643) (47,100) (20,115) (26,915)
Net loss................ (4,380) (56,157) (20,416) (33,812)
Net loss available to
common stockholders.... (4,380) (104,507) (20,416) (38,731)
Basic and diluted net
loss per share of
common stock........... $ (0.10) $ (2.33) $ (0.46) $ (0.86)
======= ========= ======== ========
Other Data:
Number of subscribers at
end of period.......... 1,981 46,773 14,049 107,412
As of December
31, As of
---------------- June 30,
1999 2000 2001
------- -------- -----------
(In thousands)
(unaudited)
Balance Sheet Data:
Cash and cash equivalents.......................... $ 2,733 $165,958 $ 90,780
Property and equipment, net........................ 39,106 126,803 183,508
Total assets....................................... 44,843 328,575 346,237
Long-term debt and accrued interest................ 27,571 163,800 201,653
Redeemable preferred stock......................... -- 114,080 118,999
Total stockholders' equity (deficit)............... 9,120 12,718 (24,993)
AirGate PCS, Inc. and Subsidiaries Selected Unaudited Pro Forma Financial Data
The following unaudited pro forma condensed consolidated financial data
combine the historical consolidated balance sheets and statements of operations
of AirGate and iPCS. These unaudited pro forma financial data give effect to
the acquisition of iPCS by AirGate using the purchase method of accounting.
We derived the statement of operations and balance sheet data from the
unaudited consolidated financial statements of AirGate for the nine months
ended June 30, 2001, the audited consolidated financial statements of AirGate
for the year ended September 30, 2000, the unaudited consolidated financial
statements of iPCS for the
13
six months ended June 30, 2001 and the audited consolidated financial
statements of iPCS for the year ended December 31, 2000. The results of iPCS
for the three months ended December 31, 2000 are included in both the nine
months ended June 30, 2001 and the year ended December 31, 2000 as follows (in
thousands): Revenues--$11,340; Operating loss--$16,469; Net loss--$20,155. This
data is only a summary and should be read in conjunction with the historical
financial statements and related notes contained elsewhere in this proxy
statement/prospectus for the periods presented. For presentation of the pro
forma financial aspects of these transactions, see "Pro Forma Condensed
Consolidated Financial Statements (unaudited)."
The unaudited pro forma condensed consolidated statements of operations for
the nine months ended June 30, 2001 and for the year ended September 30, 2000
give effect to the merger as if the merger had been consummated at the
beginning of the earliest period presented. The unaudited pro forma condensed
consolidated balance sheet as of June 30, 2001 gives effect to the merger as if
it was effected on June 30, 2001. Certain reclassifications have been made to
iPCS's historical presentation to conform to AirGate's presentation. These
reclassifications do not materially impact AirGate's or iPCS' operations or
financial position for the periods presented.
AirGate is providing the unaudited pro forma condensed consolidated
financial data for illustrative purposes only. The companies may have performed
differently had they been combined during the periods presented. You should not
rely on the unaudited pro forma condensed consolidated financial data as being
indicative of the historical results that would have been achieved had the
companies been combined during the periods presented or the future results that
the combined company will experience.
For the Nine
For the Fiscal Months Ended
Year Ended June 30,
September 30, 2000 2001
------------------ ------------
(unaudited)
(In thousands, except for per
share and subscriber data)
Statement of Operations Data:
Revenues:
Service revenue.............................. $ 19,589 $ 90,641
Roaming revenue.............................. 19,852 52,304
Equipment and other revenue.................. 5,676 11,732
---------- ----------
Total revenues............................. 45,117 154,677
Operating expenses:
Cost of service and roaming.................. (43,379) (108,141)
Cost of equipment............................ (14,159) (27,801)
Selling and marketing........................ (40,719) (70,499)
General and administrative................... (24,964) (20,804)
Noncash stock option compensation............ (10,145) (1,225)
Depreciation and amortization................ (65,642) (66,832)
---------- ----------
Operating loss............................. (153,891) (140,625)
Interest expense, net.......................... (25,929) (33,337)
Other income................................... 726 1,189
---------- ----------
Loss before income tax benefit............... (179,094) (172,773)
Income tax benefit............................. 58,569 46,990
---------- ----------
Net loss................................... $ (120,525) $ (125,783)
========== ==========
Basic and diluted net loss per share of
common stock................................ $ (4.88) $ (4.96)
========== ==========
Other Data:
Number of subscribers at end of period....... 103,462 286,815
14
As of June 30, 2001
-------------------
(unaudited)
(In thousands)
Balance Sheet Data:
Cash and cash equivalents........................... $ 77,826
Property and equipment, net......................... 386,665
Total assets........................................ 1,425,580
Long-term debt...................................... 457,122
Total stockholders' equity.......................... 767,362
Comparative Per Share Data
The following table reflects the historical net loss per share of AirGate
common stock in comparison with the pro forma net loss per share of AirGate
common stock after giving effect to the proposed merger on a purchase
accounting basis. The data presented in this table should be read in
conjunction with the pro forma condensed consolidated financial statements and
the separate consolidated financial statements of AirGate and iPCS and related
notes contained elsewhere in this proxy statement/prospectus. AirGate has not
paid any dividends to its stockholders during the periods presented.
For the Year Ended For the Nine Months
September 30, 2000 Ended June 30, 2001
-------------------- --------------------
Historical Pro Forma Historical Pro Forma
---------- --------- ---------- ---------
Basic and diluted net loss per share
of common stock.................... $(6.60) $(4.88) $(6.61) $(4.96)
15
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION INCLUDED IN THIS PROXY
STATEMENT/PROSPECTUS, THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY
IN DECIDING HOW TO VOTE ON THE MERGER, THE MERGER AGREEMENT AND THE ISSUANCE OF
SHARES OF AIRGATE COMMON STOCK IN THE MERGER. VARIOUS PROVISIONS OF THIS PROXY
STATEMENT/PROSPECTUS CONTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN
THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN RISK FACTORS, INCLUDING
THOSE SET FORTH BELOW AND ELSEWHERE IN THIS PROXY STATEMENT/PROSPECTUS, AND
AIRGATE'S AND iPCS' FILINGS WITH THE SEC. UNLESS THE CONTEXT OTHERWISE
REQUIRES, THE USE OF "WE", "OUR", "US" AND "THE COMBINED COMPANY" REFERS TO THE
COMBINED COMPANY OF AIRGATE AND iPCS AFTER GIVING EFFECT TO THE MERGER.
Risks Related to the Merger
The integration of AirGate and iPCS following the merger will present
significant challenges
AirGate entered into the merger agreement with the expectation that the
merger will result in expanding its existing network and customer base and
leveraging the best operating practices of both organizations. Achieving the
benefits of the merger will depend in part on integrating the operations of the
two businesses in an efficient manner. We cannot assure you that this will
occur. To realize the anticipated benefits of this combination, AirGate's
management team must develop strategies and implement a business plan that will
successfully:
.manage the networks and markets of AirGate and iPCS;
. maintain adequate focus on existing business and operations while
working to integrate the two companies;
.combine two companies with limited operating histories;
. manage both companies' cash and available credit lines for use in
financing future growth and working capital needs;
.manage the marketing and sales of AirGate and iPCS;
.manage the transition of iPCS' senior management expertise to the combined
company; and
. retain and attract key employees of the combined company during a period
of transition.
The diversion of management's attention from ongoing operations and any
difficulties encountered in the transition and integration process could have a
material adverse effect on our financial condition and results of operations.
The issuance of AirGate common stock in the merger may cause dilution to
AirGate stockholders
We believe that certain benefits will result from the merger. However, we
cannot assure you that combining the businesses of AirGate and iPCS, even if
achieved in an efficient, effective and timely manner, will result in combined
results of operations and financial conditions superior to those that AirGate
and iPCS could have achieved independently. The issuance of AirGate common
stock in the merger could reduce the market price of AirGate's common stock.
The benefits of the transaction to us will depend on revenue growth or other
benefits sufficient to offset the effects of such stock issuance. We cannot
assure you that we will achieve such benefits.
Future sales of shares of AirGate common stock, including sales of shares in
the proposed underwritten public offering or following the expiration of
"lock-up" arrangements, may negatively affect AirGate's stock price
As a result of the merger, the iPCS securityholders will receive up to 13.5
million shares of AirGate common stock, including 1.1 million shares reserved
for issuance upon the exercise of the outstanding iPCS
16
options and warrants to be assumed by AirGate. The shares of AirGate common
stock to be issued in the merger would represent approximately 47.5% of
AirGate's common stock immediately following the merger, assuming the exercise
of all outstanding AirGate and iPCS warrants and options.
As a condition to the obligation of AirGate to complete the merger, holders
of substantially all of the outstanding shares of iPCS common and preferred
stock must enter into "lock-up" agreements with AirGate prior to the effective
time of the merger. The lock-up agreements will impose restrictions on the
ability of such stockholders to sell or otherwise dispose of the shares of
AirGate common stock that they receive in the merger. The lock-up period will
begin at the effective time of the merger and extend for a minimum of 120 days
and a maximum of 300 days after the effective time of the merger. During the
lock-up period, the former iPCS stockholders that sign lock-up agreements will
be able to sell all or a portion of their shares of AirGate common stock in the
proposed underwritten public offering.
AirGate has agreed to file the registration statement of which this proxy
statement/prospectus is a part in order to allow the former iPCS stockholders
to freely resell the shares of AirGate common stock that they receive in the
merger. In addition, AirGate will enter into a registration rights agreement at
the effective time of the merger with some of the former iPCS stockholders. The
registration rights agreement will require us to use our best efforts to
complete, at the request of Blackstone, within 120 days after the effective
time of the merger an underwritten public offering of a significant number of
the shares of AirGate common stock that the former iPCS stockholders receive in
the merger. The number of shares of AirGate common stock sold in this offering
will be subject to market conditions and depend upon the number of shares these
former iPCS stockholders elect to include in the offering. In addition, these
former iPCS stockholders have an additional demand registration right
exercisable at any time after the first anniversary of the effective time of
the merger.
Sales of substantial amounts of shares of AirGate common stock, or even the
potential for such sales, could lower the market price of AirGate's common
stock and impair AirGate's ability to raise capital through the sale of equity
securities.
We expect to incur significant costs associated with the merger
AirGate will incur significant direct transaction costs associated with the
merger, which will be included as a part of the total purchase price for
accounting purposes. In addition, iPCS will incur direct transaction expenses,
which iPCS will expense as incurred. Further, following the closing of the
merger, iPCS will incur severance expenses in connection with the termination
of the employment of certain officers of iPCS, and the combined company will
incur other costs associated with integrating the two companies. Because a
portion of the severance expenses are calculated based upon the market price of
AirGate common stock at the effective time of the merger, if the price of
AirGate common stock at the effective time of the merger is greater than the
price of AirGate common stock at the date of announcement of the merger, the
severance costs will increase. We cannot assure you that we will not incur
additional material charges in subsequent quarters to reflect additional costs
associated with the merger.
In addition, if the merger is not completed due to AirGate's failure to
obtain the required stockholder approval of the issuance of shares of AirGate
common stock in the merger, iPCS will have the right to terminate the merger
agreement and require AirGate to issue to iPCS 257,000 shares of AirGate common
stock as a termination fee. AirGate also would be required to register such
common stock with the SEC. Finally, AirGate's costs related to the merger, such
as legal and accounting costs, and some of the fees of its financial advisors,
must be paid even if the merger is not completed.
Because the former iPCS stockholders will not be providing AirGate any
indemnification following the merger, the combined company will become
responsible for any undisclosed liabilities of iPCS
iPCS has made certain representations and warranties to AirGate in the
merger agreement concerning iPCS' business and operations. The merger agreement
does not provide AirGate with any contractual indemnification from the iPCS
stockholders following the merger for any breaches of the representations and
17
warranties of iPCS or any failure of iPCS to comply with its obligations under
the merger agreement. As a result, the combined company will become
responsible for any undisclosed liabilities of iPCS. We cannot assure you that
any such liabilities for which the combined company becomes responsible will
not materially impact our results of operations.
Risks Related to the Combined Company's Business, Strategy and Operations
Given the limited operating history of AirGate and iPCS, if we do not
successfully manage the combined company's operations and expected growth,
our operating performance may be adversely impacted
AirGate and iPCS have limited operating histories. The combined company's
ability to achieve and sustain operating profitability will depend upon many
factors, including our ability to market Sprint PCS services and manage
customer turnover rates. In addition, a key factor in our operational
performance after the merger will depend upon our ability to manage the growth
of iPCS through the completion of its network build-out and through
implementing the combined company's best practices to increase market
penetration in iPCS' and AirGate's current and future markets. iPCS will
require additional expenditures of significant funds for the continued
development, construction, testing, deployment and operation of its network.
These activities are expected to place demands on our managerial, operational
and financial resources.
Failure to successfully manage the combined company's operations and
expected growth could adversely impact our results of operations.
AirGate's stock price may be volatile
The market price of AirGate's common stock could be subject to wide
fluctuations in response to factors such as the following, some of which are
beyond our control:
. quarterly variations in the combined company's operating results;
. operating results of the combined company that vary from the
expectations of securities analysts and investors;
. changes in expectations as to the combined company's future financial
performance, including financial estimates by securities analysts and
investors;
.changes in the combined company's relationship with Sprint PCS;
. announcements by Sprint PCS concerning developments or changes in its
business, financial condition or results of operations, or in its
expectations as to future financial performance;
. announcements of technological innovations or new products and services
by Sprint PCS or our competitors;
. changes in results of operations and market valuations of other
companies in the telecommunications industry in general and the wireless
industry in particular, including Sprint PCS and its network partners
and our competitors;
. departures of key personnel;
. changes in law and regulation;
. announcements by third parties of significant claims or proceedings
against the combined company;
. announcements by the combined company or its competitors of significant
contracts, acquisitions, strategic partnerships, joint ventures or
capital commitments; and
. general economic and competitive conditions.
The failure of iPCS to timely complete the build-out of its network may
result in a decrease in the number of expected new PCS subscribers and
adversely affect our results of operations
18
In order to complete its network build-out, iPCS must successfully lease or
otherwise retain rights to a sufficient number of radio communications and
network control sites, complete the purchase and installation of equipment,
build-out the physical infrastructure and test the network. Regulatory
changes, engineering design changes and/or required technological upgrades
could affect the number and location of iPCS' towers as well as iPCS' ability
to obtain sufficient rights to meet its network build-out requirements. Any
failure by iPCS to complete its network build-out on a timely basis may limit
iPCS' network capacity and/or reduce the number of expected new PCS
subscribers, either of which could adversely affect our results of operations.
Our territory has limited amounts of licensed spectrum, which may adversely
affect the quality of our service and our results of operations
Sprint PCS has licenses covering 10 MHz of spectrum in AirGate's territory.
While Sprint PCS has licenses covering 30 MHz of spectrum throughout most of
iPCS' territory, it has licenses covering only 10 MHz or 20 MHz in parts of
Illinois. In the future, as the number of customers in our territory
increases, this limited amount of licensed spectrum may not be able to
accommodate increases in call volume, may lead to increased dropped calls and
may limit our ability to offer enhanced services, all of which could result in
increased customer turnover and adversely affect our results of operations.
If we lose the right to install our equipment on certain wireless towers or
are unable to renew expiring leases for wireless towers on favorable terms,
our business and results of operations could be adversely impacted
Substantially all of AirGate's and iPCS' cell sites are co-located on
leased tower facilities shared with one or more wireless providers. In
addition, a large portion of these leased tower sites are owned by a few tower
companies. If a master co-location agreement with one of these tower companies
were to terminate, or if one of these tower companies were unable to support
our use of its tower sites, we would have to find new sites or we may be
required to rebuild that portion of our network. In addition, the
concentration of our cell sites with a few tower companies could adversely
affect our results of operations if we are unable to renew expiring leases
with such tower companies on favorable terms.
The loss of the officers and skilled employees who we depend upon to operate
our business could adversely affect our results of operations
AirGate's business is managed by a small number of executive officers. We
believe that our future success after the merger will depend 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. AirGate currently has "key man" life insurance for its chief
executive officer.
Expanding our territory may have a material adverse effect on our business
and reduce the market value of our securities
As part of our continuing operating strategy, we may expand our territory
through the grant of additional markets from Sprint PCS or through
acquisitions of other Sprint network partners. These transactions may require
the approval of Sprint PCS and commonly involve a number of risks, including
the:
.difficulty of assimilating acquired operations and personnel;
.diversion of management's attention;
.disruption of ongoing business;
. impact on our cash and available credit lines for use in financing
future growth and working capital needs;
19
.inability to retain key personnel;
.inability to successfully incorporate acquired assets and rights into our
service offerings;
.inability to maintain uniform standards, controls, procedures and
policies; and
.impairment of relationships with employees, customers or vendors.
Failure to overcome these risks or any other problems encountered in these
transactions could have a material adverse effect on our business. In
connection with these transactions, we also may issue additional equity
securities, incur additional debt or incur significant amortization expenses
related to goodwill and other intangible assets.
Risks Particular to the Combined Company's Indebtedness
Both AirGate and iPCS have substantial debt that neither company may be able
to service; a failure to service such debt may result in the lenders under
such debt controlling AirGate's or iPCS' assets
The substantial debt of AirGate and iPCS will have a number of important
consequences for the combined company's operations and our investors, including
the following:
. each company will have to dedicate a substantial portion of any cash
flow from its operations to the payment of interest on, and principal
of, its debt, which will reduce funds available for other purposes;
. each company has a fully-financed business plan, but neither may be able
to obtain additional financing for unanticipated capital requirements,
capital expenditures, working capital requirements and other corporate
purposes;
. some of each company's debt, including financing under each company's
senior credit facility, will be at variable rates of interest, which
could result in higher interest expense in the event of increases in
market interest rates; and
. due to the liens on substantially all of each company's assets and the
pledges of stock of each company's existing and future subsidiaries that
secure AirGate's and iPCS' respective senior debt and senior
subordinated discount notes, lenders or holders of such senior
subordinated discount notes may control AirGate's or iPCS' assets or the
assets of the subsidiaries of either company in the event of a default.
The ability of both AirGate and iPCS to make payments on their respective
debt will depend upon each company's future operating performance which is
subject to general economic and competitive conditions and to financial,
business and other factors, many of which neither company can control. If the
cash flow from either company's operating activities is insufficient, we may
take actions, such as delaying or reducing capital expenditures, attempting to
restructure or refinance our debt, selling assets or operations or seeking
additional equity capital. Any or all of these actions may not be sufficient to
allow us to service our debt obligations. Further, we may be unable to take any
of these actions on satisfactory terms, in a timely manner or at all. The
credit facilities and indentures governing AirGate's and iPCS' respective debt
will limit our ability to take several of these actions. The failure of AirGate
or iPCS to generate sufficient funds to pay its debts or to successfully
undertake any of these actions could, among other things, materially adversely
affect the market value of AirGate's common stock.
If either AirGate or iPCS does not meet all of the conditions required under
its respective credit facility, such company may not be able to draw down all
of the funds it anticipates receiving from its senior lenders and we may not
be able to fund operating losses and working capital needs
As of October 15, 2001, AirGate had borrowed $85.3 million under its senior
credit facility and iPCS had borrowed $50.0 million under its senior credit
facility. The remaining $68.2 million available under
20
AirGate's senior credit facility and the remaining $90.0 million available
under iPCS' senior credit facility, a portion of which each company expects to
borrow in the future, is subject to the applicable company meeting all of the
conditions specified its respective financing documents and, in addition, is
subject at each funding date to specific conditions, including the following:
.that the representations and warranties in such company's loan documents
are true and correct;
. that certain of such company's financial covenant tests are satisfied,
including leverage and operating performance covenants and, solely with
respect to iPCS, loss covenants relating to earnings before interest,
taxes, depreciation and amortization, referred to as EBITDA; and
.the absence of a default under such company's loan documents.
If either company does not meet these conditions at each funding date, such
company's senior lenders may not lend some or all of the remaining amounts
under such company's senior credit facility. If other sources of funds are not
available, neither company may be in a position to meet its operating cash
needs.
The ability of AirGate and iPCS to operate as a combined company will be
limited by the separate public debt indentures and credit facilities of
AirGate and iPCS
In order to assure continued compliance with the indenture governing
AirGate's senior notes, AirGate will designate iPCS as an "unrestricted
subsidiary." As a result, for purposes of their respective public debt
indentures, AirGate and iPCS will operate as separate business entities
following the merger. Due to restrictions in AirGate's indenture, AirGate will
be unable to provide direct or indirect credit support to iPCS and will be
significantly limited in its ability to maintain or preserve iPCS' financial
condition or cause iPCS to achieve a specified level of operating results.
Likewise, iPCS will be restricted under its debt instruments from paying
dividends or freely transferring money to AirGate. These restrictions may
hinder the combined company's ability to achieve the anticipated benefits of
the merger, react to developments in either company's business or take
advantage of business opportunities.
If either AirGate or iPCS fails to pay the debt under its respective credit
facility, Sprint PCS has the option of purchasing such company's loans,
giving Sprint PCS certain rights of a creditor to foreclose on such company's
assets
Sprint PCS has contractual rights, triggered by an acceleration of the
maturity of the debt under AirGate's or iPCS' respective senior credit
facility pursuant to which Sprint PCS may purchase AirGate's or iPCS'
obligations to its respective senior lenders and obtain the rights of a senior
lender. To the extent Sprint PCS purchases these obligations, Sprint PCS'
interests as a creditor could conflict with our interests. Sprint PCS' rights
as a senior lender would enable it to exercise rights with respect to the
related company's assets and continuing relationship with Sprint PCS in a
manner not otherwise permitted under our Sprint PCS agreements.
Risks Particular to the Combined Company's Relationship with Sprint PCS
The termination of AirGate's or iPCS' affiliation with Sprint PCS or Sprint
PCS' failure to perform its obligations under the Sprint PCS agreements would
severely restrict our ability to conduct our business
Neither AirGate nor iPCS owns the licenses to operate a wireless network.
The ability of AirGate and iPCS to offer Sprint PCS products and operate a PCS
network is dependent on their Sprint PCS agreements remaining in effect and
not being terminated. The management agreements between Sprint PCS and each of
AirGate and iPCS are not perpetual. Sprint PCS can choose not to renew iPCS'
management agreement at the expiration of the 20-year initial term or any ten-
year renewal term. AirGate's management agreement automatically renews at the
expiration of the 20-year initial term for an additional 10-year period unless
AirGate is in default. Sprint PCS can choose not to renew AirGate's management
agreement at the expiration of the ten-year renewal term or any subsequent
ten-year renewal term. In any event, AirGate's and iPCS'
21
management agreements terminate in 50 years. In addition, each of these
agreements can be terminated for breach of any material term. AirGate and iPCS
also are dependent on Sprint PCS' ability to perform its obligations under the
Sprint PCS agreements. The non-renewal or termination of any of the Sprint PCS
agreements or the failure of Sprint PCS to perform its obligations under the
Sprint PCS agreements would severely restrict our ability to conduct business.
Sprint PCS may make business decisions that are not in our best interests,
which may adversely affect our relationships with customers in our territory,
increase our expenses and/or decrease our revenues
Sprint PCS, under the Sprint PCS agreements, has a substantial amount of
control over the conduct of AirGate's and iPCS' business. Accordingly, Sprint
PCS may make decisions that adversely affect our business, such as the
following:
. Sprint PCS 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 PCS could raise the costs for Sprint PCS to perform back office
services or reduce levels of services;
. Sprint PCS could prohibit us from selling non-Sprint PCS approved
equipment;
. Sprint PCS could, subject to limitations under our Sprint PCS
agreements, alter its network and technical requirements or request that
we build out additional areas within our territories, which could result
in increased equipment and build-out costs;
. Sprint or Sprint PCS could make decisions which could adversely affect
the Sprint and Sprint PCS brand names, products or services; and
. Sprint PCS could decide not to renew the Sprint PCS agreements or to no
longer perform its obligations, which would severely restrict our
ability to conduct business.
The inability of Sprint PCS to maintain high quality back office services, or
our inability to use Sprint PCS' back office services and third party
vendors' back office systems, could lead to customer dissatisfaction,
increase churn or otherwise increase our costs
Both AirGate and iPCS rely on Sprint PCS' internal support systems,
including customer care, billing and back office support. Our operations could
be disrupted if Sprint PCS is unable to maintain and expand its internal
support systems in a high quality manner, or to efficiently outsource those
services and systems through third party vendors. The rapid expansion of
Sprint PCS' business is expected to continue to pose a significant challenge
to its internal support systems. Additionally, Sprint PCS has relied on third
party vendors for a significant number of important functions and components
of its internal support systems and may continue to rely on these vendors in
the future. The combined company will depend on Sprint PCS' willingness to
continue to offer these services and to provide these services effectively and
at competitive costs. AirGate's and iPCS' Sprint PCS agreements provide that,
upon nine months' prior written notice, Sprint PCS may elect to terminate any
of these services. The inability of Sprint PCS to maintain high quality back
office services, or our inability to use Sprint PCS' back office services and
third party vendors' back office systems, could lead to customer
dissatisfaction, increase churn or otherwise increase our costs.
If Sprint PCS does not complete the construction of its nationwide PCS
network, we may not be able to attract and retain customers
Sprint PCS 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 PCS is still constructing its nationwide
network and does not offer PCS services, either on its own network or through
its roaming agreements, in every city in the United States.
22
Sprint PCS has entered into management agreements similar to AirGate's and
iPCS' with companies in other markets under its nationwide PCS build-out
strategy. AirGate's and iPCS' results of operations are dependent on Sprint
PCS' national network and, to a lesser extent, on the networks of Sprint PCS'
other network partners. Sprint PCS' network may not provide nationwide coverage
to the same extent as its competitors, which could adversely affect our ability
to attract and retain customers.
Certain provisions of the Sprint PCS agreements may diminish the value of
AirGate's common stock and restrict the sale of our business
Under limited circumstances and without further stockholder approval, Sprint
PCS may purchase the operating assets of AirGate or iPCS at a discount. In
addition, Sprint PCS must approve any change of control of the ownership of
AirGate or iPCS and must consent to any assignment of their Sprint PCS
agreements. Sprint PCS also has a right of first refusal if AirGate or iPCS
decides to sell its operating assets to a third party. Each of AirGate and iPCS
also is subject to a number of restrictions on the transfer of its business,
including a prohibition on the sale of AirGate or iPCS or their operating
assets to competitors of Sprint or Sprint PCS. These restrictions and other
restrictions contained in the Sprint PCS agreements could adversely affect the
value of AirGate's common stock, may limit our ability to sell our business,
may reduce the value a buyer would be willing to pay for our business and may
reduce the "entire business value," as described in our Sprint PCS agreements.
We may have difficulty in obtaining an adequate supply of certain handsets
from Sprint PCS, which could adversely affect our results of operations
AirGate and iPCS depend on their relationship with Sprint PCS to obtain
handsets.
Sprint PCS orders handsets from various manufacturers. We could have
difficulty obtaining specific types of handsets in a timely manner if:
. Sprint PCS does not adequately project the need for handsets for itself,
its Sprint PCS network partners and its other third party distribution
channels, particularly in transition to new technologies;
. AirGate or iPCS does not adequately project its need for handsets;
. Sprint PCS 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 PCS
and its suppliers or vendors.
The occurrence of any of the foregoing could disrupt our customer service
and/or result in a decrease in our subscribers, which could adversely affect
our results of operations.
Non-renewal or revocation by the Federal Communications Commission of the
Sprint PCS licenses would significantly harm our business
PCS licenses are subject to renewal and revocation by the Federal
Communications Commissions, referred to as the FCC. Sprint PCS' 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 PCS' licenses upon
their expiration, and the Sprint PCS licenses may not be renewed. The FCC has
adopted specific standards to apply to PCS license renewals. Any failure by
Sprint PCS, AirGate or iPCS to comply with these standards could cause
revocation or forfeiture of the Sprint PCS licenses for the AirGate or iPCS
territories. If Sprint PCS loses any of its licenses in AirGate's or iPCS'
territory, we would be severely restricted in our ability to conduct business.
If Sprint PCS does not maintain control over its licensed spectrum, the Sprint
PCS agreements may be terminated, which would result in our inability to
provide service
23
The FCC requires that licensees like Sprint PCS maintain control of their
licensed spectrum and not delegate control to third-party operators or
managers. Although the Sprint PCS agreements with AirGate and iPCS 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 PCS agreements need to be modified to
increase the level of licensee control, AirGate and iPCS have agreed with
Sprint PCS to use their best efforts to modify the Sprint PCS agreements to
comply with applicable law. If AirGate and iPCS cannot agree with Sprint PCS to
modify the Sprint PCS agreements, they may be terminated. If the Sprint PCS
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.
Risks Particular to the Combined Company's 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. We
anticipate that competition will 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 PCS to develop competitive products and services
and the requirement that we obtain Sprint PCS' consent to sell non-Sprint PCS
approved equipment may limit our ability to keep pace with competitors on the
introduction of new products, services and equipment. Some of our competitors
are larger than us, possess greater resources and more extensive coverage
areas, and may market other services, such as landline telephone service, cable
television and Internet access, with their wireless communications services. In
addition, we may be at a competitive disadvantage since we may be more highly
leveraged than some of our competitors.
Furthermore, 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.
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. Sprint PCS may not
be able to respond to such changes and implement new technology on a timely
basis, or at an acceptable cost.
If Sprint PCS 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. In addition, wireless carriers are
seeking to implement an upgrade to "one times radio transmission technology,"
or "1XRTT," as well as "third generation," or "3G," technology throughout the
industry. The 3G technology promises high-speed, always-on Internet
connectivity and high-quality video and audio. We cannot assure you that Sprint
PCS or the combined company can implement 1XRTT or 3G technology successfully
or on a cost-effective basis.
24
An increase in our rate of customer turnover would increase our costs of
operations and reduce our revenue
The wireless communications industry in general and Sprint PCS in
particular have experienced a high rate of customer turnover, commonly known
as churn. The rate of customer turnover may be the result of several factors,
including customer care concerns; network coverage; reliability issues such as
blocked calls, dropped calls and handset problems; non-use of phones; and
other competitive factors. An increase in our customer turnover rate would
increase the costs of establishing and growing our customer base and reduce
our revenue.
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 PCS 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 PCS.
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.
We may be subject to potential litigation relating to the use of wireless
phones while driving
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 potential 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.
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SPECIAL NOTE CONCERNING FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus contains statements about future events and
expectations, which are "forward-looking statements." Any statement in this
proxy statement/prospectus that is not a statement of historical fact may be
deemed to be a forward-looking statement. These forward-looking statements
include:
. forecasts of growth in the number of consumers using wireless personal
communications services and in estimated populations;
. statements regarding AirGate's or iPCS' plans for, schedule for and
costs of the build-out or upgrade of their respective portions of the
Sprint PCS network;
. statements regarding AirGate's or iPCS' anticipated subscribers,
revenues, expense levels, liquidity and capital resources, operating
losses and future stock price performance;
. projections of when AirGate or iPCS will launch commercial wireless
personal communications service in particular markets;
. statements regarding expectations or projections about markets in
AirGate's or iPCS' service areas;
. statements regarding the anticipated benefits of the merger; and
. other statements, including statements containing words such as "may,"
"might," "could," "would," "anticipate," "believe," "plan," "estimate,"
"project," "expect," "intend" and other similar words that signify
forward-looking statements.
These forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause AirGate's or iPCS' actual
results, performance or achievements to be materially different from any future
results, performance or achievements expressed or implied by these forward-
looking statements. Specific factors that might cause such a difference
include, but are not limited to:
. AirGate's ability to integrate iPCS' operations;
. AirGate's ability to finance future growth opportunities;
. AirGate's or iPCS' dependence on their respective affiliation with
Sprint PCS;
. the ability of iPCS to successfully complete the build-out of its Sprint
PCS network or of AirGate or iPCS to upgrade their Sprint PCS network to
accommodate new technologies, including the upgrade to 1XRTT;
. AirGate's or iPCS' limited operating histories and anticipation of
future losses;
. AirGate's or iPCS' dependence on Sprint PCS' back office services;
. potential fluctuations in AirGate's or iPCS' operating results;
. changes or advances in technology;
. changes in government regulation;
. competition in the industry and markets in which AirGate or iPCS
operate;
. future acquisitions;
. AirGate's or iPCS' ability to attract and retain skilled personnel; and
. general economic and business conditions.
For a discussion of some of these factors as well as additional factors, see
"Risk Factors" beginning on page 16.
26
THE AIRGATE SPECIAL MEETING
AirGate is furnishing this proxy statement/prospectus to AirGate
stockholders as part of the solicitation of proxies by AirGate's board of
directors for use at the AirGate special meeting.
Date, Time and Place
AirGate will hold a special meeting of AirGate stockholders on November 27,
2001, at 1:00 p.m., local time, at the Marriott Marquis, 265 Peachtree Center
Avenue, N.E., Atlanta, Georgia 30303.
Purpose
At the AirGate special meeting, AirGate is asking its stockholders to
authorize, approve and adopt an Agreement and Plan of Merger, dated as of
August 28, 2001, by and between AirGate PCS, Inc., a Delaware corporation, and
iPCS, Inc., a Delaware corporation, as it may be amended from time to time, and
the transactions contemplated thereby, including the issuance of up to 13.5
million shares of AirGate common stock to the holders of common stock and other
securities of iPCS in the merger of a wholly owned subsidiary of AirGate into
iPCS. As a result of the merger, iPCS will become a wholly owned subsidiary of
AirGate.
Record Date
Only holders of record of AirGate common stock at the close of business on
October 12, 2001, the record date, are entitled to notice of and to vote at the
AirGate special meeting. On the record date, 13,364,980 shares of AirGate
common stock were issued and outstanding and held by 57 holders of record.
Holders of record of AirGate common stock on the record date are entitled to
one vote per share at the special meeting.
Quorum
If a majority of the shares of AirGate common stock outstanding on the
record date is represented, either in person or by proxy, at the AirGate
special meeting, a quorum will be present at the special meeting. Shares held
by persons attending the special meeting but not voting, and shares represented
in person or by proxy and for which the holder has abstained from voting, will
be counted as present at the special meeting for purposes of determining the
presence or absence of a quorum.
A broker who holds shares in nominee or "street name" for a customer who is
the beneficial owner of those shares is prohibited from giving a proxy to vote
those shares on any proposal to be voted on at the AirGate special meeting
without specific instructions from such customer with respect to such proposal.
Accordingly, if a broker does not receive voting instructions from a customer
with respect to the proposal to be voted on at the special meeting, the shares
beneficially owned by such customer will not constitute "votes cast" or shares
"entitled to vote" with respect to the proposal. These so-called "broker non-
votes" will be counted as present at the special meeting for purposes of
determining whether a quorum exists.
Votes Required
Approval of the merger, the merger agreement and the issuance of shares of
AirGate common stock in the merger requires the affirmative vote of the holders
of a majority in voting power of all shares of AirGate common stock casting
votes, either in person or by proxy, at the AirGate special meeting, provided
that the holders of a majority of the outstanding shares of AirGate common
stock vote or are represented at the AirGate special meeting. This approval is
required under the rules of The Nasdaq National Market, the stock market on
which AirGate's common stock is listed and traded. Abstentions and "broker non-
votes" will not be counted as "votes cast" and therefore will have no effect on
the outcome of this proposal.
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Voting of Proxies
All shares of AirGate common stock represented by properly executed proxies
received before or at the AirGate special meeting will, unless revoked, be
voted at the AirGate special meeting in accordance with the instructions
indicated on those proxies. If no instructions are indicated on a properly
executed proxy, the shares represented by such proxy card will be voted FOR
approval of the proposal to be voted on at the special meeting. No proxy that
is voted against the proposal will be voted in favor of any adjournment or
postponement of the special meeting for the purpose of soliciting additional
proxies. AirGate stockholders are urged to mark the box on their proxy to
indicate how to vote their shares.
Revocability of Proxies
The grant of a proxy on the enclosed form of proxy does not preclude an
AirGate stockholder from voting in person at the AirGate special meeting.
AirGate stockholders may revoke a proxy at any time prior to its exercise by
filing with AirGate a duly executed revocation of proxy, by submitting a duly
executed proxy to AirGate bearing a later date or by appearing at the AirGate
special meeting and voting in person if they are a holder of record. Attendance
at the special meeting will not in and of itself revoke a proxy.
Solicitation of Proxies
AirGate will bear the cost of the solicitation of proxies from its
stockholders. In addition to solicitation by mail, AirGate's directors,
officers and employees and those of its subsidiaries may solicit proxies from
AirGate's stockholders by telephone or other electronic means or in person.
These persons will not receive additional compensation for soliciting proxies.
Arrangements will also be made with brokerage houses and other custodians,
nominees and fiduciaries for the forwarding of solicitation materials to the
beneficial owners of stock held of record by these persons, and AirGate will
reimburse them for reasonable out-of-pocket expenses. AirGate has made
arrangements with Georgeson Shareholder Communications Inc. to help in
soliciting proxies for the proposed merger and the AirGate special meeting and
in communicating with stockholders. AirGate has agreed to pay Georgeson
Shareholder Communications approximately $7,500 in the aggregate plus expenses
for their services. If necessary, AirGate may also use several of its regular
employees, who will not be specially compensated, to solicit proxies from its
stockholders, either personally or by telephone, the Internet, telegram, fax,
letter or special delivery letter.
AirGate will mail a copy of this proxy statement/prospectus to each holder
of record of AirGate common stock on the record date.
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THE MERGER
This section of the proxy statement/prospectus, as well as the next section
titled "The Merger Agreement and Related Agreements" beginning on page 43,
describes certain material aspects of the proposed merger, including the merger
agreement, the support agreements, the lock-up agreements and the registration
rights agreement. While we believe that these descriptions cover the material
terms of the merger, these summaries may not contain all of the information
that is important to you. You should read this entire proxy
statement/prospectus and the other documents we refer to carefully for a more
complete understanding of the merger.
Structure of the Merger
If the merger and the merger agreement are adopted by the holders of a
majority in voting power of the outstanding shares of iPCS voting stock, the
issuance of the shares of AirGate common stock is approved by the affirmative
vote of the holders of a majority of all shares of AirGate common stock casting
votes, either in person or by proxy, at the AirGate special meeting, and the
other conditions to the merger are satisfied, the AirGate merger subsidiary, a
wholly owned subsidiary of AirGate formed for the purpose of the merger, will
merge into iPCS, with iPCS being the surviving corporation in the merger and
becoming a wholly owned subsidiary of AirGate.
Background of the Merger
In mid-June, representatives of UBS Warburg met with Mr. Thomas M.
Dougherty, AirGate's President and Chief Executive Officer, Mr. Alan B.
Catherall, AirGate's Chief Financial Officer, Mr. Thomas D. Body III, AirGate's
Vice President of Business Development, and Ms. Barbara L. Blackford, AirGate's
Vice President, General Counsel and Corporate Secretary, at AirGate's
headquarters in Atlanta, Georgia. The UBS Warburg representatives presented
their thoughts as to the status of mergers and acquisitions occurring among
Sprint PCS network partners and, in particular, their thoughts about iPCS,
which UBS Warburg had learned was exploring strategic alternatives, including a
possible sale.
In late June, Lehman Brothers, iPCS' financial advisor, contacted Mr.
Catherall regarding a possible transaction between AirGate and iPCS.
On July 3, 2001, Mr. Body and Ms. Sharon Kushner, AirGate's Manager of
Finance, met with Mr. Timothy M. Yager, iPCS' President and Chief Executive
Officer, Mr. Stebbins B. Chandor, Jr., iPCS' Chief Financial Officer, and Ms.
Julie K. Fraundorf, iPCS' Director of Corporate Finance, at a conference center
located at O'Hare International Airport. A representative of Lehman Brothers
also attended the meeting. At the meeting, iPCS provided an overview of its
business and reviewed iPCS' management presentation.
On July 10, 2001, a meeting was held at AirGate's headquarters with UBS
Warburg. Messrs. Dougherty, Body and Catherall and Ms. Blackford were present
at that meeting. UBS Warburg representatives made a presentation as to the
current state of the iPCS process. At the meeting, representatives from UBS
Warburg told AirGate that iPCS most likely would initiate a controlled auction
process and AirGate expressed interest in participating in such a process.
On July 17, 2001, representatives of UBS Warburg again met with AirGate's
senior management in Atlanta to discuss the iPCS auction process. Messrs.
Dougherty, Catherall and Body as well as Mr. Bernard Bianchino, a member of
AirGate's board of directors and special consultant to AirGate for the iPCS
process, Ms. Blackford and Ms. Kushner attended the meeting. UBS Warburg and
AirGate discussed the iPCS opportunity, including preliminary valuation
thoughts. UBS Warburg and AirGate then prepared an "initial indication of
interest" letter which was to be submitted the following day to iPCS. AirGate
informed UBS Warburg that it was prepared to engage UBS Warburg as its
exclusive financial advisor in connection with the iPCS auction process.
AirGate subsequently signed an engagement letter with UBS Warburg.
On July 18, 2001, AirGate submitted to iPCS, via Lehman Brothers, a non-
binding indication of interest which was subject to due diligence.
29
On July 23, 2001, AirGate revised its indication of interest based on
additional analyses including covered population, or covered POPs.
On July 26, 2001, UBS Warburg held a conference call with Lehman Brothers.
Lehman Brothers reiterated that AirGate's most recent indication of interest
was uncompetitive. Lehman Brothers informed UBS Warburg that iPCS would require
no less than 49.9% of the equity of the pro forma company (or approximately
14.9 million shares of AirGate common stock, including shares to be issued upon
the exercise of outstanding iPCS options and warrants to be assumed by AirGate
in the merger) and resolution of certain other issues to consummate a
transaction, including stockholder liquidity rights and the level of
representation on AirGate's board of directors.
On July 30, 2001, AirGate's and iPCS' senior management held a joint due
diligence session at the O'Hare Hilton hotel in Chicago. In attendance from
AirGate were Messrs. Dougherty, Catherall, Bianchino and Jonathan Pfohl,
AirGate's Vice President of Sales, Ms. Blackford and Ms. Kushner. In attendance
from iPCS were Messrs. Yager and Chandor, Ms. Linda K. Wokoun, iPCS' Chief
Operating Officer, Ms. Fraundorf and representatives of The Blackstone Group.
Representatives of both companies' financial advisors also attended the
meeting. AirGate and iPCS conducted reciprocal due diligence, including a
review of each company's management presentation, sales and marketing
strategies and financial review (which included an analysis of ten-year
business plans).
The next day, AirGate's board of directors held a regularly scheduled
meeting in Atlanta. UBS Warburg and certain members of AirGate's senior
management provided the board of directors with an update on the due diligence
and auction process. The board of directors authorized Mr. Dougherty to
continue negotiating with iPCS.
On August 6, 2001, following further internal analyses and discussions at
AirGate and discussions with UBS Warburg, AirGate submitted a formal proposal
to iPCS for 13.5 million shares of AirGate common stock, including 1.1 million
shares of stock to be issued upon the exercise of outstanding iPCS options and
warrants to be assumed by AirGate.
Following this offer, on August 10, 2001, iPCS delivered to UBS Warburg a
draft of the merger agreement. From August 16 to 18, 2001, iPCS and its
advisors conducted a comprehensive due diligence review of AirGate in Atlanta
as well as a review of network operations and sales functions at certain of
AirGate's locations in South Carolina, including a review of sales and
marketing, finance, accounting and operations. Senior management from AirGate
and iPCS were present as were representatives of Blackstone.
During and following such review, AirGate conducted a comprehensive due
diligence review of iPCS during the period from August 15 to 22, 2001. This due
diligence review, which was conducted at iPCS' corporate headquarters in
Schaumburg, Illinois as well as at several retail and network locations
throughout iPCS' markets, included a review of iPCS' sales and marketing,
finance, accounting and operations. Senior management from both AirGate and
iPCS were present. During the same time period, AirGate's advisors conducted
legal, accounting and financial due diligence.
After substantially completing such diligence efforts, UBS Warburg and
Lehman Brothers, on behalf of AirGate and iPCS, discussed the financial terms
of the deal. AirGate then confirmed an offer on August 24, 2001 with a merger
consideration consisting of 13.5 million shares of AirGate common stock,
including 1.1 million shares to be issued upon the exercise of outstanding iPCS
options and warrants to be assumed by AirGate in the merger. Such offer was
structured to provide the iPCS stockholders with liquidity over time with
respect to the shares of AirGate common stock to be received in the merger.
On August 25 and 26, 2001, representatives of AirGate, iPCS, UBS Warburg,
Lehman Brothers, Winston & Strawn, legal counsel to AirGate, and Mayer, Brown &
Platt, legal counsel to iPCS, met at the offices of Mayer, Brown & Platt in
Chicago, Illinois for final due diligence and a negotiation and drafting
session
30
regarding, among other things, the terms of the merger agreement, the
registration rights agreement and the support agreements.
On the morning of August 27, 2001, AirGate's board of directors met in
Atlanta. During that special meeting, AirGate's management team made a
presentation regarding the transaction to AirGate's board of directors. In
addition, Winston & Strawn reviewed with the board its fiduciary duties and the
proposed terms of the transaction, and UBS Warburg made a presentation
regarding the fairness from a financial point of view of the exchange ratio to
the holders of AirGate common stock. The board then discussed the benefits and
the potential risks and drawbacks of the proposed transaction. At this meeting,
AirGate's board was provided, for its review, detailed materials regarding iPCS
and the transaction, including drafts of the proposed transaction documents.
During the afternoon of August 28, 2001, iPCS' board of directors gave its
final approval to the transactions contemplated by the merger agreement. Later
that evening, the AirGate board held a meeting by teleconference to discuss the
final terms of the transaction and, after delivery by UBS Warburg of its
fairness opinion, approved the transactions contemplated by the merger
agreement. Thereafter, the merger agreement and the support agreements, along
with other ancillary documents, were executed by all the parties thereto.
Prior to the opening of trading on The Nasdaq National Market on the morning
of August 29, 2001, AirGate and iPCS issued a joint press release announcing
the approval of the transaction. The same day, AirGate and iPCS held a
teleconference call with research analysts to discuss the transaction. Messrs.
Dougherty, Catherall and Yager participated in the call.
AirGate's Reasons for the Merger
The AirGate board of directors has determined that the merger, the merger
agreement and the issuance of the shares of AirGate common stock in the merger
are advisable and fair to and in the best interests of AirGate and its
stockholders, has authorized, approved and adopted the merger, the merger
agreement and the issuance of the shares of AirGate common stock in the merger,
and unanimously recommends that the AirGate stockholders vote FOR approval of
these matters at the special meeting.
In light of consolidation in the wireless communications industry in general
and among Sprint PCS network partners in particular, the AirGate board of
directors believes that the merger represents a strategic opportunity to
significantly expand the size and scope of AirGate's operations. The AirGate
board of directors believes that, following the merger, AirGate will have
greater financial flexibility, operational efficiencies and growth potential
than AirGate would have on its own. AirGate's board of directors, with the
assistance of its financial advisor, also identified a number of potential
benefits of the proposed merger, including the following:
. the combined company will be able to leverage the best operating
practices of both companies to more effectively penetrate iPCS' and
AirGate's markets;
. iPCS has attractive market characteristics, including:
-- strong market demographics relative to other Sprint PCS network
partners, such as high population densities and high median
household income;
-- a high concentration of headquarters for large corporations;
-- the inclusion of over 90 colleges and universities; and
-- less competitive markets than AirGate's, allowing for the
opportunity for increased market share;
. the combined company will result in the largest Sprint PCS network
partner based on planned covered POPs;
. AirGate will be able to expand its markets to include, among others,
Grand Rapids, Michigan; Saginaw-Bay City, Michigan; Peoria, Illinois;
Cedar Rapids, Iowa; and Springfield, Illinois;
. the iPCS territory is near many major Sprint PCS markets, including
Chicago, Illinois; Detroit, Michigan; Des Moines, Iowa; Indianapolis,
Indiana; and St. Louis, Missouri, thereby providing increased roaming
revenue opportunities for the combined company;
31
. iPCS has substantially completed its network build-out; and
. iPCS has a cash cushion to finance future growth.
In reaching its decision to approve the merger, the merger agreement and the
issuance of the shares of AirGate common stock in the merger, AirGate's board
of directors considered, in addition to the factors described above:
. information concerning the financial performance and condition, business
operations, capital and prospects of each of AirGate and iPCS on a
stand-alone basis as well as a combined basis;
. current industry, economic and market trends, including the likelihood
of increasing and broadening competition in the wireless communications
industry in general and among Sprint PCS network partners in particular;
. the importance of market position, scale and financial resources to
AirGate's ability to compete effectively in the future;
. the possible negative effect on the price of AirGate's common stock and
the consequent potential impairment of AirGate's ability to raise
capital through the sale of equity securities resulting from the sales,
or potential sales, of the substantial number of shares of AirGate's
common stock that AirGate will issue to iPCS' stockholders in the
merger;
. the dilutive effect on AirGate's current stockholders and a consequent
reduction in their voting power;
. the valuation ascribed to AirGate's common stock in the merger and the
valuation implied for the combined entity based on currently prevailing
market multiples;
. the relative contributions of AirGate and iPCS to certain operational
and financial metrics of the combined company, including net revenues
and EBITDA;
. the opinion delivered by UBS Warburg to AirGate's board of directors on
August 28, 2001 to the effect that, as of the date thereof and based on
and subject to the assumptions, limitations and qualifications set forth
in the opinion, the exchange ratio was fair, from a financial point of
view, to AirGate and its stockholders; and
. the expectation that the merger would be accounted for as a purchase for
accounting purposes and would be tax-free for federal income tax
purposes.
AirGate's board of directors also considered potential risks relating to the
merger, including that:
. the price of AirGate's common stock might decline;
. AirGate might not fully achieve the benefits sought from the merger;
. it might take longer for the combined company to become EBITDA and cash
flow positive;
. both AirGate and iPCS would have to operate as two distinctly separate
companies as a result of their separate public debt indentures and
credit facilities;
. the integration of iPCS and AirGate will require significant attention
from AirGate's management; and
. the two companies might be unable to consummate the merger.
The AirGate board of directors believes that these risks were outweighed by
the potential benefits to be realized by the merger. The foregoing discussion
of the information and factors considered by the AirGate board of directors is
not intended to be exhaustive but includes material factors considered by the
AirGate board of directors. In view of the wide variety of information and
factors considered, the AirGate board of directors did not find it practical
to, and did not, assign any relative or special weights to the foregoing
factors,
32
and individual directors may have given differing weights to different factors.
The AirGate board of directors authorized, approved and adopted the merger, the
merger agreement and the issuance of the shares of AirGate common stock in the
merger in consideration of all of the facts, matters and information brought to
its attention.
Recommendation of AirGate's Board of Directors
Taking into account all of the material facts, matters and information,
including those described above, the AirGate board of directors believes that
the merger and the other transactions contemplated by the merger agreement are
advisable and fair to and in the best interests of AirGate and its
stockholders. THE AIRGATE BOARD UNANIMOUSLY RECOMMENDS THAT AIRGATE'S
STOCKHOLDERS VOTE "FOR" APPROVAL OF THE MERGER, THE MERGER AGREEMENT AND THE
ISSUANCE OF THE SHARES OF AIRGATE COMMON STOCK IN THE MERGER.
Opinion of AirGate's Financial Advisor
On August 28, 2001, at a meeting of AirGate's board of directors held to
evaluate the terms of the proposed merger, UBS Warburg delivered to the board
an oral opinion, which was confirmed by delivery of a written opinion dated the
same date, to the effect that, as of that date and based on and subject to
various assumptions, matters considered and limitations described in the
opinion, the exchange ratio provided for in the merger was fair, from a
financial point of view, to the holders of AirGate common stock.
The full text of UBS Warburg's opinion describes, among other things, the
assumptions made, procedures followed, matters considered and limitations on
the review undertaken by UBS Warburg. This opinion is attached as Annex D and
is incorporated into this document by reference. UBS WARBURG'S OPINION IS
DIRECTED ONLY TO THE FAIRNESS FROM A FINANCIAL POINT OF VIEW OF THE EXCHANGE
RATIO PROVIDED FOR IN THE MERGER TO THE HOLDERS OF AIRGATE COMMON STOCK. THE
OPINION DOES NOT ADDRESS AIRGATE'S UNDERLYING BUSINESS DECISION TO EFFECT THE
MERGER OR CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF AIRGATE COMMON STOCK AS
TO HOW TO VOTE WITH RESPECT TO ANY MATTERS RELATING TO THE PROPOSED MERGER.
HOLDERS OF AIRGATE COMMON STOCK ARE ENCOURAGED TO READ THE OPINION CAREFULLY IN
ITS ENTIRETY. The summary of UBS Warburg's opinion described below is qualified
in its entirety by reference to the full text of its opinion.
In arriving at its opinion, UBS Warburg, among other things:
. reviewed certain publicly available business and historical financial
information relating to AirGate and iPCS;
. reviewed certain internal financial information and other data relating
to the business and financial prospects of AirGate, including estimates
and financial forecasts prepared by the management of AirGate, that were
provided to UBS Warburg by AirGate and not publicly available;
. reviewed certain internal financial information and other data relating
to the business and financial prospects of iPCS, including estimates and
financial forecasts prepared by the management of iPCS and adjusted by
the management of AirGate and not publicly available;
. conducted discussions with members of the senior management teams of
AirGate and iPCS concerning the businesses and financial prospects of
AirGate and iPCS;
. reviewed publicly available financial and stock market data with respect
to certain other companies in lines of business UBS Warburg believed to
be generally comparable to those of AirGate and iPCS;
. compared the financial terms of the merger with publicly available
financial terms of certain other transactions that UBS Warburg believed
to be generally relevant;
33
. considered the financial impact of the potential pro forma effects of
the merger on AirGate's financial statements and the financial forecasts
of AirGate prepared by the management of AirGate;
. reviewed a draft of the merger agreement dated August 26, 2001; and
. conducted such other financial studies, analyses and investigations, and
considered such other information as UBS Warburg deemed necessary or
appropriate.
In connection with its review, with AirGate's consent, UBS Warburg did not
assume any responsibility for independent verification of any of the
information that was reviewed by UBS Warburg for the purpose of its opinion
and, with AirGate's consent, UBS Warburg relied on that information being
complete and accurate in all material respects. In addition, at AirGate's
direction, UBS Warburg did not make any independent evaluation or appraisal of
any of the assets or liabilities, contingent or otherwise, of AirGate or iPCS,
nor was UBS Warburg furnished with any evaluation or appraisal.
With respect to the financial forecasts, estimates and pro forma effects
referred to in its opinion, UBS Warburg assumed that they were reasonably
prepared on a basis reflecting the best currently available estimates and
judgments of the managements of AirGate and iPCS as to the future financial
performance of AirGate and iPCS, respectively, and that the financial
forecasts, estimates and pro forma effects of iPCS, as adjusted by AirGate's
management, reflect the best currently available estimates and judgments of the
management of AirGate as to the future performance of iPCS. In addition, UBS
Warburg assumed, with AirGate's approval, that the future financial results
prepared by the managements of AirGate and iPCS will be achieved at the times
and in the amounts projected. UBS Warburg also assumed, with AirGate's consent,
that the merger would be treated as a tax-free reorganization for federal
income tax purposes. UBS Warburg assumed that all governmental, regulatory or
other consents and approvals necessary for the consummation of the merger will
be obtained without any material adverse effect on AirGate and/or iPCS and the
merger. UBS Warburg's opinion is necessarily based on economic, monetary,
market and other conditions existing on, and information made available to UBS
Warburg as of the date of its opinion.
UBS Warburg was not asked to, and therefore did not, offer any opinion as to
the material terms of the merger agreement or the form of the merger. UBS
Warburg expressed no opinion as to the value of AirGate common stock when
issued in the merger or the price at which AirGate common stock will trade in
the future. In rendering its opinion, UBS Warburg assumed, with AirGate's
consent, that the final executed form of the merger agreement did not differ in
any material respect from the draft that UBS Warburg examined, and that each of
AirGate and iPCS would comply with all material terms of the merger agreement.
In connection with rendering its opinion to AirGate's board of directors,
UBS Warburg performed a variety of financial analyses, which are summarized
below. The following summary is not a complete description of all the analyses
performed and factors considered by UBS Warburg in connection with its opinion.
The preparation of a fairness opinion is a complex process involving subjective
judgments and is not necessarily susceptible to partial analysis or summary
description. With respect to the analysis of selected publicly traded companies
and the analysis of selected transactions summarized below, no company or
transaction used as a comparison is either identical or directly comparable to
AirGate, iPCS or the merger. These analyses necessarily involve complex
considerations and judgments concerning financial and operating characteristics
and other factors that could affect the public trading or acquisition values of
the companies concerned.
UBS Warburg believes that its analyses and the summary below must be
considered as a whole and that selecting portions of its analyses and factors
or focusing on information presented in tabular format, without considering all
analyses and factors or the narrative description of the analyses, could create
a misleading or incomplete view of the processes underlying UBS Warburg's
analyses and opinion. None of the analyses performed by UBS Warburg was
assigned greater significance by UBS Warburg than any other. UBS Warburg
arrived at its ultimate opinion based on the results of all analyses undertaken
by it and assessed as a whole. UBS Warburg did not draw, in isolation,
conclusions from or with regard to any one factor or method of analysis.
34
The estimates of future performance of AirGate and iPCS provided by the
managements of AirGate and iPCS in or underlying UBS Warburg's analyses are not
necessarily indicative of future results or values, which may be significantly
more or less favorable than those estimates. In performing its analyses, UBS
Warburg considered industry performance, general business and economic
conditions and other matters, many of which are beyond the control of AirGate
and iPCS. Estimates of the financial value of companies do not necessarily
purport to be appraisals or reflect the prices at which companies actually may
be sold.
UBS Warburg did not make any recommendation with respect to the exchange
ratio, which was determined through negotiation between AirGate and iPCS. UBS
Warburg's opinion and financial analyses were only one of many factors
considered by AirGate's board of directors in its evaluation of the proposed
merger and should not be viewed as determinative of the view of the AirGate
board of directors or management with respect to the merger or the exchange
ratio provided for in the merger.
The following is a brief summary of the material financial analyses
performed by UBS Warburg and reviewed with AirGate's board of directors in
connection with UBS Warburg's opinion dated August 28, 2001. THE SUMMARY OF THE
FINANCIAL ANALYSES SET FORTH BELOW INCLUDE INFORMATION PRESENTED IN TABULAR
FORMAT. THE TABLES ALONE DO NOT CONSTITUTE A COMPLETE DESCRIPTION OF THE
SUMMARY OF THE FINANCIAL ANALYSES. IN ORDER TO FULLY UNDERSTAND THE SUMMARY OF
UBS WARBURG'S FINANCIAL ANALYSES, THE TABLES MUST BE READ TOGETHER WITH THE
TEXT OF EACH SUMMARY. CONSIDERING THE DATA IN THE TABLES BELOW WITHOUT
CONSIDERING THE FULL NARRATIVE DESCRIPTION OF THE SUMMARY OF THE FINANCIAL
ANALYSES, INCLUDING THE METHODOLOGIES AND ASSUMPTIONS UNDERLYING THE ANALYSES,
COULD CREATE A MISLEADING OR INCOMPLETE VIEW OF THE SUMMARY OF UBS WARBURG'S
FINANCIAL ANALYSES. UNLESS OTHERWISE INDICATED, ESTIMATED FINANCIAL DATA FOR
AIRGATE WERE BASED ON ESTIMATES OF THE MANAGEMENT OF AIRGATE AND ESTIMATED
FINANCIAL DATA FOR iPCS WERE BASED ON ESTIMATES OF THE MANAGEMENT OF iPCS, AS
ADJUSTED BY THE MANAGEMENT OF AIRGATE.
Analysis of Selected Public Companies
Based on public filings, UBS Warburg compared selected financial information
and operating statistics for AirGate and iPCS to corresponding financial
information and operating statistics of the following selected publicly held
wireless telecommunications service providers:
. AirGate PCS, Inc.
. Alamosa Holdings, Inc.
. AT&T Wireless Services
. Nextel Communications, Inc.
. Nextel Partners, Inc.
. Sprint PCS
. TeleCorp PCS, Inc.
. Triton PCS Holdings, Inc.
. UbiquiTel Inc.
. US Unwired Inc.
UBS Warburg reviewed "enterprise values" for each of the above companies
calculated as multiples of "POPs", "planned covered POPs" and current
subscribers. "Enterprise value" means equity market capitalization plus net
debt and excluding equity interests in unconsolidated businesses, "POPs" means
the number of persons within a license's coverage area, and "planned covered
POPs" means the number of people that will be served by the operating network
in the future. Multiples for the selected companies were based on
35
closing stock prices on August 24, 2001. This analysis indicated the following
implied mean and median enterprise value multiples for the selected companies,
as compared to the multiples for iPCS implied in the merger based on 13.5
million shares of AirGate common stock being issued in the merger, the closing
price of AirGate common stock of $58.27 per share on August 24, 2001, and iPCS'
net debt of approximately $96.9 million as of June 30, 2001:
Multiples of Selected Implied Multiples
Enterprise Value as a Multiple of: Public PCS Companies of iPCS in the Merger
---------------------------------- -------------------------------------------
Mean Median
---------- -----------
Total POPs......................... $ 152 $ 141 $ 119
Planned covered POPs............... 179 181 150
Current subscribers................ 6,352 6,199 8,226
Analysis of Selected Precedent Transactions
UBS Warburg reviewed the enterprise values in the following selected
precedent transactions involving wireless telecommunications service providers:
Acquiror Target
------------------------------------------- -------------------------------------------
Alamosa Holdings, Inc. Southwest PCS LP
UbiquiTel Inc. VIA Wireless
Deutsche Telekom AG/VoiceStream Wireless Powertel, Inc.
Corp.
Telus Corp. Clearnet Communications Inc.
Alamosa PCS, Inc. Roberts Wireless Communications
Alamosa PCS, Inc. Washington Oregon Wireless
Deutsche Telekom AG VoiceStream Wireless Corp.
AT&T Wireless Services PCS assets from PrimeCo Personal
Communications, GTE and Vodafone Airtouch
Plc
Powertel, Inc./Eliska Wireless, Inc. DiGiPH PCS
TeleCorp PCS, Inc. Tritel PCS, Inc.
VoiceStream Wireless Corp. Aerial Communications Inc.
VoiceStream Wireless Corp. Omnipoint Communications, Inc.
UBS Warburg reviewed enterprise values as multiples of total POPs and
subscribers for the selected transactions. All multiples were based on publicly
available information at the time of announcement of the relevant transaction.
UBS Warburg then compared the multiples derived from the selected transactions
with the multiples implied for iPCS based on 13.5 million shares of AirGate
common stock being issued in the merger, the closing price of AirGate common
stock of $58.27 on August 24, 2001 and iPCS' net debt of approximately $96.9
million as of June 30, 2001. This analysis indicated the following implied
enterprise value multiples for the selected transactions, as compared to the
multiples for iPCS implied in the merger:
Implied Multiples
Enterprise Value as a Multiples of Selected Precedent of iPCS in the
Multiple of: Transactions Merger
--------------------- -------------------------------- -----------------
Mean
(Excluding
High And
Low Low) Median High
------ ---------- ------ -------
Most recent subscribers.... $2,538 $11,241 $9,005 $98,878 $8,226
Total POPs................. 43 155 144 363 119
Discounted Cash Flow Analysis
UBS Warburg performed a discounted cash flow analysis of the estimated
unlevered, after-tax free cash flows that iPCS and AirGate could each generate
over calendar years 2001 through 2009. iPCS' projections analyzed with this
methodology were based on estimates of iPCS' management, as adjusted by
AirGate's
36
management, and AirGate's projections analyzed with this methodology were based
on estimates of AirGate's management. UBS Warburg applied terminal value
multiples of 9.0x to 13.0x 2009 EBITDA and discount rates of 11% to 15% to each
of AirGate's and iPCS' projections. This analysis indicated a range of implied
contribution to pro forma equity values and pro forma enterprise values for
iPCS of 47.2% to 47.8% and 46.5% to 47.3%, respectively, as compared to the
equity value and enterprise value for iPCS implied in the merger of
approximately 47.4% and 45.1%, respectively, based on 13.5 million shares of
AirGate common stock being issued in the merger, the closing price of AirGate
common stock of $58.27 on August 24, 2001 and iPCS' net debt of approximately
$96.9 million as of June 30, 2001.
Other Analysis
UBS Warburg performed such other analyses as it deemed necessary or
appropriate, including an analysis of the relative contributions of iPCS and
AirGate to the combined company's subscribers, estimated revenues, EBITDA and
net income for calendar years 2001, 2002 and 2003 based on estimates of the
management of AirGate and estimates of the management of iPCS, as adjusted by
the management of AirGate.
Miscellaneous
AirGate has agreed to pay UBS Warburg for its financial advisory services an
aggregate fee of $4.0 million, which includes a customary fee in connection
with the delivery by UBS Warburg of the financial fairness opinion to AirGate's
board of directors. The fee related to the financial fairness opinion shall be
paid irrespective of whether the merger is consummated. In addition, AirGate
has agreed to reimburse UBS Warburg for its reasonable expenses, including
reasonable fees and disbursements of its counsel, and to indemnify UBS Warburg
and related parties against liabilities, including liabilities under federal
securities laws, relating to, or arising out of, its engagement.
AirGate selected UBS Warburg as its financial advisor in connection with the
merger because UBS Warburg is an internationally recognized investment banking
firm with substantial experience in similar transactions and is familiar with
AirGate and its business. UBS Warburg is continually engaged in the valuation
of businesses and their securities in connection with mergers and acquisitions,
leveraged buyouts, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities and private placements.
In the ordinary course of business, UBS Warburg, its successors and
affiliates may actively trade the securities of AirGate or iPCS for their own
accounts and the accounts of their customers and, accordingly, may at any time
hold a long or short position in those securities.
Interests of Certain AirGate Persons in the Merger
Consulting Agreement. On July 17, 2001, AirGate entered into a consulting
agreement with Mr. Bianchino, one of AirGate's directors. Pursuant to the
consulting agreement, AirGate engaged Mr. Bianchino to provide the following
services to AirGate in connection with the merger with iPCS:
. advising AirGate regarding the advisability of the merger;
. advising AirGate regarding the structure and terms of the merger;
. assisting AirGate in connection with negotiating the terms of the
merger; and
. such other services as AirGate reasonably requested in connection with
the merger.
AirGate agreed to provide Mr. Bianchino $2,500 per day for rendering these
consulting services, such amounts not to exceed $50,000, and to reimburse Mr.
Bianchino's expenses in connection with providing consulting services.
37
AirGate's board of directors was aware of the interest detailed above during
its consideration of the merger, the merger agreement and the issuance of
shares of AirGate common stock in the merger and in determining to approve
these matters and to recommend to AirGate's stockholders that they vote FOR
approval of these matters at the AirGate special meeting.
Interests of Certain iPCS Persons in the Merger
Board of Directors Representation. In accordance with the merger agreement,
AirGate has caused two of the eight members of its board of directors to resign
and will increase the authorized number of members of the board of directors to
nine, effective as of the effective time of the merger. AirGate has agreed to
cause its remaining directors to fill the resulting vacancies so that the board
of directors will include one member designated by iPCS for a term to expire at
AirGate's 2002 annual meeting, one member designated by Blackstone for a term
to expire at AirGate's 2003 annual meeting, and one member, to be an
independent director, designated by iPCS with the approval of AirGate for a
term to expire at AirGate's 2004 annual meeting. AirGate has agreed to nominate
for re-election at its 2002 annual meeting the director designated by iPCS
whose term expires at the 2002 annual meeting for a term to expire at AirGate's
2005 annual meeting. At the effective time of the merger, at least one of the
directors designated by iPCS or Blackstone will be appointed to all committees
of the AirGate board of directors.
Severance Payments. iPCS Wireless, Inc., a wholly owned subsidiary of iPCS,
has entered into employment agreements with Timothy M. Yager, Linda K. Wokoun,
Stebbins B. Chandor, Jr., Anthony R. Muscato, William W. King, Jr., Leroy R.
Horsman, Jeffrey Pinegar and Patricia M. Greteman. These employment agreements
generally entitle the covered employees to certain severance payments and
consulting fees in the event of certain terminations of employment within one
year following a change in control of iPCS. The agreements further provide that
if any payments or benefits to which an executive is entitled constitute excess
golden parachute payments under applicable IRS rules, he or she will receive a
payment sufficient to pay the parachute excise tax that he or she will have to
pay with respect to the parachute payment. In addition, each executive will
receive an amount sufficient to pay the income and related employment taxes
that he or she will have to pay with respect to the reimbursement to him or her
of the parachute excise tax. AirGate expects that it will pay approximately
$6.5 million to the covered employees with respect to the severance payments.
Amendment of Employment Agreements. On August 28, 2001, iPCS Wireless
entered into amendments of its employment agreements with Ms. Wokoun and
Messrs. Chandor and Muscato. Pursuant to these amendments, each of Ms. Wokoun
and Messrs. Chandor and Muscato agreed that he or she will not terminate his or
her employment with iPCS as a result of the change to their respective
positions, duties and responsibilities until the earlier of the 180th day
following the closing of the merger and June 30, 2002. On such date, the
covered individual's employment will be deemed to terminate automatically for
good reason. In consideration for their agreements as described above, each of
Ms. Wokoun and Messrs. Chandor and Muscato will be entitled to receive on the
earlier of the 180th day following the closing of the merger and June 30, 2002,
a lump sum payment representing an acceleration of the consulting fees the
covered individual otherwise would have been entitled to receive over the
period beginning on the date of such individual's termination of employment and
ending on December 31, 2003 for Ms. Wokoun and Mr. Chandor, and December 31,
2002 for Mr. Muscato. This lump sum payment will be in the amount of $400,000
to each of Ms. Wokoun and Mr. Chandor and $200,000 to Mr. Muscato. These
payments will be a complete settlement of the applicable employee's obligation
to provide consulting services following his or her termination of employment
and the obligation of iPCS to pay these employees an annual consulting fee of
$200,000 for such consulting periods. These payments are in addition to the
other amounts that the covered individuals are entitled to receive under their
employment agreements as a result of termination of their employment. Under the
employment agreements, as amended, each of Ms. Wokoun and Messrs. Chandor and
Muscato have agreed not to compete with iPCS for a period of six months
following his or her termination of employment.
38
Stock Option Plan. The iPCS Amended and Restated 2000 Long-Term Incentive
Plan provides that all outstanding options under the iPCS Long-Term Incentive
Plan will accelerate and become fully vested upon the approval of the merger by
iPCS stockholders. As of September 30, 2001, directors and executive officers
of iPCS held an aggregate of 2,530,000 options to purchase iPCS shares, of
which 1,618,125 unvested options will vest upon such approval. As contemplated
in the merger agreement, all outstanding options under the iPCS Long-Term
Incentive Plan automatically will be converted into options for shares of
AirGate common stock upon the closing of the merger as described in "The Merger
Agreement and Related Agreements-Treatment of iPCS Options." Following the
merger, converted options will remain exercisable in accordance with the terms
of the iPCS Long-Term Incentive Plan, the agreements evidencing grants
thereunder and any other agreements between iPCS and an optionee.
Description of iPCS 2000 Long-Term Incentive Stock Plan
In connection with the merger, AirGate will assume the iPCS Long-Term
Incentive Plan. The iPCS Long-Term Incentive Plan provides that iPCS may grant
stock options, stock appreciation rights, shares of common stock and
performance units to its employees, consultants and directors. Stock options
awarded under the iPCS Long-Term Incentive Plan may be either incentive stock
options or nonqualified stock options, provided that incentive stock options
may be awarded only to employees of iPCS. Stock appreciation rights may be
granted in connection with options, or may be granted as free-standing awards.
In connection with the assumption of the iPCS Long-Term Incentive Plan,
AirGate intends to amend the iPCS Long-Term Incentive Plan to provide that
shares of AirGate common stock will be issuable thereunder rather than shares
of iPCS common stock. As adjusted based upon the exchange ratio in the merger,
based upon the number of options outstanding as of the date of the merger
agreement, AirGate will have approximately 628,600 shares of AirGate common
stock available for issuance under the iPCS Long-Term Incentive Plan, subject
to adjustment under the plan. In connection with the amendment of the iPCS
Long-Term Incentive Plan, all references to the number of shares of iPCS common
stock issuable thereunder and to the maximum number of shares of iPCS common
stock that any individual participant may receive each year under the iPCS
Long-Term Incentive Plan shall be multiplied by the exchange ratio and be
deemed to refer to the corresponding number of shares of AirGate common stock.
Such amendment also will provide that the remaining shares of AirGate common
stock available under the iPCS Long-Term Incentive Plan may be issued to
AirGate's and iPCS' employees, consultants and directors. The amendment will
authorize AirGate's compensation committee to administer the plan. In addition,
the amendment will substitute the definition of change in control under the
AirGate PCS, Inc. 2001 Non-Executive Stock Option Plan for the definition of
change in control under the iPCS Long-Term Incentive Plan. As soon as
practicable but in no event later than ten business days after the effective
time of the merger, AirGate will use its reasonable best efforts to prepare and
file with the SEC a registration statement on Form S-8 under the Securities Act
registering the shares of AirGate common stock subject to the assumed iPCS
Long-Term Incentive Plan.
Regulatory and Third Party Approvals
Regulatory Approvals
United States Antitrust. Under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 and its rules, the merger may not be completed until AirGate, iPCS
and certain stockholders of iPCS have furnished certain information and
materials to the Antitrust Division of the Department of Justice and the
Federal Trade Commission and a 30-day waiting period has expired or been
earlier terminated. A notification and report form under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 was filed with the Antitrust Division and
the Federal Trade Commission by each of AirGate and iPCS on October 4, 2001 and
by certain stockholders of iPCS on October 11, 2001.
General. It is possible that filings may be made with other governmental
entities which may seek various regulatory concessions. There can be no
assurance that:
. AirGate or iPCS will be able to satisfy or comply with such conditions;
39
. compliance or non-compliance will not have adverse consequences for
AirGate after completion of the merger; or
. the required regulatory approvals will be obtained within the time frame
contemplated by AirGate and iPCS referred to in this proxy
statement/prospectus or on terms that will be satisfactory to AirGate
and iPCS.
Third Party Approvals
It is a condition to the obligation of each of iPCS and AirGate to complete
the merger that the following third party approvals be obtained:
Stockholders. Under the rules of The Nasdaq National Market, the stock
market on which shares of AirGate common stock are listed and traded, the
approval of the holders of a majority of the outstanding shares of AirGate
common stock casting votes, either in person or by proxy, on the proposal is
required for the issuance of shares of AirGate common stock in the merger.
AirGate is seeking such stockholder approval at the AirGate special meeting.
The affirmative vote of a majority of the issued and outstanding shares of iPCS
voting stock is required to adopt and approve the merger agreement and the
merger. iPCS is seeking such stockholder approval at a special meeting of its
stockholders.
Senior Lenders. AirGate is required to obtain the approval of the lenders
under its senior credit facility to the creation of the AirGate merger
subsidiary and consummation of the transactions contemplated by the merger
agreement. AirGate obtained this approval on October 12, 2001. iPCS is required
to obtain the approval of the lenders under its senior credit facility to the
change of control of iPCS that will occur as a result of the merger. iPCS
obtained this approval as of September 28, 2001.
Sprint PCS. iPCS is required to obtain Sprint PCS' approval of the merger
under its Sprint PCS management agreement. In a letter dated September 19,
2001, iPCS obtained this approval.
Dissenters' Rights of Appraisal
Under Delaware law, AirGate stockholders are not entitled to dissenters'
rights of appraisal in connection with the merger.
Dissenters' rights of appraisal are provided for under Delaware law for iPCS
stockholders. If an iPCS stockholder does not wish to accept AirGate common
stock in the merger, such iPCS stockholder has the right under Delaware law to
have the fair value of his, her or its iPCS shares determined by the Delaware
Chancery Court. This right to appraisal is subject to a number of restrictions
and technical requirements. Generally, in order for an iPCS stockholder to
exercise his, her or its dissenters' rights of appraisal, such stockholder:
. must send a written demand to iPCS for appraisal in compliance with
Delaware law before the vote on the merger;
. must not vote in favor of the merger; and
. must continuously hold the iPCS stock from the date he, she or it makes
the demand for appraisal through the closing of the merger.
Merely voting against the merger will not protect an iPCS stockholder's
rights to an appraisal.
Accounting Treatment
The merger will be accounted for as a "purchase," as such term is used under
generally accepted accounting principles. Accordingly, from and after the
effective time of the merger, iPCS' consolidated results of operations will be
included in AirGate's consolidated results of operations. For purposes of
preparing
40
AirGate's consolidated financial statements, AirGate will establish a new
accounting basis for iPCS' assets and liabilities based upon their estimated
fair market values and AirGate's purchase price, including the costs of the
acquisition. Accordingly, the purchase accounting adjustments made in
connection with the development of the unaudited pro forma condensed
consolidated financial information appearing elsewhere in this proxy
statement/prospectus are preliminary and have been made solely for purposes of
developing such pro forma condensed consolidated financial information to
comply with disclosure requirements of the SEC. Although the final purchase
price allocation may differ, the pro forma condensed consolidated financial
information reflects AirGate management's best estimate based upon currently
available information. For more information regarding the pro forma allocation
of the purchase price, see "Pro Forma Condensed Consolidated Financial
Statements (Unaudited)."
Nasdaq Listing
The shares of AirGate common stock to be issued in connection with the
merger are required to be listed on The Nasdaq National Market. Nasdaq's
approval to list these shares of common stock is expected to be obtained prior
to the completion of the merger, subject to official notice of issuance.
Material United States Federal Income Tax Consequences of the Merger
The following is a summary of the material United States Federal income tax
consequences of the merger to AirGate and iPCS and to holders of iPCS stock who
exchange their shares of iPCS stock for shares of AirGate stock and, as
applicable, cash in lieu of fractional shares of AirGate stock. This discussion
addresses only such stockholders who hold their iPCS stock as a capital asset,
and does not address all of the United States Federal income tax consequences
that may be relevant to particular stockholders in light of their individual
circumstances or to stockholders who are subject to special rules, such as
holders who are subject to alternative minimum tax provisions of the Internal
Revenue Code, financial institutions, tax-exempt organizations, insurance
companies, mutual funds, dealers in securities or foreign currencies, foreign
holders, persons who hold such shares as a hedge against currency risk, or as
part of a constructive sale or conversion transaction or straddle, holders
whose shares are qualified small business stock for purposes of Sections 1202
and 1045 of the Internal Revenue Code or holders who acquired their shares upon
the exercise of employee stock options or otherwise as compensation. The
following discussion is not binding on the Internal Revenue Service. The
following discussion also does not address the tax consequences to iPCS
stockholders of any amounts received as reimbursement for any of their expenses
in connection with the merger. It is based upon the Internal Revenue Code, and
other laws, regulations, rulings and decisions in effect as of the date of this
proxy statement/prospectus, all of which are subject to change, possibly with
retroactive effect. United States Federal estate tax consequences and tax
consequences under state, local and foreign laws are not addressed.
THE FOLLOWING DISCUSSION IS NOT INTENDED TO BE A COMPLETE ANALYSIS OF ALL
POTENTIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES. IN ADDITION, THE
DISCUSSION DOES NOT ADDRESS TAX CONSEQUENCES WHICH MAY VARY WITH, OR ARE
CONTINGENT ON, YOUR INDIVIDUAL CIRCUMSTANCES. iPCS STOCKHOLDERS ARE ADVISED TO
CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF
THE MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL AND
FOREIGN INCOME AND OTHER TAX LAWS TO THEIR PARTICULAR CIRCUMSTANCES.
No ruling has been, or will be, sought from the Internal Revenue Service as
to the United States Federal income tax consequences of the merger. It is a
condition to the consummation of the merger that AirGate receive an opinion of
its tax counsel, Winston & Strawn, and that iPCS receive an opinion from its
tax counsel, Mayer, Brown & Platt, that the merger will qualify as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code. The issuance of such opinions will be conditioned on customary
assumptions and representations made by AirGate, the AirGate merger subsidiary
and iPCS. An opinion of counsel is not binding on the Internal Revenue Service
or a court. As a result, neither AirGate nor iPCS can assure you that the tax
considerations and opinions contained in this discussion will not be challenged
by the Internal Revenue Service or sustained by a court if challenged.
41
Tax Opinions. In connection with the filing of the registration statement of
which this proxy statement/prospectus is a part, Mayer, Brown & Platt and
Winston & Strawn have delivered opinions addressing the United States Federal
income tax consequences of the merger. These opinions have been rendered based
on certain facts, representations and assumptions set forth in the opinions
that are expected to be consistent with the facts existing at the effective
time of the merger. These opinions do not address the tax consequences to iPCS
stockholders (i) who do not hold their iPCS stock as a capital asset, (ii) who
are subject to special rules, or (iii) of any amounts received as reimbursement
for any of their expenses in connection with the merger. As with the opinions
that are to be delivered at closing, these opinions are not binding on the
Internal Revenue Service or a court. The material conclusions in these opinions
are as follows:
. the merger will be treated as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code;
. AirGate, the AirGate merger subsidiary and iPCS will not recognize any
gain or loss as a result of the merger;
. each iPCS stockholder who exchanges shares of iPCS common stock for
shares of AirGate common stock in the merger will not recognize gain or
loss, except with respect to cash, if any, that such stockholder
receives in lieu of a fractional share of AirGate common stock and
amounts received as reimbursement for any expenses in connection with
the merger;
. each iPCS stockholder's aggregate tax basis in the shares of AirGate
common stock received in the merger, including any fractional share
interest for which cash is received, will be the same as such
stockholder's aggregate tax basis in the iPCS common stock surrendered
in the merger; and
. the holding period of the shares of AirGate common stock received in the
merger, including any fractional share interest for which cash is
received, by each iPCS stockholder will include the holding period of
the iPCS common stock that such stockholder surrendered in the merger.
Cash in Lieu of a Fractional Share of AirGate Stock. Each iPCS stockholder
who receives cash in lieu of a fractional share of AirGate common stock in the
merger will be treated as having received the fractional share interest in the
merger and as having received the cash in redemption of the fractional share.
The cash payment will be treated as a payment in redemption of the fractional
share interest under Section 302 of the Internal Revenue Code. In general, an
iPCS stockholder will recognize capital gain or loss on deemed redemption in an
amount equal to the difference between the amount of cash received and such
stockholder's adjusted tax basis allocable to the fractional share. If,
however, such stockholder is involved in directing iPCS' corporate affairs,
holds more than a minimal interest in iPCS, or owns iPCS or AirGate common
stock under the constructive ownership rules of Section 318 of the Internal
Revenue Code, the Internal Revenue Service could in some circumstances take the
view that the cash payment should be taxed to such stockholder as a dividend.
Dissenters' Rights of Appraisal. iPCS stockholders who exercise dissenters'
rights of appraisal generally will recognize taxable gain or loss based upon
the difference in the cash received and the stockholder's adjusted tax basis in
the shares of iPCS common stock exchanged, provided the amount received is not
treated as a dividend. A sale of shares based on the exercise of dissenters'
rights of appraisal will not be treated as a dividend if, after giving effect
to constructive ownership rules under the Internal Revenue Code, the
stockholder exercising the dissenters' rights of appraisal owns no shares in
AirGate following the merger. If the stockholder owns shares in AirGate (either
actually or constructively) after the merger, the determination of whether the
sale of shares will be treated as a dividend is a more complicated analysis.
Stockholders should consult their own tax advisors as to the proper treatment
in this case.
Backup Withholding. Certain noncorporate iPCS stockholders may be subject to
backup withholding at a rate of 30.5% (30% if the transaction closes in 2002)
on cash received in exchange for their fractional shares of iPCS common stock.
Backup withholding will not apply, however, to a stockholder who:
. furnishes to AirGate in connection with the completion of the merger a
correct taxpayer identification number and certifies that he, she or it
is not subject to backup withholding on the substitute Form W-9 or
successor form;
. provides to AirGate in connection with the completion of the merger a
certification of foreign status on Form W-8BEN or successor form; or
. is otherwise exempt from backup withholding.
42
THE MERGER AGREEMENT AND RELATED AGREEMENTS
THE FOLLOWING IS A SUMMARY OF THE AGREEMENTS RELATING TO THE MERGER
DESCRIBED IN THIS PROXY STATEMENT/PROSPECTUS, INCLUDING THE MERGER AGREEMENT,
THE SUPPORT AGREEMENTS, AND THE REGISTRATION RIGHTS AGREEMENT. THE DESCRIPTION
OF EACH OF THESE AGREEMENTS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
COMPLETE TEXT OF THE RESPECTIVE AGREEMENT, EACH OF WHICH IS ATTACHED AS AN
ANNEX TO AND INCORPORATED BY REFERENCE INTO THIS PROXY STATEMENT/PROSPECTUS. WE
URGE YOU TO READ THE FULL TEXT OF EACH OF THE AGREEMENTS.
THE MERGER AGREEMENT
The Merger
A wholly owned subsidiary of AirGate will merge into iPCS following:
. the approval by the required AirGate stockholders of the merger, the
merger agreement and the issuance of shares of AirGate common stock in
the merger;
. the approval by the required iPCS stockholders of the merger and the
merger agreement; and
. the satisfaction or waiver of the other conditions to the merger.
iPCS will survive the merger as a wholly owned subsidiary of AirGate. If all
conditions to the merger are satisfied or waived, the merger will become
effective at the time of the filing by the surviving corporation of a
certificate of merger with the Delaware secretary of state or at such other
time as may be specified in the certificate of merger. The filing of the
certificate of merger will occur no later than three business days after the
satisfaction or waiver of all conditions to the merger.
In addition, following the merger:
. the charter and by-laws of the AirGate merger subsidiary will become the
charter and by-laws of iPCS; and
. the directors and officers of the AirGate merger subsidiary will become
the directors and officers of iPCS.
Treatment of iPCS Common Stock
At the effective time of the merger, each issued and outstanding share of
iPCS common stock owned by iPCS stockholders (other than those exercising
dissenters' rights of appraisal, if any) will be converted into the right to
receive approximately 0.1594 of a share of AirGate common stock, referred to as
the exchange ratio. Each share of iPCS preferred stock will convert
automatically into a share of iPCS common stock immediately prior to the
effective time of the merger. All shares of iPCS common stock held in treasury
by iPCS or owned directly by AirGate or iPCS or any of their respective
subsidiaries will be cancelled without exchange.
The exchange ratio will be adjusted in the event of:
. any inaccuracy in the number of outstanding shares of iPCS common stock,
preferred stock, options, warrants or other stock equivalents represented
by iPCS to AirGate;
. the issuance after August 28, 2001 of options, warrants or other rights
to purchase iPCS common stock; or
. any stock split, reverse stock split, stock dividend, recapitalization,
reclassification or other like change with respect to iPCS common stock
occurring before the merger.
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The total number of shares of AirGate common stock that AirGate will issue
in connection with the merger and related transactions will not exceed 13.5
million, which, assuming the exercise of all outstanding AirGate and iPCS
options and warrants, would represent approximately 47.5% of AirGate's common
stock immediately following the merger.
Treatment of iPCS Options
At the effective time of the merger, AirGate will assume each unexpired and
unexercised option to purchase shares of iPCS common stock and convert it into
a fully vested option to purchase shares of AirGate common stock. Each
converted iPCS option will remain subject to the terms and conditions of iPCS'
Long-Term Incentive Plan and any agreements between iPCS and the optionee. The
number of shares of AirGate common stock subject to each iPCS option that
AirGate assumes will equal the number of shares of iPCS common stock subject to
the iPCS option immediately prior to the merger multiplied by the exchange
ratio, rounded down to the nearest whole share. The exercise price per share of
AirGate common stock issuable under each converted iPCS option will be equal to
the per share exercise price of the iPCS common stock specified under the iPCS
option divided by the exchange ratio, rounded up to the nearest whole cent.
As soon as practicable but in no event later than ten business days after
the effective time of the merger, AirGate will use its reasonable best efforts
to prepare and file with the SEC a registration statement on Form S-8 under the
Securities Act registering the shares of AirGate common stock subject to the
assumed iPCS options. AirGate will use its reasonable best efforts to maintain
the effectiveness of the Form S-8.
Treatment of iPCS Warrants
At the effective time of the merger, AirGate will assume and cause to be
performed the obligations of iPCS under certain unexpired and unexercised
warrants to purchase shares of iPCS common stock. Each assumed iPCS warrant
will remain subject to the terms and conditions set forth in the applicable
warrant agreement immediately prior to the effective time of the merger, except
that:
. the number of shares of AirGate common stock subject to each outstanding
iPCS warrant that AirGate assumes will equal the number of shares of iPCS
common stock subject to the iPCS warrant immediately prior to the merger
multiplied by the exchange ratio, rounded to the nearest whole share; and
. the exercise price per share of AirGate common stock issuable under each
assumed iPCS warrant will be equal to the per share exercise price of the
iPCS common stock specified under the iPCS warrant divided by the
exchange ratio, rounded to the nearest whole cent.
Following the effective time of the merger, AirGate will cause a shelf
registration statement on Form S-3 to become effective to cover AirGate common
stock issuable upon the exercise of the assumed warrants. AirGate will maintain
the effectiveness of the registration statement until the earlier of the
expiration of the assumed warrants or the date on which all of the assumed
warrants have been exercised.
Fractional Shares
AirGate will not issue any fractional shares of AirGate common stock in the
merger. In lieu of any fractional shares of AirGate common stock, each iPCS
stockholder who would otherwise have been entitled to a fraction of a share of
AirGate common stock pursuant to the merger agreement will be paid an amount in
cash, without interest, equal to the fraction of a share of AirGate common
stock that would have been issued in the merger multiplied by the average of
the closing price of AirGate common stock for the five trading days immediately
prior to the merger.
Exchange of Certificates
At the effective time of the merger, each record holder of shares of iPCS
common stock (other than those exercising dissenters' rights of appraisal, if
any) shall receive from AirGate, upon delivery of a completed letter of
transmittal and surrender of such holder's iPCS stock certificates,
certificates representing that number of
44
shares of AirGate common stock, and cash for any fractional shares thereof, to
which such holder is entitled. At and after the effective time of the merger
and until so surrendered, the iPCS stock certificates will represent only the
right to receive the consideration described above. No dividends or other
distributions declared or made after the merger with respect to shares of
AirGate common stock will be paid to the holder of record of any unsurrendered
iPCS stock certificates. However, following surrender of any such iPCS stock
certificates, the holder of record will be paid, without interest, with respect
to each whole share of AirGate common stock which such person is entitled to
receive in the merger:
. the amount of any dividends or other distributions with a record date
after the merger but a payment date prior to surrender of such iPCS stock
certificates; and
. at the appropriate payment date, the amount of dividends or distributions
with a record date after the merger but prior to surrender of such iPCS
stock certificates and a payment date after the surrender of such iPCS
stock certificates.
No transfers of shares of iPCS capital stock will be permitted to be made after
the merger.
If any iPCS stock certificate is lost, stolen or destroyed, an iPCS
stockholder must provide an appropriate affidavit of that fact. AirGate may
require an iPCS stockholder to deliver a bond as indemnity against any claim
that may be made against AirGate with respect to any lost, stolen or destroyed
certificate.
Joint Closing Conditions of AirGate and iPCS
The obligation of each of AirGate and iPCS to complete the merger is subject
to the satisfaction or waiver of specified conditions prior to the effective
time of the merger, including the following:
. the approval by AirGate stockholders of the issuance of shares of AirGate
common stock in the transactions contemplated by the merger agreement at
a stockholders' meeting held for the purpose of voting on the issuance;
. the approval and adoption by iPCS stockholders of the merger and the
merger agreement;
. the expiration or termination of the applicable waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976;
. the receipt, without the requirement of divestiture, of all consents,
permits, licenses and approvals required from any governmental entity;
. the absence of any injunction, order, decree or ruling which restrains or
prohibits the consummation of the merger;
. the declaration by the SEC of the effectiveness of the registration
statement on Form S-4, of which this proxy statement/prospectus forms a
part, and the absence of any stop order or threatened or pending
proceedings seeking a stop order;
. the acceptance for filing by the secretary of state of Delaware of the
certificate of merger;
. the absence of any event or circumstance that results in the failure to
satisfy certain conditions of the definition of a "Change of Control" in
iPCS' indenture;
. the receipt of all consents, approvals or waivers required by any third
party under any contract or agreement with AirGate, including the
approval of the lenders under AirGate's senior credit facility; and
. the receipt of all consents, approvals or waivers required by any third
party under any contract or agreement with iPCS, including the approval
of Sprint PCS and the approval of the lenders under iPCS' senior credit
facility.
45
Closing Conditions of AirGate and the AirGate Merger Subsidiary
The obligations of AirGate and the AirGate merger subsidiary to complete the
merger is subject to the satisfaction or waiver by AirGate and the AirGate
merger subsidiary of the following additional conditions prior to the effective
time of the merger:
. the representations and warranties made by iPCS in the merger agreement
are true and correct in all material respects as of the date of the
merger agreement and as of the closing date, except where the failure to
be true and correct in all material respects will not have a material
adverse effect on iPCS;
. the performance by iPCS in all material respects of all obligations
required to be performed by it under the merger agreement on or prior to
the closing date;
. the absence of any pending proceeding by a governmental authority which
seeks to prevent the consummation of the merger or the transactions
contemplated by the merger agreement;
. the delivery by iPCS of a written resignation of each director of iPCS
and its subsidiaries as of the effective time of the merger;
. the receipt by AirGate of a written opinion of Winston & Strawn, tax
counsel to AirGate, to the effect that for federal income tax purposes,
the merger will be treated as a reorganization qualifying under the
provisions of Section 368(a) of the Internal Revenue Code;
. the delivery by iPCS of an agreement evidencing the termination of
certain agreements among iPCS and its stockholders;
. the receipt by AirGate of various certificates certifying as to the
charter and bylaws of iPCS and its subsidiaries, the valid existence of
iPCS and each subsidiary of iPCS under the laws of Delaware, as well as
qualification certificates from every jurisdiction where iPCS and each
subsidiary of iPCS is registered to do business as a foreign entity, and
resolutions of the iPCS board of directors and iPCS stockholders
approving the merger and the merger agreement;
. the receipt by AirGate of a comfort letter from Deloitte & Touche LLP,
iPCS' independent public auditors, on the effective date of the S-4
registration statement and on the closing date of the merger, in form and
substance reasonably satisfactory to AirGate;
. the execution and delivery by certain iPCS stockholders of the
registration rights agreement;
. the absence of a continuing event of default under either of iPCS'
indenture or credit facility; and
. the absence of a continuing material default by iPCS or any of its
subsidiaries under iPCS' agreements with Sprint PCS.
Closing Conditions of iPCS
iPCS' obligation to complete the merger is subject to the satisfaction or
waiver by iPCS of the following additional conditions prior to the effective
time of the merger:
. the representations and warranties made by AirGate and the AirGate merger
subsidiary are true and correct in all material respects as of the date
of the merger agreement and as of the closing date, except where the
failure to be true and correct in all material respects will not have a
material adverse effect on AirGate;
. the performance by AirGate and the AirGate merger subsidiary in all
material respects of all obligations required to be performed by them
under the merger agreement, on or prior to the closing date;
. the absence of any pending proceeding by a governmental entity which
seeks to prevent the consummation of the transactions contemplated by the
merger agreement;
. the receipt by iPCS of a written opinion of Mayer, Brown & Platt, tax
counsel to iPCS, to the effect that for federal income tax purposes, the
merger will be treated as a reorganization qualifying under the
provisions of Section 368(a) of the Internal Revenue Code;
46
. the authorization for listing on The Nasdaq National Market, subject to
official notice of issuance, of the AirGate common stock issuable to iPCS
stockholders in the merger and pursuant to the other transactions
contemplated by the merger agreement;
. the execution and delivery by AirGate of the registration rights
agreement;
. the absence of a continuing event of default under either AirGate's
indenture or credit facility; and
. the absence of a continuing material default by AirGate or any of its
subsidiaries under AirGate's agreements with Sprint PCS.
Covenants and Other Agreements
Conduct of iPCS' Business Pending the Merger
iPCS has agreed that until the completion of the merger, unless expressly
contemplated by the merger agreement, or approved in writing by AirGate, iPCS
and its subsidiaries will conduct their businesses and operations in the
ordinary course of business and consistent with past practices and in
compliance with applicable law. iPCS also has agreed to use its reasonable best
efforts to preserve intact its business organization and that of its
subsidiaries, keep available the present services of its employees, and
preserve the existing business relationships and goodwill of its customers and
distributors. In addition, iPCS has agreed that prior to the effective time of
the merger it will not, and will not permit its subsidiaries to, do any of the
following without AirGate's consent or except as expressly contemplated by the
merger agreement:
. declare, set aside or pay any dividends or make any distributions with
respect to any capital stock, other than dividends from a subsidiary to
iPCS or another subsidiary of iPCS;
. split, combine or reclassify any shares of its capital stock, or issue or
authorize any other securities in lieu of or in substitution for shares
of its capital stock;
. repurchase, redeem or otherwise acquire any securities of iPCS or its
subsidiaries;
. issue, deliver or sell any additional shares of its capital stock or
other securities;
. make any material changes to its charter, by-laws or other similar
governing documents;
. take any action that is intended or may reasonably be expected to result
in any representations or warranties becoming untrue, or in any of the
conditions to the merger not being satisfied;
. make any change in accounting methods, other than as required by GAAP;
. except as may be required to comply with applicable law, adopt, enter
into, amend, renew or terminate any employee benefit plan, or any
agreement, arrangement, plan or policy with current or former directors,
officers or employees;
. incur any indebtedness other than indebtedness under its senior credit
facility not to exceed $100.0 million;
. except for normal increases to employees other than directors and
officers in the ordinary course of business consistent with past practice
and except as required by applicable law, increase the compensation or
fringe benefits of any director, officer, or employee, or pay any benefit
not required;
. make any loans to any officers, directors, employees, affiliates, agents
or consultants, or make any change in existing borrowing or lending
arrangements on behalf of any such person;
. take any action that could reasonably be expected to disqualify the
merger as a tax-free reorganization;
. sell, lease, encumber, assign or otherwise dispose of any assets,
properties or other rights involving consideration in excess of $5.0
million in the aggregate;
47
. enter into, renew, amend or waive in any material manner, or terminate,
any iPCS agreement with Sprint PCS, or any other material contract,
agreement or lease to which iPCS or any of iPCS's subsidiaries is a
party, or by which iPCS or any of iPCS' subsidiaries is bound, other than
in the ordinary course of business;
. take any action that could reasonably be expected to delay the merger and
the other transactions contemplated by the merger agreement;
. make any material tax election or change any material election already
made, adopt or change any accounting method relating to taxes unless
required by GAAP, enter into any closing agreement relating to taxes, or
settle any claim or assessment relating to taxes;
. enter into or amend in any material manner any contract, agreement or
arrangement with any officer, director, employee, consultant or
stockholder, or any affiliate of each;
. acquire additional territory or related assets from Sprint PCS;
. issue, deliver, sell, pledge, dispose of, encumber or grant any lien on
any shares of its capital stock or other securities of iPCS or its
subsidiaries;
. pay, discharge, settle or satisfy any claims, liabilities or obligations,
other than in the ordinary course of business or pursuant to mandatory
terms of any contract in effect, in excess of $2.5 million;
. make any loans, advances or capital contributions to, or investments in,
any other person in excess of $1.0 million;
. enter into any new line of business;
. enter into any new employment agreement, arrangement, commitment or
program which provides for severance payments or benefits, or amend any
existing employment agreement, arrangement, commitment or program in a
manner that increases any severance payments or benefits by more than
$100,000, individually or in the aggregate;
. make any capital expenditures other than those which are in an amount of
no more than $75.0 million in the aggregate;
. voluntarily permit any material insurance policy naming iPCS or a
subsidiary as beneficiary or a loss payee to be canceled or terminated
other than in the ordinary course of business; or
. agree to do any of the foregoing.
Conduct of AirGate's Business Pending the Merger
AirGate has agreed that until the completion of the merger, unless expressly
contemplated by the merger agreement, or approved in writing by iPCS, AirGate
and its subsidiaries will conduct their businesses and operations in the
ordinary course of business and consistent with past practices and in
compliance with applicable law. AirGate will use its reasonable best efforts to
preserve intact its business organization and that of its subsidiaries, keep
available the present services of its employees, and preserve the existing
business relationships and goodwill of its customers and distributors. In
addition, AirGate has agreed that prior to the effective time of the merger it
will not, and will not permit its subsidiaries to, do any of the following
without iPCS' consent or except as expressly contemplated by the merger
agreement:
. declare, set aside or pay any dividends or make any distributions with
respect to any capital stock, other than dividends from a subsidiary to
AirGate or another subsidiary of AirGate;
. split, combine or reclassify any shares of its capital stock, or issue or
authorize any other securities in lieu of or in substitution for shares
of its capital stock;
48
. repurchase, redeem or otherwise acquire any securities of AirGate or its
subsidiaries;
. issue, deliver or sell any additional shares of its capital stock or
other securities;
. make any material changes to its charter, by-laws or other similar
governing documents;
. take any action that is intended or reasonably could be expected to
result in any representations or warranties becoming untrue, or in any of
the conditions to the merger not being satisfied;
. make any change in accounting methods, other than as required by GAAP;
. take any action that could reasonably be expected to disqualify the
merger as a tax-free reorganization;
. sell, lease, encumber, assign or otherwise dispose of any assets,
properties or other rights involving consideration in excess of $25.0
million in the aggregate, except as permitted by the merger agreement;
. incur any indebtedness other than indebtedness under its senior credit
facility not to exceed $125.3 million in the aggregate;
. enter into, renew, amend or waive in any material manner, or terminate,
any AirGate agreement with Sprint PCS, or any other material contract,
agreement or lease to which AirGate or any of AirGate's subsidiaries is a
party, or by which AirGate or any of AirGate's subsidiaries is bound,
other than in the ordinary course of business;
. take any action that could reasonably be expected to delay the merger and
the other transactions contemplated by the merger agreement;
. acquire additional territory or related assets from Sprint PCS;
. make any loans, advances or capital contributions to, or investments in,
any other person in excess of $1.0 million, individually or in the
aggregate;
. enter into any new line of business;
. make any capital expenditures other than those which are in an amount of
no more than $65.0 million in the aggregate; or
. agree to do any of the foregoing.
No Solicitation
The merger agreement provides that until completion of the merger iPCS and
its subsidiaries will not:
. acquire any assets, business or any corporation, partnership, association
or other business organization or division thereof involving
consideration in excess of $2.5 million individually or in the aggregate;
. approve any transaction that would permit any person or group to acquire
shares of iPCS common stock if such acquisition would cause such person
or group to beneficially own 15% or more of the shares of iPCS common
stock for purposes of Section 203 of the Delaware General Corporation
Law; or
. authorize or permit any of its officers, directors, employees or agents
to directly or indirectly solicit, initiate or encourage any takeover
proposal from a third party, recommend or endorse any takeover proposal,
or participate in any discussions or negotiations or provide third
parties with any nonpublic information relating to an inquiry or
proposal, or otherwise facilitate any effort to make or implement a
takeover proposal.
iPCS will immediately notify AirGate of its receipt, and all relevant
details, of any inquiries or takeover proposals. The merger agreement further
provides that iPCS will cease immediately and cause to be terminated any
existing activities, discussions or negotiations with any parties other than
AirGate with respect to a takeover proposal.
49
The merger agreement also provides that until completion of the merger,
AirGate and its subsidiaries will not:
. acquire, or be acquired by, any business or any corporation, partnership,
association or other organization, or otherwise acquire or sell assets,
in excess of $5.0 million;
. authorize or permit any of its officers, directors, employees or agents
to directly or indirectly solicit, initiate or encourage a takeover
proposal from a third party;
. approve any transaction that would permit any person or group to acquire
shares of AirGate common stock if such acquisition would cause such
person or group to beneficially own 15% or more of the shares of AirGate
common stock for purposes of Section 203 of the Delaware General
Corporation Law; or
. participate in any discussions or negotiations or provide third parties
with any nonpublic information relating to a takeover proposal, unless
the AirGate board of directors determines in good faith, after receipt of
advice to such effect from outside legal counsel, that it would be
inconsistent with its fiduciary duties not to participate in such
discussion or negotiations or provide such information.
A takeover proposal means any tender or exchange offer, proposal for a
merger, consolidation or other business combination involving iPCS or any
subsidiary, or any proposal or offer to acquire a substantial equity interest
in, or a substantial portion of the assets of, iPCS or any subsidiary, other
than the transactions contemplated by the merger agreement.
Proxy Statement and Registration Statement
AirGate agreed to prepare and file with the SEC, as promptly as is
reasonably practicable following the date of signing the merger agreement, but
in no event later than September 30, 2001, the registration statement on Form
S-4, of which this proxy statement/prospectus forms a part, in connection with
the registration under the Securities Act of the shares of AirGate common
stock to be issued in connection with the merger, and contemplating the public
reoffering of all such shares of AirGate common stock issued to the iPCS
stockholders. Promptly after the date the registration statement is declared
effective under the Securities Act of 1933, AirGate has agreed to mail this
proxy statement/prospectus to its stockholders. In addition, as promptly as
reasonably practicable following the date the registration statement on Form
S-4 is declared effective under the Securities Act of 1933, AirGate has agreed
to prepare and file with the SEC a registration statement on Form S-3 for an
underwritten offering as contemplated by the registration rights agreement.
See "Underwritten Public Offering; Registration Rights" beginning on page 56.
Stockholder Meetings
AirGate has agreed to call and hold a meeting of its stockholders to
solicit the required stockholder approval of the issuance of AirGate common
stock in the merger as soon as practicable after the registration statement on
Form S-4, of which this proxy statement/prospectus forms a part, becomes
effective. AirGate, through its board of directors, has agreed to recommend
that its stockholders approve the issuance of AirGate common stock and to use
its best efforts to solicit and secure such approval.
iPCS has agreed to call and hold a meeting of its stockholders relating to
the required stockholder approval of the merger and the merger agreement;
however, iPCS may obtain such stockholder approval by written consent. iPCS,
through its board of directors, has agreed to recommend that its stockholders
approve the adoption of the merger and the merger agreement.
Legal Conditions to Merger
The merger agreement provides that, prior to the effective time of the
merger, each of AirGate and iPCS will use all reasonable efforts:
. to take, or cause to be taken, all actions necessary, proper or
appropriate to comply promptly with all legal requirements which may be
imposed with respect to the merger and to consummate the merger; and
50
. to obtain any consent, authorization, order or approval of any
governmental entity or third party required to be obtained in connection
with the merger, provided nothing will require AirGate or iPCS to agree
to the requirement of any divestiture in exchange for such consent.
Listing of AirGate Common Stock
AirGate has agreed to prepare and submit to The Nasdaq National Market a
listing application covering the shares of AirGate common stock to be issued in
the merger and upon exercise of the iPCS options and warrants assumed by
AirGate. The merger agreement requires AirGate to use its best efforts to cause
such shares to be approved for listing on such exchange, subject to official
notice of issuance, prior to the effective time of the merger.
Nomination of Directors
In accordance with the merger agreement, AirGate has caused two of the eight
members of its board of directors to resign from its board and will increase
the authorized number of members of the board of directors to nine, effective
as of the effective time of the merger. In addition, AirGate has agreed to
cause its remaining directors to fill the resulting vacancies so that the board
of directors will include one member designated by iPCS for a term to expire at
AirGate's 2002 annual meeting, one member designated by Blackstone for a term
to expire at AirGate's 2003 annual meeting, and one member, to be an
independent director, designated by iPCS with the approval of AirGate, such
approval not to be unreasonably withheld for a term to expire at AirGate's 2004
annual meeting. AirGate has agreed to nominate for re-election at AirGate's
2002 annual meeting the director designated by iPCS whose term expires at the
2002 annual meeting for a term to expire at AirGate's 2005 annual meeting. At
the effective time of the merger, at least one of the directors designated by
iPCS or Blackstone will be appointed to all committees of the AirGate board of
directors.
Upon the sale or in-kind distribution of 75% of more of the shares of
AirGate common stock received by Blackstone in the merger, the member of the
AirGate board of directors designated by Blackstone shall resign from the
board.
Indemnification of Directors and Officers
From and after the effective time of the merger, AirGate has agreed that it:
. will cause iPCS as the surviving corporation in the merger to indemnify
its current or former officers and directors consistent with the
provisions of the iPCS charter and by-laws in effect on the date of
execution of the merger agreement; and
. will cause iPCS to maintain, for six years from the effective time of the
merger, the policy of officers' and directors' liability insurance
covering such indemnified parties for acts and omissions on or before the
effective time of the merger as in place on August 28, 2001, subject to a
cap on the cost of the policy of 200% of the annual premium amount iPCS
currently pays for such policy.
Plan of Reorganization
Each of AirGate, the AirGate merger subsidiary and iPCS has agreed to use
its reasonable best efforts to cause the merger to qualify, and will not
knowingly take any action or cause any action to be taken that could reasonably
be expected to prevent the merger from qualifying, as a reorganization under
the provisions of Section 368 of the Internal Revenue Code.
Termination
The merger agreement may be terminated at any time prior to the effective
time of the merger, whether before or after approval of AirGate's stockholders
or iPCS' stockholders:
. by mutual written consent of AirGate and iPCS;
51
. by either AirGate or iPCS if the merger is not effective on or before
March 1, 2002, other than as a result of any failure by the party seeking
to terminate the agreement to perform the covenants and agreements of
such party set forth in the merger agreement;
. by either AirGate or iPCS, provided the party seeking to terminate the
agreement is not in material breach of any of its obligations under the
merger agreement, if any required approval of the AirGate stockholders or
iPCS is not obtained by reason of the failure to obtain the required vote
at a duly held meeting of such stockholders;
. by either AirGate or iPCS, provided the party seeking to terminate the
agreement is not in material breach of any representation, warranty,
covenant or other agreement contained in the merger agreement, if there
has been a material breach of any of the representations or warranties by
the other party, which breach has not been cured within 30 days following
written notice, provided that such breach, together with all other such
breaches, would entitle the party seeking to terminate not to close the
merger;
. by either AirGate or iPCS, provided the party seeking to terminate the
agreement is not in material breach of any representation, warranty,
covenant or other agreement contained in the merger agreement, if there
has been a material breach of any of the material covenants or agreements
set forth in the merger agreement by the other party, which breach has
not been cured within 30 days following written notice; and
. by either AirGate or iPCS if any decree, permanent injunction, judgment,
order or other action by any court of competent jurisdiction or other
governmental entity preventing or prohibiting the completion of the
merger shall have become final and nonappealable.
Termination Fee
AirGate must pay iPCS, within two business days of termination, a
termination fee of 257,000 shares of AirGate common stock if iPCS terminates
the merger agreement because of AirGate's failure to obtain the approval of the
AirGate stockholders to the issuance of shares of AirGate common stock in
connection with the merger. In addition, AirGate will be required to file a
shelf registration statement for the registration and reoffering of the shares
paid as a termination fee.
Representations and Warranties
The merger agreement contains various representations and warranties of iPCS
relating to, among other things:
. organization and similar corporate matters;
. subsidiaries;
. capital structure;
. authorization and enforceability;
. absence of conflicts;
. receipt of consents and approvals required for the merger;
. financial statements;
. absence of undisclosed liabilities;
. absence of changes or events which would have a material adverse effect;
. documents filed with the SEC;
. ownership rights to property;
. leases;
52
. environmental matters;
. specified contracts;
. distributors and suppliers;
. insurance;
. litigation;
. compliance with applicable laws;
. employee benefit plans;
. tax matters;
. compliance with Sprint PCS agreements;
. intellectual property;
. labor matters;
. brokers fees and commissions;
. related party transactions;
. absence of untrue statements of material fact, or omissions of material
fact, in connection with this proxy statement/prospectus and the
registration statement of which it is a part;
. required vote of iPCS stockholders;
. indebtedness;
. takeover statute; and
. reorganization.
The merger agreement contains various representations and warranties of
AirGate, on behalf of itself and the AirGate merger subsidiary relating to,
among other things:
. organization and similar corporate matters;
. capital structure of AirGate and the AirGate merger subsidiary;
. the shares of AirGate common stock to be issued in the merger;
. subsidiaries;
. authorization and enforceability;
. absence of conflicts;
. receipt of consents and approvals required for the merger;
. financial statements;
. absence of undisclosed liabilities;
. absence of changes or events which would have a material adverse effect;
. documents filed with the SEC;
. ownership rights to property;
. leases;
. environmental matters;
. specified contracts;
53
. distributors and suppliers;
. insurance;
. litigation;
. compliance with applicable laws;
. employee benefit plans;
. tax matters;
. compliance with Sprint PCS agreements;
. intellectual property;
. labor matters;
. brokers fees and commissions;
. related party transactions;
. absence of untrue statements of material fact, or omissions of material
facts, in connection with this proxy statement/prospectus and the
registration statement of which it is a part;
. required vote of AirGate stockholders; and
. indebtedness.
Expenses
Whether or not the merger is completed, each of AirGate and iPCS will pay
its own costs and expenses incurred by it in connection with the negotiation
and preparation of the merger agreement and its performance and compliance
thereunder. AirGate, however, will be solely responsible for certain filing
fees and costs in connection with the registration statement on Form S-4, of
which this proxy statement/prospectus forms a part, and federal antitrust law
filings.
Indemnification
The merger agreement does not provide AirGate with any contractual
indemnification from the iPCS stockholders following the merger for any
breaches of the representations and warranties of iPCS or any failure of iPCS
to comply with its obligations under the merger agreement.
Amendment
The merger agreement may be amended, either before or after approval by the
AirGate stockholders or approval by the iPCS stockholders, by an instrument in
writing signed by the parties and upon approval of the parties' respective
board of directors. However, after the AirGate stockholders and iPCS approve
the merger, any later amendment which by law requires stockholder approval may
only be made with such approval.
Waiver
The merger agreement provides that, at any time prior to the effective time
of the merger, AirGate or iPCS may, to the extent allowed by applicable law,
extend the time for performance of any of the obligations of the other party,
waive any inaccuracies in the representations and warranties of the other
party, and waive compliance with any agreements or conditions contained in the
merger agreement that are for its benefit.
54
SUPPORT AGREEMENTS
On August 28, 2001, AirGate entered into support agreements with iPCS
stockholders that beneficially own approximately 79.4% of the issued and
outstanding shares of iPCS voting stock. Pursuant to the support agreements,
each signing holder agreed to vote all of the iPCS shares that he, she or it
will beneficially own at the record date of any meeting of iPCS stockholders:
. in favor of adoption of the merger agreement and the other transactions
contemplated by the merger agreement;
. against any proposal made in opposition to or in competition with the
merger agreement, the merger and the other transactions contemplated by
the merger agreement, or any merger or similar transaction involving iPCS
and any party other than AirGate; and
. against any action that is intended, or could reasonably be expected, to
impede, frustrate, interfere with, impair, delay or prevent consummation
of the merger.
The support agreements, the form of which is attached as Annex B to this
proxy statement/prospectus, also provide that each iPCS stockholder that is a
party to it will not, and will not agree to, directly or indirectly, transfer,
assign, sell, grant any option with respect to, exchange, pledge or otherwise
dispose of or encumber any, or grant any proxies or enter into any voting trust
or other agreement or arrangement with respect to the voting of any, of his,
her or its shares of iPCS common stock, or other securities convertible into,
or exercisable or exchangeable for, shares of iPCS common stock, beneficially
owned as of, or acquired after, August 28, 2001, other than:
. pursuant to the merger; or
. with the prior written consent of AirGate.
The support agreements will terminate at the earlier of:
. the termination of the merger agreement; or
. the effective time of the merger.
LOCK-UP AGREEMENTS
Substantially all of the iPCS stockholders have agreed to enter into lock-up
agreements with AirGate prior to the effective time of the merger. The iPCS
stockholders entering into lock-up agreements will include each holder of more
than 50,000 shares of iPCS common stock or preferred stock. No holder of iPCS
option shares or warrants will enter into a lock-up agreement with AirGate,
other than Timothy M. Yager. Those iPCS stockholders that do not enter into a
lock-up agreement will be able to immediately resell their shares of AirGate
common stock in the open market under this proxy statement/prospectus.
The merger agreement provides that under the terms of the lock-up
agreements, the former iPCS stockholders generally will not be able to sell,
transfer or otherwise dispose of their holdings of shares of AirGate common
stock without AirGate's prior written consent for a minimum of 120 days after
the effective time of the merger other than in connection with the proposed
underwritten public offering. For the iPCS founding stockholders, 20% of their
shares of AirGate's common stock generally will be released from the lock-up
restrictions 120 days after the effective time of the merger, an additional 30%
will be released 211 days after the effective time and the remaining 50% will
be released 301 days after the effective time. For iPCS stockholders that are
affiliates of Blackstone and TCW, all lock-up restrictions will expire on the
date that is 120 days after the effective time of the merger.
55
Notwithstanding the foregoing, the managing underwriter in connection with
the proposed underwritten public offering may require the former iPCS
stockholders that sign the registration rights agreement to enter into a lock-
up agreement that restricts such stockholders from selling, transferring or
otherwise disposing of their shares of AirGate common stock not included in the
offering for a period not to exceed 90 days after the completion of the
offering. In such an event, the release from the lock-up restrictions of the
20% of the shares of the iPCS founding stockholders and all of the shares of
Blackstone and TCW that is otherwise scheduled to take place on the date that
is 120 days after the effective time of the merger will not occur until the
expiration of the lock-up period required in connection with the underwritten
public offering.
The merger agreement provides that the restrictions on transfer to be set
forth in the lock-up agreements with AirGate will not prohibit transfers among
certain TCW entities or transfers among certain Blackstone entities, provided
that any transferee agrees to be bound by the provisions of the lock-up
agreement.
UNDERWRITTEN PUBLIC OFFERING; REGISTRATION RIGHTS
AirGate will enter into a registration rights agreement at the effective
time of the merger with iPCS stockholders owning approximately 92.7% of iPCS'
common stock, assuming the exercise of all outstanding iPCS options and
warrants. The registration rights agreement will require AirGate to use its
best efforts to complete within 120 days of the effective time of the merger an
underwritten public offering of its shares of common stock and other securities
convertible into shares of AirGate common stock received in the merger by the
former iPCS stockholders that sign the registration rights agreement. The
underwritten public offering will occur at such time during the 120-day period
as Blackstone designates. Subject to consultation with AirGate, AirGate's
underwriter and the other selling stockholders, the number of shares of AirGate
common stock to be sold in the underwritten public offering will be subject to
market conditions and depend upon the number of shares of AirGate common stock
that the former iPCS stockholders request to be included in such offering. In
the sole discretion of such stockholders, AirGate may have the opportunity to
sell additional shares of its common stock for its own account in the offering.
AirGate can give no assurance that it will be able to complete the underwritten
public offering.
The registration rights agreement also will give Blackstone a demand
registration right, exercisable at any time after the first anniversary of the
effective time of the merger. This demand right will require AirGate to effect
the registration of the common stock and other securities then owned by the
former iPCS stockholders that have signed the registration rights agreement. In
the event that Blackstone sells 75% of the shares of AirGate common stock held
by it immediately after the effective time of the merger without exercising
this demand right, Geneseo Communications, Inc., one of the iPCS founding
stockholders, will have the ability to exercise the demand right. The
stockholder exercising the demand right may require that AirGate complete an
underwritten public offering of the shares of its common stock requested to be
registered. AirGate has no obligation, however, to complete an underwritten
public offering unless the sale of shares of AirGate common stock requested to
be included in such offering would result in initial aggregate proceeds of at
least $40 million.
The registration rights agreement further provides that in the event
AirGate's managing underwriter advises AirGate in writing that, in its opinion,
the number of securities requested to be included in any underwritten offering
exceeds the number of securities that can be sold without having an adverse
effect on the offering, no less than 75% of the shares included in the offering
will be shares owned by Blackstone and TCW and the lesser of (1) 25% of each
founding iPCS stockholder's pro rata portion of the shares owned by all iPCS
stockholders (other than Blackstone and TCW) and (2) the number of shares
requested to be included in such offering by the founding iPCS stockholders
will be shares owned by the founding iPCS stockholders. In the event that
AirGate's managing underwriter advises AirGate in writing that, in its opinion,
the number of securities requested to be included in such registration is less
than the number of securities that can be sold without having an adverse effect
on the offering, AirGate will have the opportunity to sell additional shares of
56
its common stock for its own account in the offering. No registration shall
count as a demand registration right granted by AirGate in the registration
rights agreement if less than 75% of the number of shares of AirGate common
stock and other securities convertible into shares of AirGate common stock
sought to be included by Blackstone is sold pursuant to such registration. The
registration rights agreement prohibits AirGate from effecting any public sale
or distribution of its common stock during a period of 90 days after the
completion of the offering.
Each stockholder that signs the registration rights agreement will agree not
to effect any sale or distribution of any equity security, or any security
convertible into or exchangeable or exercisable for any equity security, of
AirGate, other than as part of the underwritten public offering, during the 15-
day period prior to, and during a period of up to 90 days following, the
completion of an underwritten public offering.
AirGate will pay all registration expenses in connection with registrations
pursuant to the registration rights agreement. The selling stockholders will
pay all underwriting discounts and commissions.
The registration rights agreement will prohibit AirGate from providing to
any other person registration rights that are more favorable than or interfere
with the rights granted to the former iPCS stockholders under the registration
rights agreement.
57
SELLING STOCKHOLDERS
The shares of AirGate common stock issued in the merger will be registered
under the Securities Act. These shares will be freely transferable under the
Securities Act, except for shares issued to persons who may be deemed to be
"affiliates" of iPCS for purposes of Rule 145 under the Securities Act.
Affiliates may not sell their shares of AirGate common stock acquired in
connection with the merger except pursuant to an effective registration
statement under the Securities Act covering those shares or in compliance with
Rule 145 under the Securities Act or another applicable exemption to the
registration requirements of the Securities Act. Persons who may be deemed to
be affiliates of iPCS generally include individuals or entities that control,
are controlled by or are under common control with iPCS and may include
officers of iPCS as well as certain holders of ownership interests in iPCS.
AirGate will receive an "affiliate letter" from persons deemed to be
affiliates of iPCS under Section 2(11) of the Securities Act and Rule 145(c)
thereunder. An affiliate letter will constitute an agreement by each affiliate
of iPCS with AirGate to the effect that the affiliate will not sell, transfer
or otherwise dispose of any shares of AirGate common stock issued to that
affiliate in connection with the merger except in compliance with the
applicable provisions of the Securities Act and the rules and regulations
thereunder. Because the selling stockholders listed in the table below may be
deemed to be affiliates of iPCS, the registration statement of which this
prospectus is a part will also cover any offers or sales of the resale shares
sold by the selling stockholders. Notwithstanding the transfer restrictions set
forth in the affiliate letters, for so long as the registration statement of
which this prospectus is a part is effective, the iPCS affiliates will be able,
pursuant to the registration statement, to sell, transfer or otherwise dispose
of their shares of AirGate common received in the merger.
The following table, which sets forth information with respect to the
selling stockholders, gives effect to the issuance of AirGate common stock upon
the closing of the merger and assumes the number of shares of AirGate common
stock outstanding at the effective time of the merger is the same as the record
date:
Ownership Prior to Ownership After the
the Offering Number of Offering
-------------------- Shares -----------------------
Name and Address Shares Percentage Offered Shares Percentage
---------------- --------- ---------- --------- ---------- -----------
Geneseo Communications, 2,465,168 9.6% 2,465,168 -- --
Inc.(/1/),(/2/).........
111 E. 1st Street
Geneseo, Illinois 61254
Cambridge Telcom, 2,113,001 8.2 2,113,001 -- --
Inc.(/1/)...............
111 E. 1st Street
Geneseo, Illinois 61254
The Blackstone 4,174,031 16.2 4,169,250 4,781 *
Group(/3/),(/4/)........
345 Park Avenue
New York, New York 10154
Trust Company of the 1,025,563 4.0 1,025,563 -- --
West(/3/),(/5/).........
11100 Santa Monica
Boulevard, Suite 2000
Los Angeles, California
90025
Cass Communications 704,334 2.7 704,334 -- --
Management, Inc.(/1/)...
100 Redbud Road
Virginia, Illinois 62691
Technology Group, 704,334 2.7 704,334 -- --
LLC(/1/)................
118 E. State Street
Hamel, Illinois 62046
Montrose Mutual PCS, 704,334 2.7 704,334 -- --
Inc.(/1/)...............
102 N. Main Street
Dieterich, Illinois
62424
58
Ownership Prior to Number Ownership After the
the Offering of Offering
------------------ Shares -----------------------
Name and Address Shares Percentage Offered Shares Percentage
---------------- ------- ---------- ------- ----------- -----------
Gridley Enterprises, 352,167 1.4 352,167 -- --
Inc.(/6/)...................
108 E. Third Street
Gridley, Illinois 61744
Timothy M. Yager(/7/)........ 266,623 1.0 107,259 159,364 *
1900 E. Golf Road, Suite 900
Schaumburg, Illinois 60173
--------
* Less than one percent.
(1) For a description of the relationship between the stockholder and iPCS, an
affiliate of AirGate after the merger, see "Certain Relationships and
Transactions of iPCS--Formation of Illinois PCS, LLC." In connection with
the formation of iPCS, the stockholder designated a member of the board of
directors of iPCS.
(2) Geneseo Communications, Inc. leases T-1 lines and provides other
telecommunication services to iPCS.
(3) For a description of the relationship between the stockholder and iPCS, an
affiliate of AirGate after the merger, see "Certain Relationships and
Transactions of iPCS--Issuance of Convertible Participating Preferred
Stock."
(4) Of the 4,174,031 shares, 1,928,278 are held by Blackstone Communications
Partners I L.P. ("BCOM"), 1,658,637 are held by Blackstone iPCS Capital
Partners L.P. ("BICP"), 582,335 are held by Blackstone/iPCS L.L.C. ("BLLC")
and 4,781 are shares issuable to Blackstone Management Partners III
pursuant to options that vest at the effective time of the merger.
Blackstone Communications Management Associates I L.L.C. is the general
partner of BCOM. Blackstone Media Management Associates III L.L.C. is the
general partner of BICP. Blackstone Media Management Associates III L.L.C.
is the manager of BLLC. Messrs. Peter G. Peterson and Stephen A. Schwarzman
are the founding members of Blackstone, and as such may also be deemed to
share beneficial ownership of the shares held by each of these entities.
Blackstone has designated two members of the board of directors of iPCS.
(5) Consists of shares held by the following affiliates of Trust Company of the
West: TCW/Crescent Mezzanine Partners II, L.P., TCW Crescent Mezzanine
Trust II, TCW Leveraged Income Trust, L.P., TCW Leveraged Income Trust II,
L.P., TCW Leveraged Income Trust IV, L.P., TCW Shared Opportunity Fund II,
L.P., Shared Opportunity Fund IIB, L.L.C. and TCW Shared Opportunity Fund
III, L.P.
(6) For a description of the relationship between the stockholder and iPCS, an
affiliate of AirGate after the merger, see "Certain Relationships and
Transactions of iPCS--Formation of Illinois PCS, LLC." Gridley Enterprises,
Inc. leases a switching location to iPCS.
(7) Mr. Yager is the President and Chief Executive Officer and a member of the
board of directors of iPCS. For a description of the relationship between
Mr. Yager and iPCS, an affiliate of AirGate after the merger, see "Certain
Relationships and Transactions of iPCS--Formation of Illinois PCS, LLC." Of
the 266,623 shares, 53,629 are held individually by Mr. Yager, 53,630 are
held individually by his wife and 159,364 are shares issuable to Mr. Yager
pursuant to options that vest at the effective time of the merger.
Mr. Yager disclaims beneficial ownership of shares owned by his wife.
59
PLAN OF DISTRIBUTION
For purposes of this document, selling stockholders include partners,
donees, pledgees, transferees or other successors-in-interest from time to
time selling shares received from a named selling stockholder as a gift,
pledge, partnership distribution or other non-sale transfer. AirGate will not
receive any proceeds from the sale of the resale shares pursuant to this
document. The selling stockholders may offer and sell their shares of AirGate
common stock in one or more of the following transactions:
. on The Nasdaq National Market or any exchange or market on which AirGate
common stock is listed or quoted;
. in the over-the-counter market;
. in privately negotiated transactions;
. for settlement of short sales, or through long sales, options or hedging
transactions involving cross or block trades;
. by pledge to secure debts and other obligations;
. block transactions (which may involve crosses) in which a broker-dealer
may sell all or a portion of the shares as agent but may position and
resell all or a portion of the block as a principal to facilitate the
transaction;
. purchases by a broker-dealer as principal and resale by the broker-dealer
for its own account pursuant to a prospectus supplement;
. a special offering, an exchange distribution or a secondary distribution
in accordance with the applicable rules of The Nasdaq National Market or
of any stock exchange on which shares of AirGate common stock may be
listed; or
. in a combination of any of these transactions.
The selling stockholders may sell their shares of AirGate common stock at
any of the following prices:
. fixed prices which may be changed;
. market prices prevailing at the time of sale;
. prices related to prevailing market prices; or
. privately negotiated prices.
The selling stockholders may use broker-dealers to sell their shares of
AirGate common stock. If this happens, the broker-dealers may either receive
discounts, concessions or commissions from the selling stockholders, or they
may receive commissions from purchasers of shares of AirGate common stock for
whom they acted as agents. In order to comply with the securities laws of
certain states, the selling stockholders may only sell their shares of AirGate
common stock through registered or licensed broker-dealers.
The selling stockholders and any agents or broker-dealers that they use to
sell their shares of AirGate common stock might be deemed to be "underwriters"
within the meaning of Section 2(11) of the Securities Act, and any discount,
concession or commission received by them and any profit on the resale of
shares as principal might be deemed to be underwriting discounts or
commissions under the Securities Act. Because the selling stockholders might
be deemed to be underwriters, the selling stockholders may be subject to the
prospectus delivery requirements of the Securities Act.
The selling stockholders and any other person participating in the
distribution of the offered shares will be subject to applicable provisions of
the Exchange Act and the rules and regulations thereunder, including, without
limitation, the anti-manipulation provisions of Regulation M of the Exchange
Act, which may limit the
60
timing of purchases and sales of any of the offered shares by the selling
stockholders or any other person. Furthermore, Regulation M may restrict the
ability of any person engaged in the distribution of the offered shares to
engage in market-making activities with respect to the particular offered
shares being distributed. All of the foregoing may affect the marketability of
the offered shares and the ability of any person or entity to engage in market-
making activities with respect to the offered shares.
In addition to sales by the selling stockholders pursuant to this document,
AirGate has agreed, for the benefit of the iPCS stockholders, to undertake an
underwritten public offering within 120 days of the effective time of the
merger of its shares of common stock received by the iPCS stockholders in the
merger. The underwritten public offering will occur at such time during the
120-day period as Blackstone in consultation with AirGate and the other selling
stockholders requests. The number of shares of AirGate common stock to be sold
in the underwritten offering will be subject to market conditions and depend
upon the number of shares of AirGate common stock that the former iPCS
stockholders request to be included in such offering. In the sole discretion of
such stockholders, AirGate may have the opportunity to sell additional shares
of its common stock for its own account in the underwritten offering.
The registration effected hereby is being effected under the requirements of
the merger agreement. AirGate will pay substantially all of the expenses
incident to the registration of the shares of AirGate common stock, including
all costs incident to the offering and sale of the shares by the selling
stockholders to the public, including in the underwritten public offering,
other than any brokerage fees, selling commissions or underwriting discounts.
AirGate has agreed to keep the registration statement of which this document is
a part effective until the earliest to occur of:
. such time as all of the selling stockholders have completed the sale or
distribution of their resale shares;
. such time as the resale shares can be resold pursuant to Rule 144(k)
under the Securities Act; and
. the third anniversary of the effective time of the merger.
61
SELECTED HISTORICAL FINANCIAL DATA
AirGates PCS, Inc. and Subsidiaries Selected Financial Data
The selected statement of operations and balance sheet data presented below
is derived from AirGate's audited consolidated financial statements as of and
for the years ended December 31, 1996, 1997 and 1998, the nine months ended
September 30, 1999, and the year ended September 30, 2000 and AirGate's
unaudited consolidated financial statements as of June 30, 2001 and for the
nine months ended June 30, 2000 and 2001.
The unaudited financial statements include all adjustments, considering of
normal recurring accruals, that management considers necessary to a fair
presentation of financial position and results of operations. Operating results
for the nine-month period ended June 30, 2001 are not necessarily indicative of
the results that may be expected for the entire year ending September 30, 2001.
The data set forth below should be read in conjunction with AirGate's
consolidated financial statements and accompanying notes and "AirGate
Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this proxy statement/prospectus.
For the Nine For the Year For the Nine
For the Year Ended Months Ended Ended Months
December 31, September 30, September 30, Ended June 30,
------------------------- ------------- ------------- ------------------
1996 1997 1998 1999 2000 2000 2001
------- ------- ------- ------------- ------------- -------- --------
(In thousands, except for per share and subscriber data)
(unaudited)
Statement of Operations
Data:
Revenues:
Service revenue....... $ -- $ -- $ -- $ -- $ 9,183 $ 2,494 $ 61,882
Roaming revenue....... -- -- -- -- 12,338 4,717 35,516
Equipment revenue..... -- -- -- -- 2,981 1,041 7,400
------- ------- ------- -------- -------- -------- --------
Total revenues....... -- -- -- -- 24,502 8,252 104,798
Operating expenses:
Cost of service and
roaming.............. -- -- -- -- (27,207) (15,786) (71,420)
Cost of equipment..... -- -- -- -- (5,685) (1,974) (14,408)
Selling and
marketing............ -- -- -- -- (28,357) (13,723) (49,170)
General and
administrative....... (1,252) (1,101) (2,597) (5,294) (14,078) (9,525) (12,149)
Noncash stock option
compensation......... -- -- -- (325) (1,665) (1,067) (1,225)
Depreciation and
amortization......... (19) (998) (1,204) (622) (12,034) (6,795) (21,463)
------- ------- ------- -------- -------- -------- --------
Operating loss........ (1,271) (2,099) (3,801) (6,241) (64,524) (40,618) (65,037)
Interest expense,
net.................. (582) (817) (1,392) (9,358) (16,799) (11,510) (20,941)
------- ------- ------- -------- -------- -------- --------
Net loss.............. $(1,853) $(2,916) $(5,193) $(15,599) $(81,323) $(52,128) $(85,978)
======= ======= ======= ======== ======== ======== ========
Basic and diluted net
loss per share of
common stock......... $ (0.55) $ (0.86) $ (1.54) $ (4.57) $ (6.60) $ (4.27) $ (6.61)
======= ======= ======= ======== ======== ======== ========
Other Data:
Number of subscribers
at end of period..... -- -- -- -- 56,689 23,482 179,403
As of September
As of December 31, 30, As of June 30,
---------------------------- ----------------- --------------
1996 1997 1998 1999 2000 2001
-------- -------- -------- -------- -------- --------------
(In thousands)
(unaudited)
Balance Sheet Data:
Cash and cash
equivalent............. $ 6 $ 147 $ 2,296 $258,900 $ 58,384 $ 7,846
Property and equipment,
net.................... 11 17 12,545 44,206 183,581 203,157
Total assets............ 2,196 13,871 15,450 317,320 268,948 257,816
Long-term debt (/1/).... -- 11,745 7,700 165,667 180,727 242,122
Stockholders' equity
(deficit).............. (3,025) (1,750) (5,350) 127,846 49,873 (29,265)
--------
(1) Includes current maturities.
62
iPCS, Inc. and Subsidiaries and Predecessor Selected Financial Data
The selected statement of operations and balance sheet data presented below
is derived from iPCS' audited consolidated financial statements as of and for
the period from January 22, 1999 (date of inception) through December 31, 1999,
as of and for the year ended December 31, 2000, and iPCS' unaudited
consolidated financial statements as of June 30, 2001 and for the six months
ended June 30, 2000 and 2001.
The unaudited financial statements include all adjustments, consisting of
normal recurring accruals, that management considers necessary to a fair
presentation of financial position and results of operations. Operating results
for the six-month period ended June 30, 2001 are not necessarily indicative of
the results that may be expected for the entire year ending December 31, 2001.
The data set forth below should be read in conjunction with iPCS'
consolidated financial statements and accompanying notes and "iPCS Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this proxy statement/prospectus.
For the Period For the Six
from January 22, For the Year Months Ended June
1999 (date of Ended 30,
inception) through December 31, ------------------
December 31, 1999 2000 2000 2001
------------------ ------------ -------- --------
(In thousands, except for per share and
subscriber data)
(unaudited)
Statement of Operations
Data:
Revenues:
Service revenue......... $ 71 $ 20,623 $ 4,100 $ 38,674
Equipment and other
revenue................ 144 3,355 1,005 3,337
------- --------- -------- --------
Total revenues........ 215 23,978 5,105 42,011
Operating expenses:
Cost of service and
roaming................ (1,695) (17,026) (4,708) (31,494)
Cost of equipment....... (484) (10,462) (2,583) (10,852)
Selling and marketing... (778) (12,883) (2,565) (12,971)
General and
administrative......... (1,520) (9,319) (2,390) (4,030)
Taxes on noncash
compensation........... -- (1,567) (1,567) --
Noncash stock option
compensation........... -- (11,212) (8,480) (1,020)
Depreciation and
amortization........... (381) (8,609) (2,927) (8,559)
------- --------- -------- --------
Operating loss........ (4,643) (47,100) (20,115) (26,915)
Interest income (expense),
net...................... 89 (8,298) (499) (7,784)
Other income.............. 174 726 198 887
------- --------- -------- --------
Loss before extraordinary
item..................... (4,380) (54,672) (20,416) (33,812)
Extraordinary item--loss
on early extinguishment
of debt.................. -- (1,485) -- --
------- --------- -------- --------
Net loss.............. $(4,380) $ (56,157) $(20,416) $(33,812)
======= ========= ======== ========
Loss before extraordinary
item..................... (4,380) (54,672) (20,416) (33,812)
Beneficial conversion
feature related to
redeemable preferred
stock.................... -- (46,387) -- --
Dividends and accretion on
redeemable preferred
stock.................... -- (1,963) -- (4,919)
------- --------- -------- --------
Loss available to
common stockholders.. (4,380) (103,022) (20,416) (38,731)
Extraordinary item........ -- (1,485) -- --
------- --------- -------- --------
Net loss available to
common stockholders.. $(4,380) $(104,507) $(20,416) $(38,731)
======= ========= ======== ========
Basic and diluted net loss
per share of common
stock.................... $ (0.10) $ (2.33) $ (0.46) $ (0.86)
======= ========= ======== ========
Other Data:
Number of subscribers at
end of period.......... 1,981 46,773 14,049 107,412
63
As of December
31, As of
--------------- June 30,
1999 2000 2001
------ -------- -----------
(In thousands)
(unaudited)
Balance Sheet Data:
Cash and cash equivalents......................... $2,733 $165,958 $90,780
Property and equipment, net....................... 39,106 126,803 183,508
Total assets...................................... 44,843 328,575 346,237
Long-term debt and accrued interest............... 27,571 163,800 201,653
Redeemable preferred stock........................ -- 114,080 118,999
Total stockholders' equity (deficit).............. 9,120 12,718 (24,993)
64
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited pro forma condensed consolidated financial
statements combine the historical consolidated balance sheets and statements of
operations of AirGate and iPCS. These unaudited pro forma financial statements
give effect to the acquisition of iPCS by AirGate using the purchase method of
accounting. To aid you in your analysis of the financial aspects of this
transaction, we have presented this set of unaudited pro forma condensed
consolidated financial statements to demonstrate the financial aspects of the
transaction.
We derived this information from the unaudited consolidated financial
statements of AirGate for the nine months ended June 30, 2001, the audited
consolidated financial statements of AirGate for the year ended September 30,
2000, the unaudited consolidated financial statements of iPCS for the six
months ended June 30, 2001, and the audited consolidated financial statements
of iPCS for the year ended December 31, 2000. The results of iPCS for the three
months ended December 31, 2000 are included in both the nine months ended June
30, 2001, and the year ended December 31, 2000 as follows (in thousands):
Revenues--$11,340; Operating loss--$16,469; Net loss--$20,155. These historical
financial statements used in preparing the pro forma financial statements are
summarized and should be read in conjunction with the complete historical
financial statements and related notes of AirGate and iPCS contained elsewhere
in this proxy statement/prospectus.
The unaudited pro forma condensed consolidated statements of operations for
the nine months ended June 30, 2001 and for the year ended September 30, 2000
give effect to the merger as if the merger had been consummated at the
beginning of the earliest period presented. The unaudited pro forma condensed
consolidated balance sheet as of June 30, 2001 gives effect to the merger as if
it was effected June 30, 2001. Certain reclassifications have been made to
iPCS's historical presentation to conform to AirGate's presentation. These
reclassifications do not materially impact AirGate's or iPCS' operations or
financial position for the periods presented.
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 purchase price allocation will be different and
the difference may be material. We have engaged a nationally recognized
valuation expert to assist us in determining fair values of identifiable assets
and liabilities.
AirGate is providing the unaudited pro forma condensed consolidated
financial information for illustrative purposes only. The companies may have
performed differently had they been combined during the periods presented. You
should not rely on the unaudited pro forma condensed consolidated financial
information as being indicative of the historical results that would have been
achieved had the companies been combined during the periods presented or the
future results that the combined company will experience.
65
AIRGATE PCS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2001
(dollars in thousands)
Historical
AirGate Historical Pro Forma Pro Forma
PCS iPCS Adjustments Total
---------- ---------- ----------- ----------
ASSETS
------
Current assets:
Cash and cash equivalents... $ 7,846 $ 90,780 $ (20,800)(1) $ 77,826
Trade receivables, net...... 28,458 11,390 -- 39,848
Other receivables........... -- 2,633 -- 2,633
Inventories................. 1,456 1,345 -- 2,801
Prepaid expenses and other
current assets............. 4,501 3,218 (1,208)(2) 6,511
Direct customer activation
costs...................... 3,380 -- 1,208 (2) 4,588
-------- -------- --------- ----------
Total current assets...... 45,641 109,366 (20,800) 134,207
Property and equipment, net... 203,157 183,508 -- 386,665
Financing costs, net.......... 8,307 9,802 -- 18,109
Intangible assets, net........ -- 42,145 533,050 (3) 533,050
(42,145)(3)
Goodwill...................... -- -- 351,422 (3) 351,422
Other assets.................. 711 1,416 -- 2,127
-------- -------- --------- ----------
$257,816 $346,237 $ 821,527 $1,425,580
======== ======== ========= ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
-----------------------------
Current liabilities:
Accounts payable............ $ 4,995 $ 31,363 $ (10,454)(4) $ 25,904
Accrued expenses............ 8,591 4,529 -- 13,120
Payable to Sprint PCS....... 20,091 -- 10,454 (4) 30,545
Deferred revenue............ 11,009 3,700 -- 14,709
-------- -------- --------- ----------
Total current
liabilities.............. 44,686 39,592 -- 84,278
Deferred revenue.............. 273 1,385 -- 1,658
Deferred rent................. -- 1,496 -- 1,496
Capital lease obligations..... -- 222 -- 222
Deferred gain on tower sales.. -- 7,883 -- 7,883
Accrued interest.............. -- 13,275 (13,275)(5) --
Long-term debt................ 242,122 188,378 13,275 (5) 457,122
13,347 (3)
Deferred income tax........... -- -- 136,559 (6) 105,559
(31,000)(3)
-------- -------- --------- ----------
Total liabilities......... 287,081 252,231 118,906 658,218
-------- -------- --------- ----------
Redeemable preferred stock.... -- 118,999 (118,999)(7) --
Total stockholders' equity
(deficit).................... (29,265) (24,993) 861,212 (7) 767,362
(15,100)(1)
(13,347)(3)
(42,145)(3)
31,000 (3)
-------- -------- --------- ----------
Commitments and
contingencies............
-------- -------- --------- ----------
$257,816 $346,237 $ 821,527 $1,425,580
======== ======== ========= ==========
66
AIRGATE PCS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED 2000
(dollars in thousands, except share and per share amounts)
Historical Historical
AirGate PCS iPCS
------------- ------------
Year Ended Year Ended
September 30, December 31, Pro Forma Pro Forma
2000 2000 Adjustments Total
------------- ------------ ----------- -----------
Revenues:
Service revenue....... $ 9,183 $ 20,623 $ (7,514)(8) $ 19,589
(854)(9)
(2,100)(10)
251 (11)
Roaming revenue....... 12,338 -- 7,514 (8) 19,852
Equipment and other
revenue.............. 2,981 3,355 (409)(10) 5,676
(251)(11)
----------- -------- -------- -----------
Total revenues...... 24,502 23,978 (3,363) 45,117
Operating expenses:
Cost of service and
roaming.............. (27,207) (17,026) 854 (9) (43,379)
Cost of equipment..... (5,685) (10,462) 1,490 (12) (14,159)
89 (13)
409 (10)
Selling and
marketing............ (28,357) (12,883) (1,490)(12) (40,719)
(89)(13)
2,100 (10)
General and
administrative....... (14,078) (10,886) -- (24,964)
Noncash stock option
compensation......... (1,665) (11,212) 2,732 (14) (10,145)
Depreciation and
amortization......... (12,034) (8,609) (15,996)(15) (65,642)
(29,003)(16)
----------- -------- -------- -----------
Operating loss...... (64,524) (47,100) (42,267) (153,891)
Interest income......... 9,321 3,443 (832)(17) 11,932
Interest expense........ (26,120) (11,741) -- (37,861)
Other income............ -- 726 -- 726
----------- -------- -------- -----------
Loss before income
tax benefit........ (81,323) (54,672) (43,099) (179,094)
Income tax benefit...... 58,569 (18) 58,569
----------- -------- -------- -----------
Net income (loss)... $ (81,323) $(54,672) $ 15,470 $ (120,525)
=========== ======== ======== ===========
Basic and diluted net
loss per share of
common stock:
Net loss.............. $ (6.60) $ (4.88)
=========== ===========
Weighted-average
outstanding common
shares............... 12,329,149 (20) 24,691,309
=========== ===========
67
AIRGATE PCS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 30, 2001
(dollars in thousands, except share and per share amounts)
Historical
AirGate Historical Pro Forma Pro Forma
PCS iPCS Adjustments Total
---------- ---------- ----------- ----------
Revenues:
Service revenue....... $ 61,882 $ 48,551 $(16,788)(8) 90,641
(1,818)(9)
(1,365)(10)
179 (11)
Roaming revenue....... 35,516 -- 16,788 (8) 52,304
Equipment and other
revenue.............. 7,400 4,800 (289)(10) 11,732
(179)(11)
---------- --------- -------- ----------
Total revenues...... 104,798 53,351 (3,472) 154,677
Operating expenses:
Cost of service and
roaming.............. (71,420) (38,539) 1,818 (9) (108,141)
Cost of equipment..... (14,408) (16,217) 2,176 (12) (27,801)
359 (13)
289 (10)
Selling and
marketing............ (49,170) (20,159) (2,176)(12) (70,499)
(359)(13)
1,365 (10)
General and
administrative....... (12,149) (8,655) -- (20,804)
Noncash stock option
compensation......... (1,225) (1,546) 1,546 (14) (1,225)
Depreciation and
amortization......... (21,463) (11,619) (11,997)(15) (66,832)
(21,753)(16)
---------- --------- -------- ----------
Operating loss...... (65,037) (43,384) (32,204) (140,625)
Interest income......... 2,350 4,392 (624)(17) 6,118
Interest expense........ (23,291) (16,164) -- (39,455)
Other income............ -- 1,189 -- 1,189
---------- --------- -------- ----------
Loss before income
tax benefit........ (85,978) (53,967) (32,828) (172,773)
Income tax benefit...... 46,990 (19) 46,990
---------- --------- -------- ----------
Net income (loss)... $ (85,978) $ (53,967) $ 14,162 $ (125,783)
========== ========= ======== ==========
Basic and diluted net
loss per share of
common stock:
Net loss.............. $ (6.61) $ (4.96)
========== ==========
Weighted-average
outstanding common
shares............... 13,007,119 (20) 25,369,279
========== ==========
68
AIRGATE PCS, INC.
FOOTNOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in thousands, except share and per share amounts)
(1) The following table represents the estimated transaction costs related to
the merger (see note 3), which include:
AirGate iPCS Total
------- ------- -------
Investment banking fees............................ $4,000 $ 7,500 $11,500
Legal, accounting and bank consent fees............ 1,700 2,600 4,300
Termination payments and benefits triggered upon a
change in control................................. 0 5,000 5,000
------ ------- -------
$5,700 $15,100 $20,800
====== ======= =======
The pro forma adjustment gives effect to the reduction in cash and cash
equivalents of AirGate and iPCS reflecting the payment of these costs.
(2) Represents the reclassification of iPCS' prepaid expenses and other current
assets to direct customer activation costs in the amount of $1,208 for
consistency in presentation.
(3) Represents the additional intangibles and goodwill that AirGate will record
upon consummation of the merger. For purposes of these pro forma condensed
consolidated financial statements, the purchase price premium has been
preliminarily allocated to the acquired customer base, rights to provide
service under the Sprint PCS management agreement and goodwill, pending
further study and analysis. We have engaged a nationally recognized firm
with valuation expertise to assist us in determining the final values of
identifiable assets and liabilities, as well as the value of the customer
base and rights to provide service under the Sprint PCS management
agreement. We anticipate having this completed before December 31, 2001.
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141,"Business Combinations"
("SFAS 141"), which is effective for all business combinations initiated
after June 30, 2001. SFAS 141 requires companies to account for all business
combinations using the purchase method of accounting, recognize intangible
assets if certain criteria are met, as well as provide additional
disclosures regarding business combinations and allocation of purchase
price.
In June 2001, the FASB issued Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), which requires
nonamortization of goodwill and intangible assets that have indefinite
useful lives and annual tests of impairment of those assets. The statement
also provides specific guidance about how to determine and measure goodwill
and intangible asset impairment, and requires additional disclosure of
information about goodwill and other intangible assets. The provisions of
this statement are required to be applied starting with fiscal years
beginning after December 15, 2001 and applied to all goodwill and other
intangible assets recognized in its financial statements at that date.
Goodwill and certain intangible assets acquired after June 30, 2001 are
subject to the nonamortization provisions of the statement. The Company has
elected early adoption of SFAS No. 142 beginning October 1, 2001.
69
AirGate PCS common shares issuable at closing........ 12,362,160
Closing price on August 28, 2001, which approximates
the average closing price three days before and
after the date preceding the announcement of the
transaction......................................... $ 59.47
-----------
Market value of stock issued ...................... $ 735,178
Value of options and warrants assumed using a Black-
Scholes option pricing model (a).................... 61,449
-----------
Total stock consideration............................ $ 796,627
Estimated AirGate transaction costs (see note 1)..... 5,700
-----------
Total consideration and costs........................ $ 802,327
Less:
iPCS stockholders' deficit......................... $(24,993)
Adjustments to iPCS' stockholders' deficit for the
conversion of the iPCS redeemable preferred stock
to common stock and for purchase accounting:
Conversion of redeemable preferred stock to
common stock immediately prior to the
transaction (see note 7)........................ 118,999
Estimated iPCS transaction costs (see note 1).... (15,100)
Adjustment of iPCS long-term debt to fair value
(b)............................................. (13,347)
Deferred income tax asset (c).................... 31,000
Elimination of existing iPCS intangible assets... (42,145)
--------
Adjusted iPCS stockholders' deficit................ 54,414
-----------
Total purchase price premium......................... $ 747,913
===========
The purchase price premium has been allocated on a preliminary basis as
follows:
Deferred taxes on intangible assets acquired in the
merger (see note 6)............................... $(136,559)
Intangible assets:
Acquired customer base(d)........................ $ 40,000
Rights to provide service under the Sprint PCS
management agreement(e)......................... 493,050
--------
Total intangible assets............................ 533,050
Goodwill........................................... 351,422
-------
$ 884,472
---------
$ 747,913
=========
(a) The fair value of the options and warrants was calculated using the
following assumptions:
(1) risk free interest rate of 3.5%;
(2) stock price of $59.47;
(3) dividend yield of 0%;
(4) remaining life of 6 to 9 years; and
(5) volatility of 100%.
(b) Long-term debt is comprised of the senior subordinated discount notes
and amounts outstanding under the senior credit facility. The fair
value of the senior subordinated discount notes is stated at quoted
market value as of September 10, 2001 of $165,000 as compared to
carrying value of $151,653 which resulted in an increase of $13,347.
The carrying amount of the senior credit facility is a reasonable
estimate of its fair value due to the debt being variable-rate debt.
70
(c) Represents the previously unrecognized deferred income tax assets of
iPCS.
(d) Allocation to the acquired customer base is calculated on 107,412
existing iPCS customers valued at $372 per customer, which reflects
iPCS' average cost of acquiring a new customer.
(e) Allocation to the rights to provide service under the Sprint PCS
management agreement is based upon management's estimate of the present
value of the right to use the Sprint PCS spectrum, the Sprint PCS brand
name, accelerated start-up, network equipment and handset discounts,
less the affiliation fee we are obligated to pay Sprint PCS.
(4) Represents the reclassification of amounts payable by iPCS to Sprint PCS
for consistency in presentation in the amount of $10,454.
(5) Represents the reclassification of iPCS' accreted discount included in
accrued interest payable on the senior subordinated discount notes to long-
term debt for consistency in presentation in the amount of $13,275.
(6) Represents the expected deferred tax liability to be recorded related to
the transaction using an effective tax rate of 38% as follows:
Deferred taxes on intangibles acquired in the merger (see
note 3)..................................................... $(202,559)
Represents the reduction in the valuation allowance for the
deferred income tax assets of AirGate....................... 66,000
---------
$(136,559)
=========
(7) Represents the following:
Conversion of iPCS redeemable preferred stock to common stock
at closing (see note 3)..................................... $118,999
AirGate common stock issued and options and warrants assumed
(see note 3)................................................ 796,627
Elimination of adjusted iPCS stockholders' deficit (see note
3).......................................................... (54,414)
--------
$861,212
========
(8) Represents the reclassification of iPCS' roaming revenue from service
revenue for consistency in presentation in the amount of $7,514 and $16,788
for the fiscal year ended 2000 and the nine months ended June 30, 2001,
respectively.
(9) Represents the reclassification of the iPCS provision for bad debt expense,
certain customer credits and billing adjustments from cost of service to
service revenue for consistency in presentation. Bad debt expense was $614
and $1,747 for the fiscal year ended 2000 and the nine months ended June
30, 2001, respectively. Customer credits and billing adjustments were $240
and $71 for the fiscal year ended 2000 and the nine months ended June 30,
2001, respectively.
(10) Represents the reclassification of iPCS rebates and sales incentives to
conform with EITF No. 00-14 "Accounting for Certain Sales Incentives" as
if it had been retroactively applied at the beginning of the earliest
period presented. The reclassification consists of the following:
Fiscal Year Ended Nine Months Ended
2000 June 30, 2001
----------------- -----------------
Reclassify iPCS promotional credits from
selling and marketing expense to
service revenue........................ 2,100 1,365
Reclassify iPCS cash rebates related to
local retailers from cost of equipment
to equipment and other revenues........ 409 289
(11) Represents the reclassification of iPCS Advantage Agreement early
termination fees from equipment and other revenue to service revenue for
consistency in presentation in the amount of $251 and $179 for fiscal 2000
and the nine months ended June 30, 2001, respectively.
71
(12) Represents the reclassification of iPCS handset equipment subsidies on
units sold by third parties for which iPCS does not record revenue from cost
of equipment to selling and marketing expense for consistency in
presentation in the amount of $1,490 and $2,176 for fiscal year ended 2000
and the nine months ended June 30, 2001, respectively.
(13) Represents the reclassification of iPCS rebates on units sold by third
parties for which iPCS does not record revenue from cost of equipment to
selling and marketing expense for consistency in presentation in the amount
of $89 and $359 for fiscal year ended 2000 and the nine months ended June
30, 2001, respectively.
(14) Represents the adjustment to remove iPCS noncash stock option compensation
expense related to the immediate vesting of iPCS common stock options at
the earliest period presented in the amount of $2,732 and $1,546 for
fiscal year ended 2000 and the nine months ended June 30, 2001,
respectively.
(15) Represents amortization expense of the acquired customer base, which is
assumed to be over the average customer life of 30 months, based on gross
monthly churn of 3.3%.
Fiscal year ended 2000 amortization:
Acquired customer base (see note 3)................ $40,000
Number of months................................... / 30 months
-------
Monthly amortization............................... $ 1,333
Months in year..................................... x 12 months
-------
Annual amortization................................ $15,996
=======
Nine Months ended June 30, 2001 amortization:
Monthly amortization............................... $ 1,333
Months in period................................... x 9 months
-------
Amortization expense............................... $11,997
=======
(16) Represents amortization expense of the rights to provide services under
the Sprint PCS management agreement, which is assumed to be over 17 years,
the remaining life in the initial term of the iPCS management agreement
with Sprint PCS.
Fiscal year ended 2000 amortization:
Rights to provide service under the Sprint PCS
management agreement (see note 3)................... $493,050
Number of years...................................... / 17 years
--------
Annual amortization.................................. $29,003
=======
Nine Months ended June 30, 2001 amortization:
Annual amortization.................................. $ 29,003
Months in year....................................... / 12 months
--------
Monthly amortization................................. $ 2,417
Months in period..................................... x 9 months
--------
Amortization expense................................. $21,753
=======
(17) Represents reduced interest income on $20.8 million used to fund the
transaction costs (see note 1) assuming an interest rate of 4% in the
amount of reduction of $832 and $624 for fiscal year ended 2000 and the
nine months ended June 30, 2001, respectively.
(18) Represents the estimated recognition of the income tax benefit for AirGate
for fiscal year ended 2000 and which includes only the period iPCS was a C
corporation (July 12, 2000 through December 31, 2000). The pro forma
income tax benefit and pro forma net loss as if iPCS had been a C
corporation for the entire fiscal year ended 2000 would not be
significantly different from the amount presented herein.
72
(19) Represents the estimated recognition of the income tax benefit for the
nine months ended June 30, 2001 up to the amount of the remaining deferred
income tax liability. No additional income tax benefit was recorded as the
remaining net deferred income tax benefit generated, primarily from
temporary differences related to the net operating losses, would be offset
by a full valuation allowance.
(20) The reconciliation of weighted-average common shares before the merger to
weighted-average common share after the merger is set forth below:
Nine Months
Fiscal Ended June 30,
Year 2000 2001
---------- --------------
Weighted-average outstanding AirGate common shares
before the merger.................................. 12,329,149 13,007,119
AirGate common shares issuable at closing........... 12,362,160 12,362,160
---------- ----------
Weighted-average outstanding common shares after the
merger............................................. 24,691,309 25,369,279
========== ==========
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DESCRIPTION OF AIRGATE
Business Overview
AirGate markets and provides digital personal communications services,
referred to as PCS. AirGate is a network partner of Sprint PCS, the personal
communications services group of Sprint Corporation. Sprint PCS, directly and
indirectly through network partners such as AirGate, provides wireless services
in more than 4,000 cities and communities across the country. Through AirGate's
management agreement with Sprint PCS, AirGate has the right to provide Sprint
PCS products and services under the Sprint and Sprint PCS brand names in a
territory that covers almost the entire state of South Carolina, parts of North
Carolina and the eastern Georgia cities of Augusta and Savannah. AirGate's
Sprint PCS territory encompasses 21 contiguous basic trading areas, referred to
as markets, with approximately 7.1 million residents.
AirGate launched Sprint PCS service in select markets in January 2000 and
currently offers service in all of its 21 Sprint PCS markets. AirGate's Sprint
PCS network currently covers approximately 5.9 million, or 82%, of the 7.1
million residents in its Sprint PCS territory. The number of residents covered
by AirGate's Sprint PCS network does not represent the actual number of its
subscribers that it expects to have in its territory, but instead represents
the maximum number of potential subscribers in that territory. As of June 30,
2001, AirGate provided Sprint PCS service to 179,403 subscribers within its
Sprint PCS territory.
AirGate's History
AirGate PCS, Inc. (formerly AirGate Holdings, Inc.) and its subsidiaries and
predecessors were formed for the purpose of becoming a leading provider of
wireless PCS. In July 1998, AirGate's predecessor entered into a series of
agreements with Sprint and Sprint PCS under which it agreed to construct and
manage a PCS network using Sprint PCS' licensed spectrum and supporting Sprint
PCS' products and services within a specified territory in the southeastern
United States.
AirGate's predecessor formed AirGate PCS, Inc., a Delaware corporation, in
August 1998 to assume its responsibilities under the Sprint PCS agreements. In
the course of its operations, AirGate has formed two wholly owned subsidiaries,
AGW Leasing Company, Inc. and AirGate Network Services, LLC.
Sprint PCS
Sprint PCS is a wholly owned subsidiary of Sprint, a diversified
telecommunications service provider, that operates a 100% digital PCS wireless
network in the United States and holds the licenses to provide PCS nationwide
using a single frequency band and a single technology. Sprint PCS directly
operates its PCS network in major metropolitan markets throughout the United
States and has entered into independent agreements with various network
partners, such as AirGate, under which the network partners have agreed to
construct and manage PCS networks in smaller metropolitan areas and along major
highways.
Markets
AirGate's Sprint PCS markets consist of almost the entire state of South
Carolina including Charleston, Columbia and Greenville-Spartanburg; portions of
North Carolina including Asheville, Wilmington and Hickory; and the eastern
Georgia cities of Augusta and Savannah. AirGate believes that connecting Sprint
PCS' existing markets, including Atlanta, Georgia and Charlotte and Raleigh-
Durham, North Carolina, with AirGate's markets is an important part of Sprint
PCS' on-going strategy to provide seamless, nationwide PCS service to its
subscribers. Each of AirGate's markets contains 10 MHZ of spectrum.
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The following table sets forth the location, population and date on which
AirGate began providing commercial Sprint PCS service in each of the markets
that comprise its Sprint PCS territory:
Market Launch
Basic Trading Area Market (BTAs) Population(/1/) Date
-------------------------------- --------------- -------------
Greenville-Spartanburg, SC........................ 897,700 January 2000
Savannah, GA...................................... 737,100 May 2000
Charleston, SC.................................... 686,800 April 2000
Columbia, SC...................................... 657,000 June 2000
Asheville-Hendersonville, NC...................... 588,700 January 2000
Augusta, GA....................................... 579,400 June 2000
Anderson, SC...................................... 346,600 January 2000
Hickory-Lenoir-Morganton, NC...................... 331,100 January 2000
Wilmington, NC.................................... 327,600 February 2000
Florence, SC...................................... 260,200 June 2000
Greenville-Washington, NC......................... 245,100 July 2000
Goldsboro-Kinston, NC............................. 232,000 March 2000
Rocky Mount-Wilson, NC............................ 217,200 March 2000
Myrtle Beach, SC.................................. 186,400 February 2000
New Bern, NC...................................... 174,700 June 2000
Sumter, SC........................................ 156,700 July 2000
Jacksonville, NC.................................. 148,400 May 2000
Orangeburg, SC.................................... 119,600 June 2000
The Outer Banks, NC(/2/).......................... 92,000 July 2000
Roanoke Rapids, NC................................ 76,800 May 2000
Greenwood, SC..................................... 74,400 August 2000
---------
Total........................................... 7,135,500
=========
--------
(1) Based on 2000 estimates compiled by Kagan's Wireless Telecom Atlas &
Databook, 2001 Edition, as reported per individual BTA.
(2) Territory covered by AirGate's Sprint PCS agreement does not comprise a
complete BTA.
AirGate's Sprint PCS agreements require AirGate to provide PCS coverage to
certain percentages of the residents in each of the markets granted to AirGate
by those agreements. AirGate is fully compliant with these build-out
requirements.
AirGate believes its Sprint PCS territory, with 7.1 million residents, has
attractive demographic characteristics. Its Sprint PCS territory has many
vacation destinations, covers substantial highway mileage and includes a large
student population, with at least 27 colleges and universities.
Products and Services
AirGate offers Sprint PCS' products and services throughout its Sprint PCS
territory. These products and services are designed to mirror the services
offered by Sprint PCS and to provide seamless integration with the Sprint PCS
nationwide network.
AirGate's primary service is wireless mobility coverage. As a Sprint PCS
network partner, its existing PCS network is part of the largest 100% digital
PCS network in the United States. Sprint PCS customers in its territory may use
Sprint PCS services throughout AirGate's contiguous markets and seamlessly
throughout the Sprint PCS network.
AirGate supports and markets the Sprint Wireless Web throughout its
territory. The Sprint Wireless Web allows subscribers with data-capable
handsets to connect their portable computers or personal digital assistants to
the Internet. Sprint PCS subscribers with web-browser enabled handsets also
have the ability to receive
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periodic information updates such as stock prices, airline schedules, sports
scores and weather reports directly on their handsets by connecting to and
browsing specially designed text-based Internet sites such as Yahoo!,
Amazon.com, Bloomberg.com, CNN.com, MapQuest.com, Fox Sports, Ameritrade,
InfoSpace.com, ABC News.com, AOL.com, ESPN.com, E*Trade, USA Today.com and
Weather.com. Sprint PCS offers various pricing options including a fixed number
of updates or a bundle of data minutes as add-ons to existing Sprint PCS Free
and Clear pricing plans or a bundle of minutes for a set price that can be used
for either data or voice.
AirGate offers Code Division Multiple Access (CDMA) handsets weighing
approximately five to seven ounces and offering up to three to five days of
standby time and approximately two to four hours of talk time. AirGate also
offers dual-band/dual-mode handsets that allow customers to make and receive
calls on both PCS and cellular frequency bands and both digital or analog
technology. All handsets are equipped with preprogrammed features, and are sold
under the Sprint and Sprint PCS brand names.
AirGate provides roaming services to Sprint PCS subscribers that use a
portion of its Sprint PCS network, and to non-Sprint subscribers when they use
a portion of its Sprint PCS network pursuant to roaming agreements between
Sprint PCS and other wireless service providers. Sprint PCS and other wireless
service providers supply similar services to AirGate's subscribers when its
subscribers use a portion of their networks.
Marketing Strategy
AirGate's marketing and sales strategy uses the advertising and marketing
programs that have been developed by Sprint PCS. AirGate enhances Sprint PCS'
marketing with strategies it has tailored to its specific markets.
Sprint PCS uses national as well as regional television, radio, print,
outdoor and other advertising campaigns to promote its products. AirGate
benefits from this national advertising in its territory at no additional cost
to it. Sprint PCS also runs numerous promotional campaigns that provide
customers with benefits such as additional features at the same rate. AirGate
is able to purchase promotional materials related to these programs from Sprint
PCS at their cost.
AirGate supplements Sprint PCS' marketing strategies with local radio,
television, outdoors and newspaper advertising that promote the use of its
products and services in each of its markets. AirGate has established a large
local sales force to execute AirGate's marketing strategy through 34 company-
operated Sprint PCS stores, and it employs a direct sales force targeted to
business sales. AirGate features the nationally recognized Sprint and Sprint
PCS brand names in its marketing efforts. In addition, Sprint PCS' existing
agreements with national retailers provide AirGate with access to over 300
retail locations in its territory.
Finally, AirGate offers Sprint PCS' pricing strategies to its customers.
Sprint PCS' consumer pricing plans are typically structured with competitive
monthly recurring charges, large local calling areas, service features such as
voicemail, enhanced caller ID, call waiting and three-way calling, and
competitive per-minute rates.
Sales and Distribution
Sprint has an arrangement with RadioShack under which Sprint PCS installs a
"store within a store." RadioShack has approximately 98 stores in AirGate's
Sprint PCS territory. In addition to RadioShack, Sprint PCS has agreements with
other national retailers, which provide an additional 187 retail stores in
AirGate's Sprint PCS territory and local independent agents, which provide an
additional 50 retail stores in its Sprint PCS territory.
AirGate also operates 34 Sprint PCS stores within its Sprint PCS territory.
AirGate's stores provide it with a strong local presence and a high degree of
visibility. Following the Sprint PCS model, these stores are designed to
facilitate retail sales, bill collection and customer service.
76
Suppliers and Equipment Vendors
AirGate does not manufacture any of the handsets or network equipment it
uses in its operations. AirGate purchases its network equipment and handsets
pursuant to various Sprint PCS vendor arrangements that provide it with volume
discounts. These discounts have significantly reduced the overall capital
required to build its network and the costs of handsets to it.
Under such arrangements, AirGate currently purchases its network equipment
from Lucent Technologies, its handsets directly from Sprint PCS and its
accessories from certain other third party vendors.
Network Operations
The effective operation of AirGate's portion of the Sprint PCS network
requires:
. public switched and long distance interconnection;
. the implementation of roaming arrangements; and
. the development of network monitoring systems.
AirGate monitors its portion of the Sprint PCS network during normal
business hours. AirGate currently uses Sprint PCS' Network Operations Control
Center for continuous network monitoring.
Sprint PCS developed the initial plan for the build-out of AirGate's Sprint
PCS network. AirGate has further enhanced this plan to provide better coverage
for its Sprint PCS territory. Pursuant to AirGate's network operations
strategy, AirGate has provided PCS to the largest communities in its markets
and has covered interstates and primary roads connecting these communities to
each other and to the adjacent major markets owned and operated by Sprint PCS.
AirGate's network currently consists of four switches at two switch centers
and approximately 720 operating cell sites. A switching center serves several
purposes, including routing calls, managing call handoff, managing access to
the public telephone network and providing access to voice mail. Ninety-nine
percent of AirGate's operating cell sites are co-located. Co-location describes
the strategy of leasing available space on a tower or cell site owned by
another company rather than building and owning the tower or cell site
directly.
AirGate's network connects to the public telephone network through local
exchange carriers, which facilitate the origination and termination of traffic
between its network and both local exchange and long distance carriers. Through
AirGate's Sprint PCS agreements, AirGate has the benefit of Sprint PCS-
negotiated interconnection agreements with local exchange carriers.
AirGate uses Sprint and other third party providers for long distance
services and for back haul services. Under AirGate's agreements with Sprint
PCS, it is required to use Sprint for long distance services and Sprint
provides AirGate with preferred rates for long distance services. Back haul
services are the telecommunications services which other carriers provide to
carry AirGate's voice traffic from its cell sites to its switching facilities.
When AirGate uses Sprint for back haul services, it receives the same preferred
rates made available to Sprint PCS.
Technology
In 1993, the FCC allocated the 1900 MHz frequency block of the radio
spectrum for wireless PCS. Wireless PCS operates at a higher frequency and
employs more advanced digital technology than traditional analog cellular
telephone service. The enhanced capacity of digital systems, along with
enhancements in digital protocols, allows digital-based wireless technologies,
whether using wireless PCS or cellular frequencies, to offer new and enhanced
services, including greater call privacy and more robust data transmission,
such as facsimile, electronic mail and connecting notebook computers with
computer/data networks.
77
Presently, wireless PCS systems operate under one of three principal air
interface protocols: code division multiple access (CDMA), time division
multiple access (TDMA) or global system for mobile communications (GSM).
Wireless PCS operators in the United States now have dual-mode or tri-mode
handsets available so that their customers can operate on different networks
that employ different protocols.
CDMA Technology
CDMA technology is fundamental to accomplishing AirGate's business objective
of providing high volume, high quality airtime at a low cost. AirGate believes
that CDMA provides important system performance benefits. CDMA systems offer
more powerful error correction, less susceptibility to fading and reduced
interference than analog systems. Using enhanced voice coding techniques, CDMA
systems achieve voice quality that is comparable to that of the typical
wireline telephone. This CDMA vocoder technology also employs adaptive
equalization which filters out annoying background noise more effectively than
existing wireline, analog cellular or other digital PCS phones. CDMA technology
allows a greater number of calls within one allocated frequency and reuses the
entire frequency spectrum in each cell. CDMA technology also combines a
constantly changing coding scheme with a low power signal to enhance security
and privacy. Vendors are currently developing additional encryption
capabilities which will further enhance overall network security. CDMA
technology is designed to provide flexible or "soft" capacity that permits a
system operator to temporarily increase the number of telephone calls that can
be handled within a cell. As a subscriber travels from one cell site to another
cell site, the call must be "handed off" to the second cell site. CDMA systems
transfer calls throughout the network using a technique referred to as a soft
hand-off, which connects a mobile customer's call with a new cell site while
maintaining a connection with the cell site currently in use.
CDMA offers a cost effective migration to the next generation of wireless
services. CDMA standards and products currently in place will allow existing
CDMA networks to be upgraded in a cost efficient manner to the next generation
of wireless technology. This next generation of technology will offer data
speeds of up to 144 kilo bits per second, voice capacity improvements of over
50% and improved battery life in the handset. It is expected that these
services will be deployed in CDMA networks no later than mid-2002. Further
standards are being developed for CDMA that will offer data speeds in excess of
2,000 kilo bits per second and additional improvements in voice capacity.
Research and Development
AirGate currently does not conduct its own research and development. Instead
it benefits from Sprint PCS' and its vendors' extensive research and
development effort, which provides AirGate with access to new technological
products and enhanced service features without significant research and
development expenditures of its own. AirGate has been provided prompt access to
any developments produced by Sprint PCS for use in its network.
Intellectual Property
Other than AirGate's corporate name, AirGate does not own any intellectual
property that is material to its business. "Sprint," the Sprint diamond design
logo, "Sprint PCS," "Sprint Personal Communication Services," "The Clear
Alternative to Cellular" and "Experience the Clear Alternative to Cellular
Today" are service marks registered with the United States Patent and Trademark
Office and owned by Sprint. Pursuant to AirGate's Sprint PCS agreements,
AirGate has the right to use, royalty-free, the Sprint and Sprint PCS brand
names and the Sprint diamond design logo and certain other service marks of
Sprint in connection with marketing, offering and providing licensed services
to end-users and resellers, solely within its Sprint PCS territory.
Except in certain instances, Sprint PCS has agreed not to grant to any other
person a right or license to provide or resell, or act as agent for any person
offering, licensed services under the licensed marks in AirGate's Sprint PCS
territory except as to Sprint PCS' marketing to national accounts and the
limited right of resellers of Sprint PCS to inform their customers of handset
operation on the Sprint PCS network. In all other
78
instances, Sprint PCS has reserved for itself and its network partners the
right to use the licensed marks in providing its services, subject to its
exclusivity obligations described above, whether within or without AirGate's
Sprint PCS territory.
AirGate's Sprint PCS agreements contain numerous restrictions with respect
to the use and modification of any of the licensed marks.
Competition
Competition in the wireless communications industry is intense. AirGate
operates in highly competitive markets. In its Sprint PCS territory, AirGate
competes with both cellular and PCS providers. The cellular providers include
Alltel and Verizon. The PCS providers include Cingular Wireless and Triton PCS,
an AT&T affiliate. These wireless service providers offer services that are
generally comparable to AirGate's PCS service.
AirGate's ability to compete effectively with these other providers depends
on a number of factors, including the continued success of CDMA technology in
providing better call quality and clarity as compared to analog and digital
cellular systems, AirGate's competitive pricing with various options suiting
individual customer's calling needs, and the continued expansion and
improvement of the Sprint PCS nationwide network, customer care system, and
handset options.
Most of AirGate's competitors are cellular providers and joint ventures of
wireless communications service providers, many of which have financial
resources and customer bases greater than AirGate's. Many of AirGate's
competitors have access to more licensed spectrum than the 10 MHz licensed to
Sprint PCS in AirGate's Sprint PCS territory. Cellular service providers have
licenses covering 25 MHz of spectrum, and two competing PCS providers have
licenses to use 30 MHz in AirGate's territory. In addition, certain of
AirGate's competitors may be able to offer coverage in areas not served by its
Sprint PCS network, or, because of their calling volumes or their affiliations
with, or ownership of, wireless providers, may be able to offer roaming rates
that are lower than those AirGate offers. PCS providers compete with AirGate in
providing some or all of the services available through the Sprint PCS network
and may provide services that AirGate does not. Additionally, AirGate expects
that existing cellular providers, some of whom have been operational for a
number of years and have significantly greater financial and technical
resources and customer bases than AirGate, will continue to upgrade their
systems to provide digital wireless communication services competitive with
Sprint PCS.
In the future, AirGate expects to face increased competition from entities
providing similar services using other communications technologies, including
satellite-based telecommunications and wireless cable systems. While some of
these technologies and services are currently operational, others are being
developed or may be developed in the future.
Over the past several years the FCC has auctioned and will continue to
auction large amounts of wireless spectrum that could be used to compete with
Sprint PCS service. Based upon increased competition, AirGate anticipates that
market prices for two-way wireless services generally will decline in the
future. AirGate's ability to attract and retain customers will depend
principally on the strength of the Sprint and Sprint PCS brand name, services
and features; pricing; the location of AirGate's Sprint PCS markets; the size
of AirGate's Sprint PCS territory; national network coverage and reliability;
and AirGate's customer care.
Employees and Labor Relations
As of June 30, 2001, AirGate employed 479 full-time employees. None of its
employees are represented by a labor union. AirGate believes that it has good
relations with its employees.
Properties
As of June 30, 2001, AirGate's properties were as follows:
Corporate offices. AirGate's principal executive offices consist of a
19,000 square foot leased office space located at Harris Tower, 233
Peachtree Street, N.E., Suite 1700, Atlanta, Georgia 30303. It
79
also leases a 40,000 square foot office space located at Pelham 85
Business Center in Greenville, South Carolina and a 24,000 square foot
office space located at 411 Huger Street in Columbia, South Carolina.
Sprint PCS stores. AirGate currently leases space for 34 Sprint PCS
retail stores in its territory.
Switching Centers. AirGate leases two switching centers: a switching
center located at Pelham 85 Business Center in Greenville, South Carolina,
and a switching center located at 411 Huger Street in Columbia, South
Carolina.
Cell Sites. AirGate leases space on 670 cell site towers, and it owns
two tower sites. AirGate co-locates on approximately 99% of its cell sites.
AirGate believes its facilities are in good operating condition and are
currently suitable and adequate for its business operations.
Legal Proceedings
AirGate is not aware of any pending legal proceedings against it which,
individually or in the aggregate, are likely, in the opinion of management, to
have a material adverse effect on its financial condition or results of
operations.
80
AIRGATE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
On July 22, 1998, AirGate entered into a management agreement with Sprint
PCS whereby it became the Sprint PCS network partner with the exclusive right
to provide 100% digital, 100% PCS wireless products and services under the
Sprint and Sprint PCS brand names in its territory in the southeastern United
States. AirGate completed its radio frequency design, network design and
substantial site acquisition and cell site engineering, and commenced
construction of its PCS network in November 1998. In January 2000, AirGate
began commercial operations with the launch of four markets covering 2.2
million residents in its Sprint PCS territory. By September 30, 2000, AirGate
had launched commercial PCS service in all of the 21 markets that comprise its
Sprint PCS territory. At June 30, 2001, AirGate provided Sprint PCS service to
179,403 subscribers within its Sprint PCS territory.
Sprint PCS has invested $44.6 million to purchase the PCS licenses in
AirGate's territory and incurred additional costs for microwave clearing. Under
AirGate's long-term agreements with Sprint PCS, AirGate manages the network on
Sprint PCS' licensed spectrum and uses the Sprint and Sprint PCS brand names
royalty-free during its affiliation with Sprint PCS. AirGate also has access to
Sprint PCS' national marketing support and distribution programs and is
entitled to buy network equipment and subscriber handsets at the same
discounted rates offered by vendors to Sprint PCS based on its large volume
purchases. In exchange for these and other benefits, AirGate is entitled to
receive 92%, and Sprint PCS is entitled to retain 8%, of collected service
revenues from customers in AirGate's Sprint PCS territory. AirGate is entitled
to 100% of revenues collected from the sale of handsets and accessories and on
roaming revenues received when Sprint PCS customers from a different territory
make a wireless call on AirGate's PCS network.
Through June 30, 2001, AirGate has incurred $220.2 million of capital
expenditures related to the build-out of its PCS network. In the three months
ended March 31, 2000, AirGate launched commercial PCS operations in the
Greenville-Spartanburg, Anderson and Myrtle Beach, South Carolina markets and
the Hickory, Asheville, Wilmington and Rocky Mount, North Carolina markets. In
the three months ended June 30, 2000, AirGate launched commercial PCS
operations in the Charleston, Columbia and Florence, South Carolina markets,
the Augusta and Savannah, Georgia markets and the Goldsboro, Jacksonville, New
Bern, Orangeburg, Roanoke Rapids and Greenville-Washington, North Carolina
markets. In the three months ended September 30, 2000, AirGate launched
commercial PCS operations in the Greenwood and Sumter, South Carolina markets
and the Outer Banks, North Carolina market. At June 30, 2001, AirGate's Sprint
PCS network covered 5.9 million of the 7.1 million residents in AirGate's
Sprint PCS territory.
On August 28, 2001, AirGate entered into the merger agreement described in
this proxy statement/prospectus. The costs that AirGate expects to incur in
connection with the transaction, which are estimated to be approximately $5.7
million, will be accrued and recorded as part of the consideration for the
transaction.
Results of Operations
For the nine months ended June 30, 2001 compared to the nine months ended June
30, 2000:
Customer Additions
As of June 30, 2001, AirGate provided personal communication services to
179,403 customers, net of customers for which no revenues were recognized.
Thus, for the nine months ended June 30, 2001, a net 122,714 customers were
added. As of June 30, 2000, AirGate provided personal communication services to
23,482 customers. The increased net customers acquired during the nine months
ended June 30, 2001 are attributable to having all of AirGate's 21 markets
fully launched during 2001.
Average Revenue Per User (ARPU)
An important operating metric in the wireless industry is average revenue
per user (ARPU). ARPU summarizes the average monthly service revenue per
customer, net of the allowance for doubtful accounts.
81
ARPU is computed by deducting the provision for doubtful accounts from service
revenue and dividing the result by the average subscribers for the period. For
the nine months ended June 30, 2001, ARPU was $54. For the nine months ended
June 30, 2000, ARPU was $58. The increase in ARPU primarily resulted from
customers selecting rate plans with higher monthly recurring charges.
Revenues
Service revenue and equipment revenue were $61.9 million and $7.4 million
for the nine months ended June 30, 2001, respectively, compared to $2.5 million
and $1.0 million, respectively, for the nine months ended June 30, 2000. The
increased revenues reflect the growth in subscribers as a result of AirGate's
launch of commercial operations in 21 markets during fiscal 2000. Service
revenue consists of monthly recurring access and feature charges and monthly
non-recurring charges for local, long distance and roaming airtime usage in
excess of the pre-subscribed usage plan. Equipment revenue is derived from the
sale of handsets and accessories from AirGate's Sprint PCS stores, net of an
allowance for returns. AirGate's handset return policy allows customers to
return their handsets for a full refund within 14 days of purchase. When
handsets are returned to AirGate, AirGate may be able to reissue the handsets
to customers at little additional cost to it. However, when handsets are
returned to Sprint PCS for refurbishing, AirGate receives a credit from Sprint
PCS, which is less than the amount it originally paid for the handset.
AirGate recorded roaming revenue of $35.5 million for the nine months ended
June 30, 2001, compared to roaming revenue of $4.7 million during the nine
months ended June 30, 2000, an increase of $30.8 million. The increase is
attributable to the completion of the initial network build-out and a larger
customer base for Sprint PCS and its other network partners. AirGate receives
Sprint PCS roaming revenue at a per-minute rate from Sprint PCS or another
Sprint PCS network partner when Sprint PCS subscribers outside of its territory
use its network. For the nine months ended June 30, 2001, such roaming revenue
was $34.5 million, or 97% of the $35.5 million in roaming revenue recorded in
the period. AirGate also receives non-Sprint PCS roaming revenue when
subscribers of other wireless service providers who have roaming agreements
with Sprint PCS roam on its network.
On April 27, 2001, AirGate and Sprint PCS announced that they had reached an
agreement in principle to reduce the reciprocal roaming rate exchanged between
Sprint PCS and AirGate PCS for customers who roam into the other party's
territory. The rate was reduced from $.20 per minute of use to $.15 per minute
of use beginning June 1, 2001, and to $.12 per minute of use beginning October
1, 2001. Beginning January 1, 2002, and for the remainder of the term of the
management agreement with Sprint PCS, the rate will be adjusted to provide a
fair and reasonable return on the cost of the underlying network. In accordance
with the agreement in principle, on May 1, 2001, Sprint PCS provided notice of
reduction of the roaming rate to $0.15 per minute of use on June 1, 2001, and
to $0.12 per minute of use on October 1, 2001. The details of the agreement in
principle with respect to periods after December 31, 2001 have not yet been
finalized. As a result of these changes, increased inbound roaming minutes from
increasing network coverage and a growing Sprint PCS subscriber base will be
partially offset by the lower per minute rate.
Cost of Service and Roaming
The cost of service and roaming was $71.4 million for the nine months ended
June 30, 2001, compared to $15.8 million for the nine months ended June 30,
2000, an increase of $55.6 million. Cost of service and roaming represents
roaming expense when AirGate customers place calls on Sprint PCS' network,
network operating costs (including salaries, cell site lease payments, fees
related to the connection of AirGate'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 PCS such as customer care, billing and
activation, the 8% of collected service revenue representing the Sprint
affiliation fee, and long distance expense relating to inbound roaming revenue
and its own customer's usage.
Roaming expense included in cost of service and roaming was $22.0 million
for the nine months ended June 30, 2001, compared to $2.5 million for the nine
months ended June 30, 2000, an increase of $19.5 million. As discussed above,
the per minute rate AirGate pays Sprint PCS when AirGate customers roam
82
onto the Sprint PCS network decreased beginning June 1, 2001. The increased
roaming minutes resulting from increasing AirGate PCS subscriber levels will be
partially offset by the lower per minute rate paid to Sprint PCS.
AirGate was supporting 179,403 customers at June 30, 2001, compared to
23,482 customers at June 30, 2000. At June 30, 2000, AirGate's network
consisted of 519 active cell sites and three switches. At June 30, 2001,
AirGate's network was built-out to include 672 active cell sites and four
switches. There were approximately 72 employees performing network operations
functions at June 30, 2001, compared to 45 employees at June 30, 2000. Network
operating costs were $26.0 million for the nine months ended June 30, 2001, a
$12.3 million increase over the $13.7 million incurred during the nine months
ended June 30, 2000 as a result of the increased subscriber base. The Sprint
affiliation fee totaled $5.0 million in the nine months period ended June 30,
2001, compared to $0.2 million for the nine months ended June 30, 2000, an
increase of $4.8 million.
Cost of Equipment
Cost of equipment was $14.4 million for the nine months ended June 30, 2001,
compared to $2.0 million for the nine months ended June 30, 2001, an increase
of $12.4 million. This increase corresponds with the increase in the number of
customers since the launch of commercial operations in January 2000, as cost of
equipment includes the cost of handsets and accessories sold to customers from
AirGate's Sprint PCS stores. The cost of handsets exceeds the retail price
received from customers because AirGate subsidizes the price of handsets to
remain competitive in the marketplace.
Selling and Marketing
AirGate incurred selling and marketing expenses of $49.2 million during the
nine months period ended June 30, 2001, compared to $13.7 million during the
nine months period ended June 30, 2000, an increase of $35.5 million. The
increase is primarily comprised of compensation and benefits relating to growth
in the number of employees, additional advertising expenditures and handset
subsidies on units sold by third parties. These amounts include retail store
costs such as salaries and rent in addition to promotion, advertising and
commission costs, and handset subsidies on units sold by third parties for
which AirGate does not record revenue. At June 30, 2001, there were
approximately 346 employees performing sales and marketing functions, compared
to 189 employees as of June 30, 2000. Handset subsidies total $8.1 million for
the nine months ended June 30, 2001, compared to $1.7 million for the nine
months ended June 30, 2000, an increase of $6.4 million. In the nine months
ended June 30, 2001, AirGate added 122,714 net additional customers compared to
23,482 net additional customers in the nine months ended June 30, 2000.
General and Administrative
For the nine months ended June 30, 2001, AirGate incurred expenses of $12.1
million, compared to $9.5 million for the nine months ended June 30, 2000, an
increase of $2.6 million. The increase is primarily comprised of compensation
and benefits relating to growth in the number of new employees partially offset
by lower professional fees of $0.4 million and lower amounts earned under the
Retention Bonus Agreement with AirGate's Chief Executive Officer of $0.5
million. Of the 479 employees at June 30, 2001, approximately 61 employees were
performing corporate support functions compared to 38 employees as of June 30,
2000.
Noncash Stock Option Compensation
Noncash stock option compensation expense was $1.2 million for the nine
months ended June 30, 2001, compared to $1.1 million for the nine months ended
June 30, 2000, an increase of $0.1 million. For the nine months ended June 30,
2001, $1.0 million related to general and administrative, $0.1 million to cost
of service, and $0.1 million to selling and marketing. AirGate applies the
provisions of APB Opinion No. 25 and related interpretations in accounting for
its stock option plan. Unearned stock option compensation is recorded for the
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difference between the exercise price and the fair market value of AirGate's
common stock at the date of grant and is recognized as noncash stock option
compensation expense in the period in which the related services are rendered.
Depreciation and Amortization
For the nine months ended June 30, 2001, depreciation and amortization
expense was $21.5 million, compared to $6.8 million for the nine months ended
June 30, 2000, an increase of $14.7 million. The increase in depreciation and
amortization expense relates primarily to the completion of AirGate's initial
network buildout during fiscal year 2000 to support its commercial launch.
Depreciation and amortization will continue to increase as additional portions
of AirGate's network are placed into service. AirGate incurred capital
expenditures of $40.7 million in the nine months ended June 30, 2001 related to
the continued build-out of its PCS network, which included approximately $2.2
million of capitalized interest. During the nine months ended June 30, 2000,
AirGate incurred capital expenditures of $123.4 million, which included
approximately $4.7 million of capitalized interest.
Interest Income
For the nine months ended June 30, 2001, interest income was $2.4 million
compared to $8.1 million for the nine months ended June 30, 2000. The decrease
in interest income corresponds to the decrease in cash and cash equivalents.
Interest Expense
For the nine months ended June 30, 2001, interest expense was $23.3 million,
compared to $19.6 million for the nine months ended June 30, 2000, an increase
of $3.7 million. The increase includes $2.2 million greater accretion of
original issue discount on the senior subordinated discount notes and $1.5
million associated with increased average outstanding borrowings under the
Senior Credit Facility. AirGate had borrowings of $242.1 million as of June 30,
2001, compared to $180.7 million at September 30, 2000 and $174.9 million at
June 30, 2000.
Net Loss
For the nine months ended June 30, 2001, the net loss was $86.0 million,
compared to a net loss of $52.1 million for the nine months ended June 30,
2000, an increase of $33.9 million.
For the year ended September 30, 2000:
AirGate did not launch commercial operations until January 2000. For the
nine months ended September 30, 1999, it had no customers and thus no service,
roaming and equipment revenues or the related costs of revenues and sales and
marketing costs.
Customer Additions
For the year ended September 30, 2000, AirGate added a net 56,689 customers
since the launch of its commercial operations in January 2000. AirGate launched
all 21 of the markets that comprise its Sprint PCS territory during 2000.
Average Revenue Per User (ARPU)
ARPU was $56 since commercial operations were launched in January 2000.
Revenues
Service revenue and equipment revenue were $9.2 million and $3.0 million,
respectively, for the year ended September 30, 2000. These revenues were the
result of launching commercial operations in 21 markets during the year.
Roaming revenue of $12.3 million was recorded during the year ended September
30, 2000.
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Cost of Service and Roaming and Cost of Equipment
The cost of service and roaming and the cost of equipment was $27.2 million
and $5.7 million, respectively, for the twelve months ended September 30, 2000.
The Sprint PCS affiliation fee totaled $0.8 million in the year ended September
30, 2000. There were approximately 59 employees performing network operations
functions at September 30, 2000.
Cost of equipment includes the cost of handsets and accessories sold to
customers during the year ended September 30, 2000. The cost of handsets
exceeds the retail price because AirGate subsidizes the price of handsets to
remain competitive in the marketplace.
Selling and Marketing
AirGate incurred expenses of $28.4 million during the year ended September
30, 2000 for selling and marketing costs associated with the launch of its 21
markets in 2000. These amounts include retail store costs such as salaries and
rent, in addition to promotion, advertising, commission costs, and handset
subsidies on units sold by third parties for which AirGate does not record
revenue. These handset subsidies totaled $3.7 million for the year ended
September 30, 2000. At September 30, 2000, there were approximately 246
employees performing sales and marketing functions compared to four employees
performing those functions at September 30, 1999.
General and Administrative
For the year ended September 30, 2000, AirGate incurred expenses of $14.1
million compared to $5.3 million for the nine months ended September 30, 1999,
an increase of $8.8 million. The increase is primarily comprised of additional
rent, professional fees, consulting fees for outsourced labor and salaries and
compensation, recruiting and relocation costs relating to growth in the number
of employees. Of the total 341 employees at September 30, 2000, approximately
36 employees were performing corporate support functions compared to 15
employees performing those functions at September 30, 1999. AirGate incurred
$2.1 million of legal and professional fees related to business development
activities in 2000. On May 4, 2000, AirGate entered into a retention bonus
agreement with its chief executive officer that provides for the payment of
periodic retention bonuses. Included in compensation expense in the year ended
September 30, 2000 was $1.2 million related to the retention bonus agreement
with its chief executive officer.
Noncash Stock Option Compensation
Noncash stock option compensation expense was $1.7 million for the year
ended September 30, 2000 compared to $0.3 million in the nine months ended
September 30, 1999. The increase in noncash stock option compensation resulted
from a full twelve months expense in 2000 compared to only two months of
expense in 1999 related to the July 1999 stock option grants. AirGate applies
the provisions of APB Opinion No. 25 and related interpretations in accounting
for its stock option plan. Unearned stock option compensation is recorded for
the difference between the exercise price and the fair market value of its
common stock at the date of grant and is recognized as noncash stock option
compensation expense in the period in which the related services are rendered.
Depreciation and Amortization
For the year ended September 30, 2000, depreciation and amortization expense
increased $11.4 million to $12.0 million compared to $0.6 million for the nine
months ended September 30, 1999. The increase in depreciation and amortization
expense relates primarily to network assets placed in service to support
AirGate's commercial launch. Depreciation and amortization will continue to
increase as additional portions of AirGate's network are placed into service.
AirGate incurred capital expenditures of $151.4 million in the year ended
September 30, 2000 related to the continued build-out of its PCS network which
included approximately $5.9 million of capitalized interest.
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Interest Income
For the year ended September 30, 2000, interest income was $9.3 million.
Interest income is generated from cash proceeds originating from AirGate's
initial public equity and units offering completed on September 30, 1999.
Decreasing cash balances as a result of capital expenditures to complete the
build-out of AirGate's PCS network and the funding of operating losses will
result in lower interest income for fiscal 2001. No significant interest income
was recorded in the nine months ended September 30, 1999.
Interest Expense
For the year ended September 30, 2000, interest expense was $26.1 million,
an increase of $16.8 million compared to the nine months ended September 30,
1999. The increase is primarily attributable to the $23.0 million associated
with the senior subordinated discount notes and $7.3 million associated with
AirGate's financing from Lucent partially offset by $5.9 million of capitalized
interest. AirGate had borrowings of $180.7 million at September 30, 2000
compared to $165.7 million at September 30, 1999.
Net Loss
For the year ended September 30, 2000, the net loss was $81.3 million, an
increase of $65.7 million over a net loss of $15.6 million for the nine months
ended September 30, 1999.
For the nine months ended September 30, 1999:
On October 21, 1999, AirGate changed its fiscal year from a calendar year
ending on December 31 to a fiscal year ending on September 30, effective
September 30, 1999. From January 1, 1999 through September 30, 1999, AirGate
was focused on raising capital to continue its PCS network build-out.
Revenues
AirGate had no commercial operations in the nine months ended September 30,
1999, resulting in no revenues or costs of service being recorded.
General and Administrative Expenses
From January 1, 1999 through September 30, 1999, AirGate was focused on
raising capital to continue its PCS network build-out. AirGate incurred general
and administrative expenses of $5.3 million during the nine months ended
September 30, 1999, compared to $2.6 million for the year ended December 31,
1998, an increase of $2.7 million. The increase was primarily comprised of cell
site lease payments related to AirGate's PCS network build-out, additional
salaries, employee bonus accruals and relocation liabilities.
Noncash Stock Option Compensation
Noncash stock option compensation expense was $0.3 million for the nine
months ended September 30, 1999 related to the granting of options in July
1999.
Depreciation and Amortization
For the nine months ended September 30, 1999, depreciation and amortization
expense was $0.6 million, compared to $1.2 million for the year ended December
31, 1998. Through August 1998, AirGate was amortizing the purchase price of FCC
licenses held by its predecessor. AirGate made capital expenditures of $32.8
million in the nine months ended September 30, 1999 related to the continued
build-out of its PCS network, which included approximately $1.1 million of
capitalized interest.
Interest Expense
For the nine months ended September 30, 1999, interest expense was $9.4
million, net of capitalized interest of $1.1 million, an increase of $8.0
million over the $1.4 million in interest expense for the year ended
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December 31, 1998. Interest expense for the 1999 period included an $8.7
million charge to record the fair value of warrants and the beneficial
conversion feature related to the convertible promissory notes issued to
affiliates of Weiss, Peck & Greer Venture Partners and affiliates of JAFCO
America Ventures Inc. Capitalized interest of $1.1 million for the nine months
ended September 30, 1999 was higher due to increased capital expenditures,
compared to no capitalized interest for the year ended December 31, 1998.
Net Loss
For the nine months ended September 30, 1999, AirGate's net loss was $15.6
million, compared to $5.2 million for the year ended December 31, 1998. The net
loss increased $10.4 million, resulting primarily from the items discussed
above.
For the year ended December 31, 1998:
In July 1998, AirGate signed a series of agreements with Sprint PCS to
operate as the exclusive network partner of Sprint PCS in certain markets in
the southeastern United States. In October 1998, AirGate PCS, Inc. was formed
and all operations related to the affiliation with Sprint PCS were transferred
to it and its subsidiaries. The FCC PCS licenses would not be used in AirGate's
continuing operations as a Sprint PCS network partner and, therefore, were
excluded from the consolidated financial statements of AirGate PCS, Inc. and
its subsidiaries and predecessors. During 1998, AirGate focused on consummating
its affiliation with Sprint PCS. Expenses incurred for these purposes totaled
$5.2 million for salaries and benefits, professional fees, interest expense and
depreciation and amortization. Capital outlays in 1998 amounted to $12.9
million. Included in this amount were $7.7 million of network assets which
AirGate purchased from Sprint PCS, which include radio frequency and
engineering design data, site acquisition materials and construction equipment.
AirGate also made $5.2 million of capital expenditures related to the build-out
of its PCS network.
Liquidity and Capital Resources
As of June 30, 2001, AirGate had $7.8 million in cash and cash equivalents,
as compared to $58.4 million in cash and cash equivalents at September 30,
2000. Working capital was $1.0 million at June 30, 2001, compared to working
capital of $36.6 million at September 30, 2000.
Net Cash Used In Operating Activities
AirGate used $41.7 million of cash in operating activities in the nine
months ended June 30, 2001. This was the result of its $86.0 million net loss,
that was partially offset by a net $1.3 million in cash provided by changes in
working capital and by depreciation and amortization of note discounts and
other non-cash items totaling $43.0 million.
The $41.6 million of cash used in operating activities in the year ended
September 30, 2000 was the result of the company's $81.3 million net loss being
partially offset by a net $1.8 million in cash provided by changes in working
capital and $37.9 million of depreciation, amortization of note discounts,
amortization of financing costs and noncash stock option compensation.
Net Cash Used in Investing Activities
The $56.4 million of cash used in investing activities during the nine
months ended June 30, 2001 represents cash outlays of $55.9 million for capital
expenditures and $0.5 million to purchase certain assets of one of AirGate's
resellers. Cash payments of $15.2 million were made for equipment purchases
made through accounts payable and accrued expenses at September 30, 2000, in
addition to $40.7 million of capital expenditures in the nine months ended June
30, 2001. Cash payments of $10.1 million were made for equipment purchases made
through accounts payable and accrued expenses at September 30, 1999, in
addition to $123.4 million of capital expenditures in the nine months ended
June 30, 2000.
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The $152.4 million of cash used in investing activities represents cash
outlays for capital expenditures during the year ended September 30, 2000.
AirGate incurred a total of $151.4 million of capital expenditures in the year
ended September 30, 2000. Further, cash payments of $16.2 million were made for
equipment purchases made through accrued expenses at September 30, 1999
partially offset by equipment purchases of $15.2 million made through accounts
payable and accrued expenses at September 30, 2000.
Net Cash Provided By Financing Activities
The $47.6 million in cash provided by financing activities during the nine
month period ended June 30, 2001 consisted of $42.0 million borrowing under the
AirGate senior credit facility and $5.6 million of proceeds received from the
exercise of options to purchase common stock by employees.
The $6.5 million of cash used in financing activities in the year ended
September 30, 2000 consisted of the repayment of the $7.7 million unsecured
promissory note partially offset by $1.2 million received from the exercise of
common stock options by employees during 2000.
Liquidity
AirGate was initially capitalized through concurrent public equity and debt
offerings on September 30, 1999 with net proceeds of $269.9 million. As part of
these financings, AirGate undertook an initial public offering of 7,705,000
shares of common stock raising $131.0 million of gross proceeds, or $120.8
million of net proceeds. Concurrently, AirGate closed its units offering
consisting of $300 million principal amount at maturity of 13.5% senior
subordinated discount notes due 2009 and warrants to purchase 644,400 shares of
its common stock at $0.01 per share. The gross proceeds from the units offering
were $156.1 million, or $149.4 million in net proceeds. The senior subordinated
discount notes due 2009 will require cash payments of interest beginning on
April 1, 2005.
In addition, AirGate has a $153.5 million two-tranche senior credit
facility. The first installment of the loan, or tranche I, provides for a $13.5
million senior secured term loan which matures on June 6, 2007. The second
installment, or tranche II, is a $140.0 million senior secured term loan which
matures on September 30, 2008. The credit agreement requires AirGate to make
quarterly payments of principal beginning December 31, 2002 for tranche I and
March 31, 2004 for tranche II initially in the amount of 3.75% of the loan
balance then outstanding and increasing thereafter. The commitment fee on
unused borrowings is 1.50%, payable quarterly. As of October 15, 2001, AirGate
had borrowed the full amount available under tranche I and $71.8 million under
tranche II. As of such date, the availability under AirGate's senior credit
facility totaled $68.2 million.
AirGate's obligations under the senior credit facility are secured by all of
its assets. The senior credit facility is subject to certain restrictive
covenants including maintaining certain financial ratios, reaching defined
subscriber growth and network covered population goals, and limiting annual
capital expenditures. If any corporate development event such as an acquisition
is effected, additional debt and/or equity capital may be needed. Further, the
senior credit facility restricts the payment of dividends on AirGate's common
stock.
Management believes that AirGate is in compliance with all financial and
operational covenants associated with its senior credit facility, senior
subordinated discount notes, and Sprint PCS agreements.
AirGate expects that cash and cash equivalents together with future advances
under the senior credit facility will fund its capital expenditures and its
working capital requirements through the end of 2002, at which time AirGate
anticipates it will be operational cash flow positive.
Seasonality
AirGate's business is subject to seasonality because the wireless industry
is heavily dependent on fourth calendar quarter results. Among other things,
the industry relies on significantly higher customer additions and
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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 AirGate's available financial resources during this period.
Inflation
Management believes that inflation has not had, and does not expect
inflation to have, a material adverse effect on AirGate's results of
operations.
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DESCRIPTION OF AIRGATE CAPITAL STOCK
General
The following summarizes all of the material terms and provisions of
AirGate's capital stock. AirGate has 155,000,000 shares of authorized capital
stock, including 150,000,000 shares of common stock, par value $0.01 per share,
and 5,000,000 shares of preferred stock, par value $0.01 per share. As of
October 12, 2001, there were 13,364,980 shares of common stock and no shares of
preferred stock issued and outstanding.
Common Stock
The holders of AirGate common stock are entitled to one vote for each share
held of record on all matters submitted to a vote of stockholders and do not
have any cumulative rights. Subject to the rights of the holders of any series
of preferred stock, holders of common stock are entitled to receive ratably
such dividends as may be declared by the board of directors out of funds
legally available therefor. Holders of shares of common stock have no
preemptive, conversion, redemption, subscription or similar rights. If AirGate
liquidates, dissolves or winds up, the holders of shares of common stock are
entitled to share ratably in the assets which are legally available for
distribution, if any, remaining after the payment or provision for the payment
of all debts and other liabilities and the payment and setting aside for
payment of any preferential amount due to the holders of shares of any series
of preferred stock.
Preferred Stock
Under AirGate's certificate of incorporation, the board of directors is
authorized, subject to certain limitations prescribed by law, without further
stockholder approval, from time to time to issue up to an aggregate of
5,000,000 shares of preferred stock. The preferred stock may be issued in one
or more series. Each series may have different rights, preferences and
designations and qualifications, limitations and restrictions that may be
established by AirGate's board of directors without approval from the
stockholders. These rights, designations and preferences include:
. number of shares to be issued;
. dividend rights;
. dividend rates;
. right to convert the preferred shares into a different type of security;
. voting rights attributable to the preferred shares;
. right to set aside a certain amount of assets for payment relating to
the preferred shares; and
. prices to be paid upon redemption of the preferred shares or a
bankruptcy type event.
If AirGate's board of directors decides to issue any preferred stock, it
could have the effect of delaying or preventing another party from taking
control of AirGate. This is because the terms of the preferred stock would be
designed to make it prohibitively expensive for any unwanted third party to
make a bid for shares of AirGate's common stock. AirGate has no present plans
to issue any shares of preferred stock.
Delaware Law and Certain Charter and By-Law Provisions
AirGate is subject to the provisions of Section 203 of the Delaware General
Corporation Law. Subject to certain exceptions, Section 203 prohibits a
publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a certain period of time. That period is
three years after the date of the transaction in which the person became an
interested stockholder, unless the interested stockholder attained that status
with the approval of the board of directors or unless the business combination
is approved in a prescribed manner. A "business combination" includes certain
merger, asset sales and other transactions resulting in a financial benefit to
the interested stockholder. Subject to certain exceptions, an "interested
stockholder" is a person who, together with his or her affiliates and
associates, owns, or owned within three years prior, 15% or more of the
corporation's voting stock.
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AirGate's certificate of incorporation provides that certain business
transactions with interested stockholders must be approved by the holders of at
least 80% of the voting power of the then-outstanding shares of stock of
AirGate entitled to vote in the election of directors, voting together as a
single class. Such business transactions include: mergers or consolidations
with an interested stockholder; sales, leases, exchanges, mortgages, pledges,
transfers or other dispositions of any of AirGate's assets to an interested
stockholder; certain sizable issuances or transfers of any of AirGate's
securities to an interested stockholder; the adoption of any plan or proposal
for the liquidation of AirGate proposed by or on behalf of an interested
stockholder; or any reclassification of securities or recapitalization of
AirGate which increases the proportionate share of any class of securities of
an interested stockholder. However, the affirmative vote of a majority of the
shares of outstanding stock entitled to vote, or such vote as is required by
law or AirGate's certificate of incorporation, will suffice with respect to a
business combination with an interested stockholder if the consideration
received meets certain fair price standards.
AirGate's certificate of incorporation and by-laws provide for the division
of the board of directors into three classes, as nearly equal in size as
possible, with each class beginning its three year term in a different year. A
director may be removed only for cause by the affirmative vote of the holders
of at least 80% of the voting power of all of the then-outstanding shares of
capital stock entitled to vote generally for the election of directors voting
together as a single class.
AirGate's by-laws will also require a stockholder who intends to nominate a
candidate for election to the board of directors, or to raise new business at a
stockholder meeting to give at least 90 days advance notice to the Secretary.
The notice provision will require a stockholder who desires to raise new
business to provide AirGate certain information concerning the nature of the
new business, the stockholder and the stockholder's interest in the business
matter. Similarly, a stockholder wishing to nominate any person for election as
a director will need to provide AirGate with certain information concerning the
nominee and the proposing stockholder.
AirGate's certificate of incorporation empowers its board of directors, when
considering a tender offer or merger or acquisition proposal, to take into
account factors in addition to potential economic benefits to stockholders.
These factors may include:
. comparison of the proposed consideration to be received by stockholders
in relation to the then current market price of AirGate's capital stock,
the estimated current value of AirGate in a freely negotiated
transaction and the estimated future value of AirGate as an independent
entity; and
. the impact of a transaction on AirGate's employees, suppliers and
clients and its effect on the communities in which AirGate operates.
AirGate's certificate of incorporation also contains a provision which
acknowledges that certain of AirGate's Sprint PCS agreements establish a
process for the sale of AirGate's operating assets in the event of a default by
AirGate and an acceleration of the obligations under AirGate's senior secured
credit facility. This provision of the certificate of incorporation is intended
to permit the sale of such assets without further stockholder approval.
The provisions described above could make it more difficult for a third
party to acquire control of AirGate and, furthermore, could discourage a third
party from making any attempt to acquire control of AirGate.
AirGate's certificate of incorporation provides that any action required or
permitted to be taken by the AirGate stockholders may be taken only at a duly
called annual or special meeting of the stockholders, and that special meetings
may be called only by resolution adopted by a majority of the board of
directors, or as otherwise provided in the bylaws. These provisions could have
the effect of delaying until the next annual stockholders meeting stockholder
actions that are favored by the holders of a majority of the outstanding voting
securities. These provisions may also discourage another person or entity from
making an offer to stockholders for the common stock. This is because the
person or entity making the offer, even if it acquired a majority of
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the outstanding voting securities of AirGate, would be unable to call a special
meeting of the stockholders and would further be unable to act pursuant to a
unanimous written consent of the stockholders. As a result, any meeting as to
matters they endorse, including the election of new directors or the approval
of a merger, would have to wait for the next duly called stockholders meeting.
Delaware law provides that the affirmative vote of a majority of the shares
entitled to vote on any matter is required to amend a corporation's certificate
of incorporation or by-laws, unless the corporation's certificate of
incorporation or by-laws, as the case may be, requires a greater percentage.
AirGate's certificate of incorporation requires the affirmative vote of the
holders of at least 80% of the outstanding voting stock to amend or repeal any
of the provisions of the certificate of incorporation described above. The 80%
vote is also required to amend or repeal any of AirGate's by-law provisions
described above. The by-laws may also be amended or repealed by the board of
directors. The 80% stockholder vote would be in addition to any separate vote
that each class of preferred stock is entitled to that might in the future be
required in accordance with the terms of any preferred stock that might be
outstanding at the time any amendments are submitted to stockholders.
Transfer Agent and Registrar
The transfer agent and registrar for AirGate's common stock is American
Stock Transfer & Trust Company.
Listing
AirGate's common stock has been approved for quotation and is traded on The
Nasdaq National Market under the symbol "PCSA."
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MARKET FOR AIRGATE'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Shares of AirGate 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 AirGate common stock. On August 28, 2001, the last trading
day prior to public announcement of the proposed merger, the reported last
sales price per share of AirGate common stock on The Nasdaq National Market was
$59.47. On October 15, 2001, the last trading day before the date of this proxy
statement/prospectus, the last reported sales price per share of AirGate common
stock on The Nasdaq National Market was $58.81. On October 15, 2001, there were
57 holders of record of AirGate common stock.
The following table lists the high and low bid prices for AirGate common
stock for the periods indicated, as reported by The Nasdaq National Market.
Price Range of
Common Stock
--------------
High Low
------- ------
Fiscal Year Ended September 30, 2002:
First Quarter (Through October 15, 2001)................... $ 60.44 $42.96
Fiscal Year Ended September 30, 2001:
Fourth Quarter (Ended September 30, 2001).................. $ 60.05 $41.75
Third Quarter (Ended June 30, 2001)........................ $ 53.50 $30.88
Second Quarter (Ended March 31, 2001)...................... $ 49.88 $29.44
First Quarter (Ended December 31, 2000).................... $ 48.00 $21.69
Fiscal Year Ended September 30, 2000:
Fourth Quarter (Ended September 30, 2000).................. $ 80.56 $31.00
Third Quarter (Ended June 30, 2000)........................ $114.50 $29.00
Second Quarter (Ended March 31, 2000)...................... $108.50 $50.13
First Quarter (Ended December 31, 1999).................... $ 54.75 $23.00
AirGate is unable to provide information with respect to the market prices
of iPCS because there is no established trading market for them.
AirGate has never declared or paid any cash dividends on its common stock or
any other of its securities. AirGate intends to retain its future earnings, if
any, to fund the development and growth of its business and, therefore, does
not anticipate paying cash dividends in the foreseeable future. AirGate's
future decisions concerning the payment of dividends on its common stock will
depend upon its results of operations, financial condition and capital
expenditure plans, as well as such other factors as AirGate's board of
directors, in its sole discretion, may consider relevant. In addition,
AirGate's existing indebtedness restricts, and AirGate anticipates its future
indebtedness may restrict, AirGate's ability to pay dividends.
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AIRGATE'S EXECUTIVE OFFICERS AND DIRECTORS
Executive Officers
The following table presents information with respect to AirGate's executive
officers:
Name Age Position
---- --- --------
Thomas M. Dougherty..... 56 President and Chief Executive Officer and Director
J. Mark Allen........... 41 Vice President of Marketing
Barbara L. Blackford.... 43 Vice President, General Counsel and Secretary
Alan B. Catherall....... 47 Chief Financial Officer
Charles S. Goldfarb..... 36 Vice President of Sales, Coastal Region
Jonathan M. Pfohl....... 35 Vice President, Sales Operations
Dennis K. Rabon......... 31 Vice President of Sales, Interior Region
David C. Roberts........ 38 Vice President of Engineering and Network Operations
Thomas M. Dougherty has been AirGate's president and chief executive officer
since April 1999. From March 1997 to April 1999, Mr. Dougherty was a senior
executive of Sprint PCS. From June 1996 to March 1997, Mr. Dougherty served as
executive vice president and chief operating officer of Chase
Telecommunications, a personal communications services company. Mr. Dougherty
served as president and chief operating officer of Cook Inlet BellSouth PCS,
L.P., a start-up wireless communications company, from November 1995 to June
1996. Prior to October 1995, Mr. Dougherty was vice president and chief
operating officer of BellSouth Mobility DCS Corporation, a PCS company.
J. Mark Allen has been AirGate's vice president of marketing since June
2000. From January 2000 to June 2000, Mr. Allen served as vice president of
marketing with RetailExchange.com in Boston. From July 1999 to January 2000,
Mr. Allen served as a management consultant to several internet start-up
companies. During the previous five years, Mr. Allen was vice president of
marketing for Conxus Communications a wireless email and voice mail start-up
supported by Motorola, Inc. and was responsible for a number of marketing
leadership roles in the launch of the first PCS service in the nation under the
Sprint Spectrum brand with Sprint PCS (American Personal Communications). Prior
to that, Mr. Allen held several management positions at SkyTel in marketing,
international operations and customer management. Mr. Allen has over 15 years
of marketing and operations management experience.
Barbara L. Blackford has been AirGate's vice president, general counsel and
secretary since September 2000. From October 1997 to September 2000, Ms.
Blackford was associate general counsel and secretary with Monsanto Company,
serving in a variety of roles, including head of the corporate and mergers and
acquisitions law groups and the office of the corporate secretary and general
counsel of Cereon Genomics. Prior to joining Monsanto Company, Ms. Blackford
was a partner with the private law firm Long, Aldridge & Norman in Atlanta,
Georgia.
Alan B. Catherall has been AirGate's chief financial officer since March
1998. From April 1996 to present, Mr. Catherall has served as a partner in
Tatum CFO Partners, a financial consulting firm. From August 1994 to April
1996, Mr. Catherall was chief financial officer of Syncordia Services, a joint
venture of MCI and British Telecom that provides telecom outsourcing services.
Charles S. Goldfarb has been AirGate's vice president of sales, coastal
region, since January 2000. From September 1991 to January 2000, Mr. Goldfarb
worked at Paging Network Inc., most recently as its area vice president and
general manager for the Virginia, North Carolina and South Carolina region. Mr.
Goldfarb has over 10 years of wireless experience and has been successful in
numerous start-up markets. Prior to his wireless experience, Mr. Goldfarb
worked at ITT Financial Services as its assistant vice president of operations
in the Washington DC area.
94
Jonathan M. Pfohl has been AirGate's vice president, sales operations, since
January 2001. Mr. Pfohl joined AirGate in June 1999 as the company's 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 10 years of wireless telecommunications industry
experience, including financial and strategic planning roles at Frontier
Corporation.
Dennis K. Rabon has been AirGate's vice president of sales, interior region,
since September 2000. Mr. Rabon joined AirGate in October 1999 as market
manager for the Columbia, South Carolina market. From July 1999 to September
1999, Mr. Rabon was a general sales manager for PageNet in Atlanta, Georgia.
From December 1996 to July 1999, Mr. Rabon worked for Bandag Inc. initially as
a sales development manager and most recently as a fleet sales manager. From
August 1995 to December 1996, Mr. Rabon was a territory manager at Michelin
Tire Corporation in Greenville, South Carolina. Mr. Rabon has ten years of
management experience.
David C. Roberts has been AirGate's 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 AirGate's
predecessor company.
Board of Directors
AirGate's board of directors is currently fixed at six members. The board of
directors is divided into three classes of directors, as nearly equal in number
as possible, with one class elected each year at the annual meeting of
stockholders.
Bernard A. Bianchino, age 53, has served as a director of AirGate since May
2001. Mr. Bianchino has more than fourteen years of telecommunications
experience. Most recently, from January to May 2001, Mr. Bianchino served as
the Chief Executive Officer of OnFiber Communications, a privately held local
fiber access company. From October 1995 through December 2000, Mr. Bianchino
was employed by Sprint Corporation. During this period he served as the Chief
Business Development Officer of Sprint PCS from October 1995 through July 2000
and Chief Executive Officer of Pegaso PCS, a Mexican carrier in which Sprint
Corporation holds a minority interest, from July 2000 through December 2000.
Prior to that time, Mr. Bianchino served in a variety of telecommunications
industry and legal positions, including various legal positions with Sprint
Corporation culminating as Vice President Law-General Business, and a period as
Executive Vice President, General Counsel and External Affairs at Qwest
Communications. Prior to 1986, he served as an attorney with Exxon Corporation
and its affiliates and as an attorney with the U. S. Department of Energy and
its predecessors. Mr. Bianchino holds a B.A. (1970) and J.D. (1974) from
Washburn University.
John R. Dillon, age 60, has served as a director of AirGate since February
2000. Mr. Dillon retired from Cox Enterprises in December 1996. Prior to his
retirement, Mr. Dillon was responsible for all of Cox Enterprises' corporate
financial activities as well as planning and development. Mr. Dillon joined Cox
Communications in 1981 as its vice president and chief financial officer. Mr.
Dillon was instrumental in taking Cox Communications private in 1985 and
merging it with Cox Newspapers to form Cox Enterprises at which time he was
elected senior vice president, chief financial officer and as a member of its
board of directors.
Mr. Dillon initiated numerous wireless telephony ventures and was Cox
Enterprises' founding board member of Sprint PCS. Mr. Dillon holds an M.B.A.
from Harvard Business School and a B.E.E. degree from Georgia Institute of
Technology. Mr. Dillon is also a director of Ciena Corp., a manufacturer of
optical networking equipment.
Thomas M. Dougherty, age 57, has served as a director of AirGate since April
1999 and has been AirGate's 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,
95
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, age 66, has served as a director of AirGate 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 two other companies that are
traded on the Toronto Exchange.
Sidney E. Harris, age 52, has served as a director of AirGate since May
2001. Dr. Harris is the Dean of the J. Mack Robinson College of Business at
Georgia State University, and has held such position since 1997. From July 1987
to July 1997, Dr. Harris was Professor of Management at the Peter F. Drucker
Graduate School of Management at the Claremont Graduate School, and he was Dean
of the Graduate School of Management from September 1991 to July 1996. Dr.
Harris is also a director of Transamerica Investors, Inc., an investment
management company, and Total System Services, Inc., a credit/debit card
processor.
Barry J. Schiffman, age 55, has served as a director and chairman of AirGate
since October 1998. Mr. Schiffman is the president and executive managing
director of JAFCO America Ventures, Inc., a venture capital firm, and has held
such position since 1996. From 1994 until he joined JAFCO, he was a general
partner at Weiss, Peck & Greer Venture Partners. Mr. Schiffman is also a member
of the board of directors of Lightspan.com, a publicly held educational
software company and of several other private companies.
96
SECURITY OWNERSHIP OF AIRGATE BENEFICIAL OWNERS, DIRECTORS AND EXECUTIVE
OFFICERS
On September 30, 2001, there were 13,364,980 shares of AirGate's common
stock outstanding. The following table presents certain information regarding
the beneficial ownership of AirGate common stock, as of September 30, 2001,
with respect to:
. each person who, to AirGate's knowledge, is the beneficial owner of 5% or
more of AirGate's outstanding common stock;
. each of AirGate's directors;
. each of AirGate's named executive officers; and
. all executive officers and directors of AirGate as a group.
Number of Percentage
Shares Beneficially of Outstanding
Name and Address of Beneficial Owner(/1/) Owned(/2/) Common Stock
----------------------------------------- ------------------- --------------
Bernard A. Bianchino....................... 5,000 *
Barbara L. Blackford(/3/).................. 38,628 *
Alan B. Catherall(/4/)..................... 49,777 *
John R. Dillon(/5/)........................ 7,500 *
Thomas M. Dougherty(/6/)................... 86,510 *
Robert A. Ferchat.......................... 5,000 *
Sidney E. Harris........................... -- *
Jonathan M. Pfohl(/7/)..................... 7,113 *
David C. Roberts(/8/)...................... 59,083 *
Barry J. Schiffman(/9/).................... 36,354 *
J. & W. Seligman & Co.,
Incorporated(/10/)........................ 1,034,270 7.7%
John Hancock Financial Services,
Inc.(/11/)................................ 875,550 6.6
AIM Management Group, Inc.(/12/)........... 826,711 6.2
T. Rowe Price Associates, Inc.(/13/)....... 781,250 5.8
All executive officers and directors as a
group (13 persons)(/14/).................. 399,528 3.0
--------
* Less than one percent.
(1) Except as indicated, the address for each executive officer and director
is 233 Peachtree Street N.E., Harris Tower, Suite 1700, Atlanta, Georgia
30303.
(2) Beneficial ownership is determined in accordance with Rule 13d-3 of the
Securities Exchange Act. A person is deemed to be the beneficial owner of
shares of common stock if such person has or shares voting or investment
power with respect to such common stock, or has the right to acquire
beneficial ownership at any time within 60 days of the date of the table.
As used herein, "voting power" is the power to vote or direct the voting
of shares and "investment power" is the power to dispose or direct the
disposition of shares.
(3) Includes 38,514 shares of common stock subject to options which are
exercisable within 60 days of the date of the table.
(4) Includes 41,344 shares of common stock subject to options which are
exercisable within 60 days of the date of the table.
(5) Includes 5,000 shares of common stock subject to options which are
exercisable within 60 days of the date of the table.
(6) Includes 71,066 shares of common stock subject to options which are
exercisable within 60 days of the date of the table, 100 shares of common
stock owned by Mr. Dougherty's wife and 750 shares of common stock owned
by Mr. Dougherty's children.
(7) Includes 6,057 shares of common stock subject to options which are
exercisable within 60 days of the date of the table.
97
(8) Includes 8,070 shares of common stock subject to options which are
exercisable within 60 days of the date of the table.
(9) Includes 21,457 shares of common stock held by Mr. Schiffman in his
individual capacity and 14,897 shares of common stock Mr. Schiffman is
deemed to beneficially own as president and executive managing director of
JAFCO America Ventures, Inc. Mr. Schiffman's address is 505 Hamilton
Avenue, Suite 310, Palo Alto, California 94301.
(10) Information presented is based on a Schedule 13G dated February 1, 2001
and filed by J. & W. Seligman & Co., Incorporated and William C. Morris.
The Schedule 13G indicates that both filers beneficially own and have
shared dispositive power over the same 1,034,270 shares of AirGate common
stock and have shared voting power over 803,700 of those shares.
(11) Information presented is based on a Schedule 13G dated February 5, 2001
and filed by John Hancock Financial Services, Inc., John Hancock Life
Insurance Company, John Hancock Subsidiaries, Inc., the Berkeley Financial
Group, Inc., and John Hancock Advisers, Inc. The Schedule 13G indicates
that John Hancock Advisers, Inc. beneficially owns and has sole voting and
sole dispositive power over 875,550 shares of AirGate common stock. It
also indicates that the other joint filers do not beneficially own any of
such shares except through its indirect, wholly owned subsidiary, John
Hancock Advisers, Inc.
(12) Information presented is based on a Schedule 13G dated February 9, 2001
and filed by AIM Management Group, Inc., AIM Advisors, Inc. and AIM
Capital Management, Inc. The Schedule 13G indicates that AIM Management
Group, Inc., on behalf of itself and the other two filers, as wholly owned
subsidiaries of AIM Management Group Inc., beneficially owns and has sole
voting and dispositive power over 826,711 shares of AirGate common stock.
(13) Information presented is based on Schedule 13G dated February 12, 2001 and
filed by T. Rowe Price Associates, Inc. The Schedule 13G indicates that
the filer beneficially owns and has sole dispositive power over 781,250
shares of AirGate common stock and has sole voting power over 155,200 of
those shares.
(14) Includes 295,045 shares of common stock subject to options which are
exercisable within 60 days of the date of the table.
98
DESCRIPTION OF iPCS
Business Overview
iPCS, Inc. is a network partner of Sprint PCS with the exclusive right to
market 100% digital personal communications services, or PCS, wireless phone
service under the Sprint and Sprint PCS brand names to a total population of
more than 7.4 million in 37 markets consisting of mid-sized cities and rural
areas in Illinois, Michigan, Iowa and eastern Nebraska. In January 1999, iPCS
entered into its long-term affiliation agreements with Sprint PCS for iPCS'
initial territory of 15 markets with a total population of over 2.8 million in
the states of Illinois and Iowa. iPCS began providing service in December 1999.
Following iPCS' successful initial launch, Sprint PCS selected it to be the
exclusive Sprint PCS network partner for 20 additional markets with a total
population of over 4.2 million in the states of Michigan, Iowa and Nebraska. As
part of this expansion in July 2000, iPCS purchased from Sprint PCS network
assets under construction in four markets in Michigan. In addition, iPCS was
granted the option to add to its territory the Iowa City and Cedar Rapids, Iowa
markets that Sprint PCS launched in February 1997 and to purchase from Sprint
PCS related assets in those markets. On February 28, 2001, iPCS completed the
purchase of certain fixed assets from Sprint PCS located in the Iowa City and
Cedar Rapids, Iowa markets. The purchase price of these assets was
approximately $31.6 million which iPCS paid in cash from working capital. These
two markets, with a total population of approximately 406,000 residents, had
approximately 14,000 subscribers as of February 28, 2001. As of June 30, 2001,
iPCS had launched service in 28 markets covering approximately 5.0 million
residents and had 107,412 customers. By the end of 2001, iPCS plans to offer
service on its network, which it refers to as providing coverage, to the
portions of its territory where approximately 79% of the total population
resides, at which time it will offer service in all of its markets.
iPCS' History
Illinois PCS, LLC was formed in January 1999 as an Illinois limited
liability company. On July 12, 2000, iPCS reorganized the business into a C
Corporation in which the members of Illinois PCS, LLC received shares of common
stock in iPCS, Inc., in the same proportion to their membership interests in
Illinois PCS, LLC. As of July 12, 2000, Illinois PCS, LLC merged with and into
iPCS Wireless, Inc., a wholly owned subsidiary of iPCS, Inc. iPCS Equipment,
Inc. was also formed as a wholly owned subsidiary of iPCS Wireless, Inc.
Markets
iPCS' territory includes 37 markets containing a total population of over
7.4 million residents in:
. Illinois, including Peoria, Springfield, Champaign-Urbana, Decatur-
Effingham, Bloomington and the Quad Cities (Rock Island and Moline,
Illinois; and Davenport and Bettendorf, Iowa);
. Michigan, including Grand Rapids, Saginaw-Bay City, Muskegon and Traverse
City;
. Iowa, including Cedar Rapids, Iowa City, Waterloo-Cedar Falls and
Dubuque; and eastern Nebraska.
iPCS is the exclusive provider of Sprint PCS products and services in these
markets which are adjacent to several major metropolitan operational markets in
the midwestern United States which are owned and operated by Sprint PCS
including Chicago, Detroit, Des Moines, Indianapolis, Omaha and St. Louis. iPCS
believes connecting existing Sprint PCS markets is important to Sprint PCS'
strategy to provide seamless, nationwide PCS service.
99
The following table lists the megahertz of spectrum, estimated total
population and the date of actual or expected commercial launch of network
coverage for each of the markets that comprise iPCS' territory:
Basic Trading Area Licensed Market Launch
Market (BTAs) MHz POPs(/1/) Date(/2/)
------------------ --- --------- --------------
Grand Rapids, MI................................... 30 1,060,600 November 2000
Saginaw-Bay City, MI............................... 30 634,100 November 2000
Peoria, IL......................................... 10 464,600 March 2000
Davenport, IA and Moline, IL....................... 30 430,500 December 1999
Cedar Rapids, IA(/3/).............................. 30 285,700 March 2001
Springfield, IL.................................... 10 267,200 February 2000
Waterloo-Cedar Falls, IA........................... 30 259,600 March 2001
Omaha (Partial), NE(/4/)........................... 30 248,800 December 2001
Decatur-Effingham, IL.............................. 10 247,600 June 2000
Traverse City, MI.................................. 30 241,000 May 2001
Bloomington, IL.................................... 10 234,100 December 1999
Muskegon, MI....................................... 30 223,100 November 2000
Champaign-Urbana, IL............................... 10 221,100 June 2000
Dubuque, IA........................................ 30 177,800 March 2001
Des Moines, IA (Partial)(/4/)...................... 30 170,900 December 2001
LaSalle-Peru-Ottawa-Streator, IL................... 20 152,300 June 2000
Grand Island-Kearney, NE........................... 30 147,100 December 2001
Clinton, IA and Sterling, IL....................... 30 146,600 September 2000
Burlington, IA..................................... 30 136,400 June 2001
Kankakee, IL....................................... 20 135,600 June 2000
Mount Pleasant, MI................................. 30 130,700 June 2001
Fort Dodge, IA..................................... 30 126,400 December 2001
Iowa City, IA(/3/)................................. 30 125,400 March 2001
Ottumwa, IA........................................ 30 123,400 June 2001
Mount Vernon-Centralia, IL......................... 30 121,900 September 2000
Mason City, IA..................................... 30 115,500 December 2001
Danville, IL....................................... 20 110,700 September 2000
Norfolk, NE........................................ 30 110,600 December 2001
Lincoln, NE (Partial)(/4/)......................... 30 98,300 December 2001
Galesburg, IL...................................... 10 73,500 June 2000
Hastings, NE....................................... 30 71,700 December 2001
Jacksonville, IL................................... 10 70,500 September 2000
Mattoon, IL........................................ 10 62,600 September 2000
Lansing, MI (Partial)(/4/)......................... 30 61,900 March 2001
Marshalltown, IA................................... 30 56,600 September 2001
Battle Creek, MI (Partial)(/4/).................... 30 54,600 March 2001
St. Louis, MO (Partial)(/4/)....................... 30 46,700 February 2000
---------
Totals........................................... 7,445,700
=========
--------
(1) Population data is based on 2000 estimates compiled by Kagan's Wireless
Telecom Atlas & Databook, 2001 Edition, as reported per individual BTA.
(2) Expected commercial launch dates for these markets may change based on a
number of factors, including shifts in populations, target markets or
network focus, changes or advances in technology, acquisition of other
markets and delays in network build-out.
(3) These markets represent the Iowa option territory acquired by iPCS on
February 28, 2001, which markets were previously launched by Sprint PCS in
February 1997.
(4) Territory covered by iPCS' Sprint PCS agreement does not comprise a
complete BTA.
100
Network Operations
The effective operation of iPCS' portion of the Sprint PCS network requires:
. Public switched and long distance interconnection;
. The implementation of roaming arrangements; and
. The development of network monitoring systems.
iPCS' network connects to the public telephone network through local exchange
carriers, which facilitate the origination and termination of traffic between
iPCS' network and local exchange and long distance carriers. Through iPCS'
Sprint PCS agreements, iPCS receives the benefits of their lower
interconnection rates with the local exchange carriers. iPCS has entered into
an agreement with Sprint, which provides iPCS long distance services at the
same preferred rates made available to Sprint PCS.
Through iPCS' arrangements with Sprint PCS and Sprint PCS arrangements with
other wireless service providers, Sprint PCS customers based in iPCS' territory
have roaming capabilities outside its network. Likewise, Sprint PCS customers,
based outside iPCS' territory and non-Sprint PCS customers have roaming
capabilities on its network.
iPCS utilizes Sprint PCS Network Operations Control Center for around-the-
clock monitoring as well as its own switching centers' capabilities for its
network base stations and switches.
As of June 30, 2001, iPCS' network included two switching centers and 395
operating cell sites. With the launch of all iPCS' markets by December 31,
2001, iPCS anticipates its network will include three switching centers and
approximately 625 cell sites.
iPCS acquires and makes operational a cell site by co-locating on an
existing tower owned by third parties, constructing a new tower itself or
contracting with a build-to-suit company to construct the tower for it.
Generally, iPCS prefers to co-locate due to its lower construction costs and
the fact that any zoning difficulties have likely already been resolved. Where
iPCS cannot co-locate, iPCS will either construct the tower using contractors
or engage in a build-to-suit arrangement. For those towers iPCS constructs
itself, iPCS generally sells the tower and leases it back from the buyer. In a
build-to-suit arrangement, an independent tower construction company acquires
the site, builds the tower and leases it to iPCS, thereby reducing iPCS'
capital expenditures.
In May 1999, iPCS entered into a tower sale and lease-back arrangement with
American Tower Corporation for 60 to 80 towers iPCS constructed in its initial
territory. The term of the agreement was to expire at the earliest of the final
tower sale or December 31, 2000. In November 2000, the agreement was amended to
extend the agreement until February 28, 2001, and on January 2, 2001, iPCS
completed the terms of the agreement with the eightieth tower sale. In June
2001, iPCS entered into a tower sale and leaseback agreement with Trinity
Wireless Towers, Inc. for towers iPCS has constructed in Iowa. The term of this
agreement is set to expire on December 31, 2001. On June 29, 2001, iPCS sold
sixteen towers to Trinity under the terms of this agreement. iPCS anticipates
selling additional towers it constructs under similar agreements to American
Tower, Trinity or another tower company.
Trinity Build-To-Suit Agreement
On December 29, 2000, iPCS entered into a build-to-suit agreement with
Trinity whereby iPCS agreed to locate and obtain ground leases for tower sites
and deliver assignments of these leases to Trinity for at least seventy-five
towers located in Iowa and Nebraska. Trinity agreed to reimburse iPCS for site
acquisition and development costs, build a tower at these sites, and to
purchase the site at the time of the commencement of the tower lease with
Trinity. As of June 30, 2001, iPCS has entered into leases for thirty-one
build-to-suit towers.
101
Nortel Equipment Agreement
iPCS has entered into an equipment purchase agreement with Nortel for its
network equipment and infrastructure, including switches and base station
controllers, and is subject to the terms of the equipment purchase agreement
between Nortel and Sprint PCS. Pursuant to the equipment agreement, Nortel also
provides installation services for the equipment and grants iPCS a nonexclusive
license to use all the software associated with the Nortel equipment. As of
June 30, 2001, iPCS has met the requirements of this agreement. iPCS also has
committed to purchase required equipment from Nortel related to certain
expansion markets if they are granted to it by Sprint PCS. iPCS submits
purchase orders to Nortel for the equipment and services. Under the agreement,
iPCS receives a discount on the network equipment and services because of its
affiliation with Sprint PCS. If iPCS' affiliation with Sprint PCS ends, Nortel
has the right to either terminate the agreement or, with iPCS' consent, modify
the agreement to establish new prices, terms and conditions.
Lucent Equipment Agreement
In July 2000, iPCS entered into an equipment purchase agreement with Lucent
Technologies Inc. for iPCS' network equipment and infrastructure in which iPCS
committed to purchase one switch and 100 base station controllers for its
Michigan markets within the first year of the agreement and an additional 32
base station controllers within two years after the execution of the agreement.
In addition, iPCS has agreed to use Lucent's equipment exclusively in the
construction of its network located within the state of Michigan. As of June
30, 2001, iPCS has completed the requirements of this agreement. Lucent is
obligated to Sprint PCS to enter into this agreement with iPCS because iPCS is
a Sprint PCS network partner. Pursuant to iPCS' purchase agreement with Lucent,
iPCS is subject to the terms and conditions of a procurement and services
contract between Lucent and Sprint PCS which expires on January 31, 2006 and
which provides that the equipment which iPCS purchases will be in conformance
with the technical standards of the Sprint PCS network and at prices consistent
with those negotiated by Sprint PCS.
Products and Services
iPCS offers established Sprint PCS products and services throughout its
territory under the Sprint and Sprint PCS brand names. iPCS' products and
services are designed to mirror the service offerings of Sprint PCS and to
integrate with the Sprint PCS nationwide network.
Marketing Strategy
iPCS' marketing and sales strategy utilizes Sprint PCS' proven strategies
and developed national sales and distribution channels tailored to its specific
territory.
Use Sprint PCS' brand equity and marketing. iPCS features exclusively and
prominently the nationally recognized Sprint and Sprint PCS brand names in its
marketing effort. From iPCS' customers' point of view, they use iPCS' network
and the Sprint PCS national network seamlessly as a unified nationwide network.
Pricing. iPCS' use of the Sprint PCS national pricing strategy offers its
customers simple, easy-to-understand service plans. Sprint PCS' pricing plans
are typically structured with monthly recurring charges, large local calling
areas, bundles of minutes and service features such as voicemail, caller ID,
call waiting, call forwarding and three-way calling. Lower per-minute rates
relative to analog cellular providers are possible in part because the CDMA
system that Sprint PCS utilizes has greater capacity than current analog
cellular systems, enabling Sprint PCS to market high usage customer plans at
lower prices. In addition, Sprint PCS Free and Clear plans, which offer simple,
affordable plans for every consumer and business customer, include long
distance calling from anywhere on its nationwide network.
102
Local focus. iPCS' local focus enables it to supplement Sprint PCS'
marketing strategies with its own strategies tailored to each of its specific
markets. These include attracting local businesses as agents to enhance its
sales and distribution channels and drawing on iPCS' management team's
experience in the midwestern United States. iPCS uses local radio, television
and newspaper advertising to sell its products and services in each of its
markets. iPCS has established a local sales force to execute its marketing
strategy through its Sprint PCS stores. iPCS currently owns and operates
fourteen Sprint PCS stores and plans to open an additional three stores
throughout its territory. iPCS also employs a direct sales force dedicated to
business sales.
Advertising and promotions. Sprint PCS uses national as well as regional
television, radio, print, outdoor and other advertising campaigns to promote
its products. iPCS benefits from this national advertising in its territory at
no additional cost to it. Sprint PCS also runs numerous promotional campaigns
which provide customers with benefits such as additional features at the same
rate, free minutes of use for limited time periods or special prices on
handsets and other accessories. iPCS is able to purchase promotional materials
related to these programs from Sprint PCS at their cost.
Sponsorships. Sprint PCS sponsors numerous national, regional and local
events. These sponsorships provide Sprint PCS with brand name and product
recognition in high profile events, create a forum for sales and promotional
events and enhance iPCS' promotional efforts in its territory. Additionally,
iPCS sponsors other local events in its territory to increase customer
awareness of the Sprint PCS network.
Sales and Distribution
iPCS' sales and distribution plan mirrors Sprint PCS' proven multiple
channel sales and distribution plan. Key elements of iPCS' sales and
distribution plan consists of the following:
Sprint store within a RadioShack store. Sprint has an arrangement with
RadioShack to install a "store within a store." Currently, RadioShack has 92
stores in iPCS' territory that will be available to offer Sprint PCS products
and services to iPCS' customers once iPCS has launched service in the market
where the store is located.
Other national third-party retail stores. In addition to RadioShack, iPCS
benefits from the sales and distribution agreements established by Sprint PCS
with other national retailers, which currently include Best Buy, Circuit City,
Staples, Target, Office Max, Office Depot and Ritz Camera. These retailers and
others have approximately 150 retail stores in iPCS' territory to which iPCS
has access. iPCS believes the number of stores will increase over time as
Sprint PCS adds national retailers and as these national retailers add stores
in iPCS' territory.
Local third-party retail stores. iPCS benefits from the sales and
distribution agreements that iPCS enters into with local retailers in its
territory. iPCS has entered into sales and distribution agreements with over
130 local stores in its territory and expects the number to increase.
Sprint PCS stores. iPCS currently owns and operates fifteen Sprint PCS
stores in its territory and plans to open an additional four stores as iPCS
continue to launch service in additional markets. These stores are located in
metropolitan markets within iPCS' territory, providing iPCS with a strong local
presence and a high degree of visibility. iPCS trains its sales representatives
to be informed and persuasive advocates for Sprint PCS' services. Following the
Sprint PCS model, these stores have been designed to facilitate retail sales,
bill collection and customer service.
National accounts and direct selling. iPCS participates in Sprint PCS'
national accounts program. Sprint PCS has a national accounts team which
focuses on the corporate headquarters of large companies. Several Fortune 500
companies such as State Farm Insurance, Archer Daniels Midland, Dow Chemical,
John Deere, Rockwell Collins, and Caterpillar, as well as other large
companies, have their headquarters in iPCS' territory. In addition, once a
Sprint PCS national account manager reaches an agreement with any company
headquartered outside of iPCS' territory, iPCS services the offices and
subscribers of that company located in iPCS' territory. iPCS' direct sales
force will target the employees of these companies in iPCS' territory and
cultivate other local business customers.
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Inbound telemarketing. Sprint PCS provides inbound telemarketing sales to
answer iPCS' prospective customers' calls. As the exclusive provider of Sprint
PCS products and services in iPCS' territory, iPCS uses the national Sprint 1-
800-480-4PCS number campaigns that generate call-in leads. Sprint PCS' inbound
telemarketing group handles these leads and the new subscriber becomes iPCS
customer.
Electronic commerce. Sprint PCS maintains an Internet site at
www.sprintpcs.com, which contains information on Sprint PCS products and
services. A visitor to the Sprint PCS Internet site can order, pay for a
handset, and activate their phone over the air. Subscribers visiting the site
can also review the status of their account, including the number of minutes
used in the current billing cycle. Site visitors in iPCS' territory who
purchase products and services over the Sprint PCS Internet site will be iPCS'
customers.
Competition
iPCS competes in its territory with regional and national cellular, PCS and
other wireless providers. Verizon Wireless provides service in each of iPCS'
major markets. Cingular Wireless covers central Illinois and Nebraska but does
not provide service in Peoria, the Quad Cities or in iPCS' Michigan markets or
key Iowa markets. Other cellular providers such as US Cellular and CenturyTel
have similar limited coverage areas. PCS competitors such as VoiceStream, Iowa
Wireless, PrimeCo and Amica Wireless operate in certain portions of iPCS'
territory but none provides the scope of coverage that iPCS offers in these
markets. Of the PCS providers, only AT&T Wireless along with its affiliate
partners hold licenses to provide service in all of iPCS' markets; however, it
currently provides service only in three full and two partial markets in iPCS'
territory. Nextel and Nextel Partners provide service in iPCS' key Michigan
markets, eight of iPCS' Illinois markets and three of iPCS' Iowa markets.
iPCS' ability to compete effectively with these other providers will depend
on a number of factors, including the continued success of CDMA technology in
providing better call clarity and quality as compared to analog cellular
systems, Sprint PCS' competitive pricing with various options suiting
individual customer's calling needs, the continued expansion and improvement of
the Sprint PCS nationwide network, iPCS' extensive direct and indirect sales
channels, iPCS' centralized Sprint PCS customer care systems and iPCS'
selection of handset options.
Currently, iPCS believes that its most formidable competition is from
cellular providers, many of which have been operating in its markets and
building their customer bases for a number of years and have greater financial
resources and customer bases. Some of iPCS' competitors have access to more
licensed spectrum than the 10 or 20 MHz licensed to Sprint PCS in certain
markets in parts of Illinois. Some of iPCS' competitors also have established
infrastructures, marketing programs and brand names. In addition, certain
competitors may be able to offer coverage in areas not served by iPCS' network,
or, because of their calling volumes or their affiliations with, or ownership
of wireless providers, may be able to offer roaming rates that are lower than
those offered by Sprint PCS. PCS operators will likely compete with iPCS in
providing some or all of the services available through the Sprint PCS network
and may provide services that iPCS does not. Additionally, iPCS expects that
existing cellular providers will continue to upgrade their systems to provide
digital wireless communication services competitive with Sprint PCS.
iPCS also faces limited competition from "resellers" which provide wireless
service to customers but do not hold FCC licenses or own facilities. Instead,
the reseller buys blocks of wireless telephone numbers and capacity from a
licensed carrier and resells service through its own distribution network to
the public. Thus, a reseller is both a customer of a wireless licensee's
services and also a competitor of that and other licensees. The FCC requires
all cellular and PCS licensees to permit resale of carrier service to a
reseller. Although Sprint PCS is required to resell PCS in iPCS' markets,
currently there is only one reseller of Sprint PCS service in iPCS' markets.
Any reseller of Sprint PCS could not use the Sprint PCS service marks in iPCS'
markets except for the limited purpose of describing their handsets as
operational on the Sprint PCS network.
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In addition, iPCS competes with paging, dispatch and other mobile
telecommunications companies in iPCS' markets. Potential users of PCS systems
may find their communication needs satisfied by other current and developing
technologies. One or two-way paging or beeper services that feature voice
messaging and data display as well as tone-only service may be adequate for
potential customers who do not need immediate two-way voice communications.
In the future, iPCS expects to face increased competition from entities
providing similar services using other communications technologies, including
satellite-based telecommunications and wireless cable systems. While few of
these technologies and services are currently operational, others are being
developed or may be developed in the future.
Over the past several years the FCC has auctioned and will continue to
auction large amounts of wireless spectrum that could be used to compete with
PCS. Based upon increased competition, iPCS anticipates that market prices for
two-way wireless voice and data services generally will decline in the future.
iPCS will compete to acquire and retain customers principally on the basis of
services and features, the size and location of its territory, network coverage
and reliability, customer care and pricing. iPCS' ability to compete
successfully will also depend, in part, on its ability to anticipate and
respond to various competitive factors affecting the industry, including new
services that may be introduced, changes in consumer preferences, demographic
trends, economic conditions and discount pricing strategies by competitors.
Environmental Compliance
Expenditures for environmental compliance result primarily from the
operation of standby power generators for iPCS' telecommunications equipment
and from compliance with various environmental rules during network build-out
and operations. iPCS' environmental compliance expenditures have not been
material to its financial statements or to its operations and are not expected
to be material in the future.
Employees
As of June 30, 2001, iPCS employed 216 full-time employees. None of iPCS'
employees is represented by a labor union. iPCS believes that its relations
with its employees are good.
105
CERTAIN RELATIONSHIPS AND TRANSACTIONS OF iPCS
Formation of Illinois PCS, LLC
Geneseo Communications, Inc., Cambridge Telcom, Inc., Cass Communications
Management, Inc., Schwartz Ventures, Inc. (which transferred its ownership to
its affiliate Technology Group, LLC), Montrose Mutual PCS, Inc., and Gridley
Enterprises, Inc. formed Illinois PCS, LLC in January 1999. Those investors
received membership interests in exchange for their capital contributions. As
of February 29, 2000 the members agreed to admit Timothy M. Yager, iPCS'
President and Chief Executive Officer, as a new member owning a 1.5% interest,
and to reduce their membership interests in aggregate by 1.5%. Mr. Yager agreed
to cancel his management agreement with Illinois PCS, LLC in exchange for his
1.5% membership interest and certain other consideration. For the year ended
December 31, 2000, iPCS recorded non-cash compensation expense in the amount of
approximately $8.5 million resulting from the issuance of this membership
interest to Mr. Yager. For further information on the compensation expense, see
"iPCS Management's Discussion and Analysis of Financial Condition and Results
of Operations--Results of Operations."
The obligations of the members of Illinois PCS, LLC to contribute capital
and the other provisions contained in the formation documents of Illinois PCS,
LLC have been eliminated as of July 12, 2000 when iPCS consummated the
reorganization from a limited liability company to a holding company structure.
Issuance of Convertible Participating Preferred Stock
An investor group led by Blackstone has purchased $120.0 million of iPCS'
convertible preferred stock. On July 12, 2000, iPCS issued 9,090,909 shares of
its Series A-1 Convertible Participating Preferred Stock at a purchase price of
$5.50 per share and on December 28, 2000 iPCS issued 14,000,000 shares of iPCS
Series A-2 Convertible Participating Preferred Stock at a purchase price of
$5.00 per share to the investor group. The issuance of iPCS' Series A-1
Preferred Stock and Series A-2 Preferred Stock has yielded gross proceeds to
iPCS of $50.0 million and $70.0 million, respectively. For more information
relating to the terms of the Series A-1 Preferred Stock and the Series A-2
Preferred Stock, see "Description of iPCS Capital Stock."
Investment Agreement
In the preferred stock investment agreement between iPCS and the investor
group, iPCS agreed to refrain from taking certain actions with respect to its
business, its capital stock and other aspects of its operations without the
prior approval of Blackstone. These actions include:
. the declaration or payment of dividends or distributions;
. the issuance of notes or debt securities containing equity features prior
to December 31, 2000, or the issuance of any equity securities which
would be senior to, or on parity with, the preferred stock;
. the making of investments in third parties;
. the incurrence of any additional indebtedness in excess of $10.0 million;
or
. the issuance or sale of any shares of iPCS' or iPCS' subsidiaries'
capital stock prior to December 31, 2000, other than in a public offering
of iPCS' common stock, pursuant to an employee benefit plan or in
connection with a merger or acquisition.
The approval rights of Blackstone and most of their other rights relating to
their ownership of iPCS' capital stock will terminate upon the earlier to occur
of:
. the closing of an underwritten public offering of iPCS' common stock in
which iPCS receives aggregate gross proceeds of at least $50.0 million
and in which the per share price in the offering is at least two times
the weighted average of the issuance price of all shares of Series A-1
Preferred Stock and Series A-2 Preferred Stock (the weighted average is
initially $5.20 per share), subject to adjustment; and
106
. iPCS' consummation of a transaction that results in a change of control.
The investor group has agreed to terminate the investment agreement as of
the effective time of the merger.
Stockholders Agreement
At the date of the purchase and sale of iPCS' Series A-1 Preferred Stock,
iPCS entered into a stockholders agreement with the investor group, Geneseo
Communications, Inc. and Cambridge Telcom, Inc. which provides:
. limitations on the transfer of any of iPCS' securities by each of
Geneseo and Cambridge for a period of six months after the expiration of
any lock-up period required by iPCS' underwriter in an initial public
offering;
. tag-along rights in favor of the investor group allowing it to
participate in sales of iPCS' capital stock by Geneseo or Cambridge;
. until an initial public offering or a change of control transaction,
drag-along rights in favor of Geneseo and Cambridge requiring the
investor group to sell all of iPCS' capital stock owned by it;
. the right of Blackstone to designate up to two members of iPCS' Board of
Directors;
. preemptive rights granting the investor group the right to subscribe for
and purchase upon the same terms and conditions, a portion of any equity
securities iPCS issued prior to an initial public offering of iPCS'
common stock that yields gross proceeds to iPCS of at least $30.0
million;
. the right of the investor group to request that iPCS use its best efforts
to complete an initial public offering of its common stock if it has not
done so prior to July 12, 2002;
. the right of the investor group to approve any merger, consolidation,
sale of assets or other business combination transaction or issuance of
securities that would:
. have adverse tax consequences to the holders of the Series A-1
Preferred Stock or Series A-2 Preferred Stock; or
. involve consideration other than cash or shares of common stock of the
acquiring company, or involve cash and/or shares of common stock of the
acquiring company that values Blackstone's investment in iPCS at less
than the greater of $11.00 per share of common stock owned by it,
subject to dilution adjustment, and an internal rate of return on its
investment of an annual rate of 35%; and
. if iPCS has not completed one or more public offerings of its common
stock resulting in gross proceeds of $50.0 million or consummated a
business combination transaction with a publicly traded company with a
market capitalization in excess of $200 million and a public float
valued in excess of $50.0 million prior to July 12, 2005, the investor
group has the right to request that iPCS either repurchase its capital
stock at fair market value or, if iPCS fails to repurchase their
capital stock, force a sale of iPCS.
The investor group has agreed to terminate the stockholders agreement as of
the effective time of the merger.
Registration Rights Agreement
iPCS has granted to the holders of its Series A-1 Preferred Stock and its
Series A-2 Preferred Stock, the following registration rights, exercisable at
any time after an initial public offering of its common stock:
. demand registration rights that entitle Blackstone to require iPCS to
register, under the Securities Act, on up to three occasions and at iPCS'
expense, the resale of the investor group's shares of common stock; and
107
. piggyback registration rights that entitle the investor group to require
iPCS to include their shares of common stock in a registration of any of
iPCS' equity securities, other than pursuant to the registration of the
warrants comprising part of the units or the warrants issued to Sprint
PCS.
These registration rights extend to all of the common stock that the
investor group may acquire upon the conversion of their Series A-1 Preferred
Stock and their Series A-2 Preferred Stock. These registration rights are
subject to the underwriters' right to limit the number of shares included in
any underwritten offering.
The investor group has agreed to terminate the registration rights agreement
as of the effective time of the merger.
108
PRINCIPAL iPCS STOCKHOLDERS
The following table presents information regarding the beneficial ownership
of iPCS common stock as of September 30, 2001 with respect to:
. each person who, to iPCS' knowledge, is the beneficial owner of 5% or
more of the outstanding common stock;
. each of iPCS' directors;
. each of iPCS' named executive officers; and
. all executive officers and directors as a group.
Number of
Shares Beneficially Percentage of
Name and Address of Beneficial Owner(/1/) Owned(/2/) Ownership
----------------------------------------- ------------------- -------------
Geneseo Communications, Inc. ................. 15,468,809 22.8%
111 E. 1st Street
Geneseo, Illinois 61254
Cambridge Telcom, Inc......................... 13,258,979 19.5
111 E. 1st Street
Geneseo, Illinois 61254
The Blackstone Group ......................... 18,478,352 27.2
345 Park Avenue
New York, New York 10154(/3/)
Trust Company of the West..................... 4,545,455 6.7
11100 Santa Monica Boulevard, Suite 2000
Los Angeles, California 90025(/4/)
Cass Communications Management, Inc. ......... 4,419,660 6.5
100 Redbud Road
Virginia, Illinois 62691
Technology Group, LLC......................... 4,419,660 6.5
118 E. State Street
Hamel, Illinois 62046
Montrose Mutual PCS, Inc...................... 4,419,660 6.5
102 N. Main Street
Dieterich, Illinois 62424
Respond Communications, Inc................... 4,419,660 6.5
102 N. Main Street
Dieterich, Illinois 62424(/5/)
Timothy M. Yager(/6/)......................... 1,110,545 1.6
Linda K. Wokoun(/7/).......................... 159,375 *
Stebbins B. Chandor, Jr. (/7/)................ 140,625 *
Anthony R. Muscato(/7/)....................... 37,500 *
William W. King, Jr.(/7/)..................... 107,813 *
Alan C. Anderson(/8/)......................... 28,735,288 42.3
Donald L. Bell(/9/)........................... 4,427,160 6.5
Michael S. Chae(/10/)......................... 18,478,352 27.2
Brian J. Gernant(/11/)........................ 7,500 *
Gerald S. Gill II(/12/)....................... 4,419,660 6.5
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Number of
Shares Beneficially Percentage of
Name and Address of Beneficial Owner(/1/) Owned(/2/) Ownership
----------------------------------------- ------------------- -------------
Lawrence H. Guffey(/10/)..................... 18,478,352 27.2
Robert W. Schwartz(/13/)..................... 4,427,160 6.5
George Patrick Tays(/14/).................... 4,427,160 6.5
All executive officers and directors
as a group (12 persons)(/15/)............... 62,058,478 90.1
--------
* Less than one percent.
(1) Except as otherwise indicated below, the address for each executive
officer and director is 1900 East Golf Road, Suite 900, Schaumburg,
Illinois 60173.
(2) Beneficial ownership is determined in accordance with Rule 13d-3 of the
Securities Exchange Act. A person is deemed to be the beneficial owner of
any shares of common stock if such person has or shares the right to vote
or dispose of such common stock, or has the right to acquire beneficial
ownership at any time within 60 days of the date of the table.
(3) Of the 18,478,352 shares, 8,543,636 are held by Blackstone Communications
Partners I L.P. ("BCOM"), 7,348,936 are held by Blackstone iPCS Capital
Partners L.P. ("BICP"), 2,580,155 are held by Blackstone/iPCS L.L.C.
("BLLC") and 5,625 are shares issuable to Blackstone Management Partners
III pursuant to options exercisable within 60 days of the date of the
table. Blackstone Communications Management Associates I L.L.C. is the
general partner of BCOM. Blackstone Media Management Associates III
L.L.C. is the general partner of BICP. Blackstone Media Management
Associates III L.L.C. is the manager of BLLC. Messrs. Peter G. Peterson
and Stephen A. Schwarzman are the founding members of Blackstone, and as
such may also be deemed to share beneficial ownership of the shares held
by each of these entities.
(4) Consists of shares held by the following affiliates of Trust Company of
the West: TCW/Crescent Mezzanine Partners II, L.P., TCW Crescent
Mezzanine Trust II, TCW Leveraged Income Trust, L.P., TCW Leveraged
Income Trust II, L.P., TCW Leveraged Income Trust IV, L.P., TCW Shared
Opportunity Fund II, L.P., Shared Opportunity Fund IIB, L.L.C. and TCW
Shared Opportunity Fund III, L.P.
(5) Consists of shares beneficially owned by Montrose Mutual PCS, Inc.
Respond Communications is a beneficial owner of these shares based on its
100% ownership of Montrose Mutual PCS, Inc.
(6) Consists of 673,045 shares held individually by Mr. Yager and his wife,
and 437,500 shares issuable pursuant to options exercisable within 60
days of the date of the table. Mr. Yager disclaims beneficial ownership
of shares owned by his wife.
(7) Consists of shares issuable pursuant to options exercisable within 60
days of the date of the table.
(8) Consists of 28,727,788 shares beneficially owned by Geneseo
Communications, Inc. and Cambridge Telcom, Inc. and 7,500 shares issuable
pursuant to options exercisable within 60 days of the date of the table.
Mr. Anderson is the President and CEO of Geneseo Communications, Inc. and
is the General Manager of Cambridge Telcom, Inc., and is the beneficial
owner of the shares owned by each of these entities. Mr. Anderson
disclaims beneficial ownership of these shares. Mr. Anderson's address is
the same as the address for Geneseo Communications, Inc.
(9) Consists of 4,419,660 shares beneficially owned by Cass Communications
Management, Inc. and 7,500 shares issuable pursuant to options
exercisable within 60 days of the date of the table. Mr. Bell is the Vice
President and CEO of Cass Communications Management, Inc., and is the
beneficial owner of the shares owned by Cass Communications Management,
Inc. Mr. Bell disclaims beneficial ownership of these shares. Mr. Bell's
address is the same as the address for Cass Communications Management,
Inc.
(10) Mr. Chae and Mr. Guffey do not own any shares of record. BCOM, BICP and
BLLC, affiliates of Mr. Chae and Mr. Guffey, own all of the shares held by
Blackstone. Mr. Chae and Mr. Guffey disclaim beneficial ownership of such
shares.
110
(11) Consists of shares issuable pursuant to options exercisable within 60 days
of the date of the table.
(12) Consists of shares beneficially owned by Cass Communications Management,
Inc. Mr. Gill is the beneficial owner of a majority of the outstanding
shares of Cass Communications Management, Inc. Mr. Gill disclaims
beneficial ownership of certain shares owned by Cass Communications
Management, Inc. attributable to the shares of Cass Communications
Management, Inc. which are held in trusts for the benefit of members of
Mr. Gill's family. The address for Mr. Gill is the same as the address for
Cass Communications Management, Inc.
(13) Consists of 4,419,660 shares beneficially owned by Technology Group, LLC
and 7,500 shares issuable pursuant to options exercisable within 60 days
of the date of the table. Mr. Schwartz is a beneficial owner of the shares
owned by Technology Group, LLC by virtue of his position as Trustee of a
family trust that owns substantially all of the membership interests in
Technology Group, LLC. Mr. Schwartz disclaims beneficial ownership of
these shares. Mr. Schwartz's address is the same as the address for
Technology Group, LLC.
(14) Consists of 4,419,660 shares beneficially owned by Montrose Mutual PCS,
Inc. and 7,500 shares issuable pursuant to options exercisable within 60
days of the date of the table. Mr. Tays is the General Manager of Montrose
Mutual PCS, Inc., and is the beneficial owner of the shares owned by
Montrose Mutual PCS, Inc. Mr. Tays disclaims beneficial ownership of these
shares. Mr. Tays' address is the same as the address for Montrose Mutual
PCS, Inc.
(15) Consists of 925,938 shares issuable pursuant to options exercisable within
60 days of the date of the table and 61,132,540 shares beneficially owned
by all executive officers and directors as a group.
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iPCS MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
On January 22, 1999, iPCS entered into the Sprint PCS agreements whereby
iPCS became the exclusive Sprint PCS network partner with the right to market
100% digital, 100% PCS wireless products and services under the Sprint and
Sprint PCS brand names in fifteen markets in Illinois and Iowa. The Sprint PCS
agreements were amended in March 2000 to add twenty additional markets. On
February 28, 2001, the Sprint PCS agreements were amended to add the Iowa City
and Cedar Rapids, Iowa markets to iPCS' territory. With these two amendments,
the size of iPCS' territory was increased from a total population of 2.8
million residents to a total population of 7.4 million residents.
Under the Sprint PCS agreements, iPCS manages its network utilizing Sprint
PCS' licensed spectrum as well as uses the Sprint and Sprint PCS brand names
during iPCS' affiliation with Sprint PCS. iPCS benefits from Sprint PCS' volume
pricing discounts for its purchases of network equipment, handsets and
accessories. These discounts reduce the overall capital required to build iPCS'
network and significantly reduce iPCS' costs of handsets and accessories.
Additionally, iPCS has access to Sprint PCS' national marketing support and
distribution programs. Sprint PCS collects all revenues from iPCS' customers
and remits the net amount to iPCS. An affiliation fee of 8% of collected
service revenues from Sprint PCS customers based in iPCS' territory, excluding
outbound roaming, and from non-Sprint PCS customers who roam onto iPCS'
network, is retained by Sprint PCS and recorded as a cost of service. Revenues
generated from the sale of handsets and accessories, inbound and outbound
Sprint PCS roaming fees, and from roaming services provided to Sprint PCS
customers who are not based in iPCS' territory are not subject to the 8%
affiliation fee.
Under the Sprint PCS agreements, iPCS contracts with Sprint PCS to provide
back office services such as customer activation, billing, collections and
customer care. iPCS currently purchases these services from Sprint PCS to take
advantage of Sprint PCS' economies of scale, to accelerate iPCS' build-out and
market launches and to lower iPCS' initial capital requirements. The cost for
these services is primarily calculated on a per customer and per transaction
basis and is recorded as an operating expense.
Since the date of inception, iPCS has incurred substantial costs to
negotiate the Sprint PCS agreements and its debt and equity financing, to
design, engineer and build-out its network in its initial territory and to open
its retail stores. iPCS launched service in its first two markets in December
1999 and in 2000, iPCS launched service in sixteen additional markets. In the
three months ended June 30, 2001, iPCS launched service in four markets
bringing iPCS' total markets launched in the first six months of 2001 to eight.
In addition, in the first three months of 2001, iPCS acquired two previously
launched markets from Sprint PCS.
By the end of the fourth quarter of 2001, iPCS anticipates launching its
remaining nine markets in Nebraska and Iowa, at which time it will offer
service in all of its markets.
On August 28, 2001, iPCS entered into the merger agreement described in this
proxy statement/prospectus. The costs that iPCS expects to incur in connection
with the transaction, which are estimated to be approximately $16.5 million, of
which approximately $15.1 million will be accrued and expensed prior to closing
of the merger. Because a portion of the costs of the transaction related to
severance are calculated based upon the market price of AirGate common stock at
the effective time of the merger, if the price of AirGate common stock at the
effective time of the merger is greater than the price of AirGate common stock
at the date of announcement of the merger, the severance costs will increase.
For the six months ended June 30, 2001, iPCS recorded a net loss of
approximately $33.8 million. Total revenues were approximately $42.0 million
for the six months ended June 30, 2001. For the six months ended June 30, 2000,
revenues were approximately $5.1 million and iPCS' net loss was approximately
$20.4 million. As of June 30, 2001, iPCS' accumulated deficit was approximately
$94.3 million and iPCS' had incurred approximately $199.3 million of capital
expenditures and construction in progress related to the build-out of its
network. While iPCS anticipates operating losses to continue, iPCS expects
revenues to increase substantially as the number of its customers continues to
increase.
112
Results of Operations
For the six months ended June 30, 2001 compared to the six months ended June
30, 2000
Net loss. iPCS' net loss for the six months ended June 30, 2001 was
approximately $33.8 million and was the result of increased operating expenses
associated with maintaining a larger customer base and a larger network along
with increased customer additions. Additionally, higher depreciation expense
for a larger in-service network coupled with increased interest expense related
to iPCS' debt was recorded during the first half of the year than in the same
period in the prior year. The increase in operating expenses was partially
offset with increased service, equipment and other revenues. iPCS' net loss for
the six months ended June 30, 2000 was approximately $20.4 million and included
a one-time charge of approximately $8.5 million of non-cash compensation
expense and $1.6 million of related payroll taxes that was the result of
issuing a 1.5% ownership interest in the Company to iPCS' President and Chief
Executive Officer. The remaining loss for the same six months in 2000 resulted
primarily from selling, general and administrative, depreciation and
amortization expenses and cost of providing service exceeding service revenues,
all of which were associated with the markets launched in 1999 and the first
six months of 2000.
Service revenue. For the six months ended June 30, 2001, service revenue
totaled approximately $38.7 million and was comprised of customer revenue of
approximately $25.5 million and roaming revenue of approximately $13.2 million.
For the same six months ended June 30, 2000 service revenue totaled
approximately $4.1 million and was comprised of customer revenue of
approximately $2.5 million and roaming revenue of approximately $1.6 million.
iPCS' ARPU, including long distance and roaming, for the six months ended June
30, 2001 was approximately $84. Without roaming revenue, average monthly
revenue per user was approximately $55. For the six months ended June 30, 2000,
ARPU with and without roaming was $96 and $59, respectively.
Equipment and other revenues. iPCS' records revenue from the sale of its
equipment from its retail stores, net of an allowance for returns and net of
any cash incentives related to these equipment sales, as equipment revenue. The
amount recorded during the six months ended June 30, 2001 totaled approximately
$3.3 million. The amount recorded for the same period in 2000 totaled
approximately $1.0 million. The increase in revenue since June 30, 2000 is due
to the increase in new customer additions associated with launching of sixteen
markets and the addition to iPCS' territory of two previously launched markets
by Sprint PCS.
Cost of service. Cost of providing service to Sprint PCS customers totaled
approximately $31.5 million for the six months ended June 30, 2001, compared to
approximately $4.7 million for the same period in 2000. Cost of service
includes billing, customer care, network monitoring, cost of operations, fees
related to facilities and other transport lines, interconnection fees, Sprint
PCS roaming fees, non-Sprint PCS roaming fees and other expenses related to
operations. iPCS pays Sprint PCS roaming fees when its customers use the Sprint
PCS network outside of its territory. iPCS pays non-Sprint PCS roaming fees to
other wireless service providers when its customers use their network. Also
included in the cost of service expenses for the six months ended June 30, 2001
is the 8% of collected service revenue retained by Sprint PCS of approximately
$2.2 million compared to approximately $0.2 million for the six months ended
June 30, 2000. The increase in cost of service is due to an increased customer
base and a larger in-service network.
Cost of equipment. Cost of equipment which includes the costs of handsets,
accessories, and handset subsidies totaled approximately $10.9 million for the
six months ended June 30, 2001. Cost of equipment for the six months ended June
30, 2000 was approximately $2.6 million. The increase in costs is due
substantially to the increase in new customer additions associated with the
launching of sixteen markets and the acquisition from Sprint PCS of two
previously-launched markets. Because iPCS subsidizes the price of handsets for
competitive reasons, iPCS expects and has budgeted for the cost of handsets to
continue to exceed the retail sales price for the foreseeable future.
Selling expenses. Selling expenses totaled approximately $13.0 million and
approximately $2.6 million for the six months ended June 30, 2001 and June 30,
2000, respectively. Included in selling expenses are
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advertising and promotional costs, salaries and sales commissions and expenses
related to iPCS' distribution channels. The increase in costs since June 30,
2000 is due substantially to the launching of sixteen markets and to the
addition to iPCS' territory of two markets previously launched by Sprint PCS.
General and administrative expenses. General and administrative expenses
were approximately $5.1 million for the six months ended June 30, 2001 and
approximately $12.4 million for the six months ended June 30, 2000. Included in
general and administrative costs are administrative salaries and bonuses,
employee benefit costs, legal fees, insurance expense and other professional
service fees. Also included for the six months ended June 30, 2001 is non-cash
compensation expense of approximately $1.0 million related to the amortization
of the deferred compensation expense associated with the stock options granted
in July 2000. During the six months ended June 30, 2000, iPCS recorded a one-
time charge of approximately $10.1 million for the issuance of a 1.5% ownership
interest to iPCS' President and Chief Executive Officer based on an expected
initial public price. Included in this charge was approximately $8.5 million of
non-cash compensation expense and approximately $1.6 million of payroll taxes
paid in connection with the issuance of this 1.5% ownership interest. The
remaining increase in general and administrative expenses from the first half
of 2001 compared to the same period in 2000 is due to an increase in personnel
and other corporate infrastructure associated with the growth of iPCS from
launching sixteen markets and acquiring from Sprint PCS two previously-launched
markets.
Depreciation and amortization. For the six months ended June 30, 2001,
depreciation and amortization totaled approximately $8.6 million compared to
approximately $2.9 million for the six months ended June 30, 2000. The increase
is due to assets placed in service for eighteen additional markets since June
30, 2000.
Interest income. For the six months ended June 30, 2001, interest income was
approximately $2.9 million and was earned on the investment of available funds.
For the six months ended June 30, 2000, investment income was approximately
$0.1 million. Interest income increased due to the investment of the proceeds
from the senior discount notes received in July 2000, the proceeds from the
sale of Series A-1 and Series A-2 convertible preferred stock in July and
December 2000, respectively, and the proceeds from iPCS' borrowing under the
senior secured credit facility in December 2000 and June 2001.
Interest expense. Interest expense of approximately $10.7 million, net of
capitalized interest of approximately $4.7 million, was recorded in the six
months ended June 30, 2001 and related primarily to interest accrued on the
senior discount notes, the amortization of the discount and warrants issued in
connection with the issuance of the senior discount notes, and interest expense
on iPCS' borrowings under the senior secured credit facility. For the same
period in 2000, iPCS recorded interest expense of approximately $0.6 million,
net of capitalized interest of approximately $1.2 million, related to the
Nortel financing, which was in place prior to iPCS' current senior secured
credit facility. The increase in interest expense in 2001 is the result of
higher outstanding debt compared to June 30, 2000.
Other income, net. Other income is principally comprised of gain on tower
sales. For the six months ended June 30, 2001, twelve towers were sold to
American Tower for $3.4 million, resulting in a gain of approximately $1.6
million, of which approximately $0.5 million was recognized at the time of the
sale and the remainder was deferred and is being amortized as a reduction in
rental expense over the initial lease term of ten years for the related towers.
In addition, sixteen towers were sold to Trinity Wireless for $4.8 million,
resulting in a gain of approximately $2.1 million, of which approximately $1.0
million was recognized at the time of the sale and remainder was deferred and
is being amortized as a reduction in rental expense over the initial lease term
of five years for the related towers. Offsetting these gains was a loss of
approximately $0.6 million for site acquisition and construction costs for
sites that were either not feasible or not necessary for iPCS' network build-
out. For the same six months ended June 30, 2000, twenty-two towers were sold
to American Tower for $5.5 million resulting in a total gain of approximately
$2.3 million, of which approximately $0.3 million was recognized and the
remainder is being amortized over the initial lease term of ten years.
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For the year ended December 31, 2000 compared to the period January 22, 1999
(date of inception) through December 31, 1999
Net loss. For the year ended December 31, 2000, iPCS recorded a loss of
approximately $56.2 million on total revenues of approximately $24.0 million.
The loss was caused primarily by cost of services exceeding service revenues
and costs associated with handset subsidies, selling, general and
administrative expense, depreciation and amortization associated with the
markets launched in 1999 and 2000. Also in 2000 iPCS recorded the following:
. an extraordinary loss of approximately $1.5 million on the early
extinguishment of debt related to the write-off of the unamortized
deferred financing costs of the Nortel credit facility;
. non-cash compensation expense of approximately $8.5 million and related
taxes of approximately $1.6 million associated with the issuance of a
1.5% ownership interest in iPCS' predecessor, Illinois PCS, LLC, to iPCS'
President and Chief Executive Officer;
. non-cash compensation expense of approximately $2.7 million, which is
related to the amortization of the deferred compensation expense
associated with the stock options granted in July 2000; and
. expenses of approximately $1.3 million related to a planned initial
public offering of stock that did not occur in 2000.
iPCS' net loss for the period ended December 31, 1999 was approximately $4.4
million and was comprised primarily of network build-out, selling, and general
and administrative expenses associated with the preparation of the launch of
its initial markets
Service revenues. For the year ended December 31, 2000, service revenue
totaled approximately $20.6 million and was comprised of customer revenue of
approximately $12.5 million and roaming revenue of approximately $8.1 million.
For the period ended December 31, 1999, iPCS had service revenue of
approximately $71,000, which included approximately $28,000 of customer revenue
and approximately $43,000 of travel and roaming revenue. The number of iPCS
subscribers increased from 1,981 at December 31, 1999 to 46,773 at December 31,
2000. For the full year 2000, iPCS' average monthly revenue per user, including
long distance and roaming revenue, was approximately $103. Without roaming
revenue, average monthly revenue per user was approximately $63. Because iPCS
only launched its first markets in December 1999, average revenue per user for
1999 is not meaningful.
Equipment and other revenue. Equipment and other revenue from the sale of
phones and accessories, net of a sales allowance, totaled approximately $3.4
million for the year ended December 31, 2000. For the period ended December 31,
1999, iPCS had equipment and other revenue of approximately $144,000. Lower
revenues in 1999 were attributable to the fact that iPCS had just launched
service in December 1999.
Cost of service. Cost of providing service to Sprint PCS customers in its
territory totaled approximately $17.0 million and $1.7 million for the year
ended December 31, 2000 and the period ended December 31, 1999, respectively.
Cost of service includes billing, customer care, network monitoring, cost of
operations, fees related to facilities and other transport lines,
interconnection fees, Sprint PCS roaming fees, non-Sprint PCS roaming fees and
other expenses related to operations. Included in the cost of service expenses
for the year ended December 31, 2000 is the 8% collected revenue retained by
Sprint PCS in the amount of approximately $0.9 million.
Cost of equipment. Cost of equipment sold for the year ended December 31,
2000 totaled approximately $10.5 million. Cost of equipment expense recorded
for the period ended December 31, 1999 was $0.5 million. Because iPCS
subsidizes the price of handsets for competitive reasons, iPCS expects and has
budgeted for the cost of handsets to continue to exceed the retail sales price
for the foreseeable future. The increase in costs is substantially due to the
increase in new subscribers associated with the launching of sixteen new
markets during 2000.
Selling expenses. Selling expenses include advertising and promotional
costs, salaries, sales commissions, and expenses related to iPCS' distribution
channels. For the year ended December 31, 2000,
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selling expenses totaled approximately $12.9 million compared with
approximately $0.8 million for the period ended December 31, 1999. The increase
in costs is substantially due to the launching of sixteen new markets during
2000.
General and administrative expenses. General and administrative expenses
were approximately $22.1 million for the year ended December 31, 2000 and
approximately $1.5 million for the period ended December 31, 1999. Included in
general and administrative costs are administrative salaries and bonuses,
employee benefit costs, legal fees, insurance expense and other professional
service fees. Also included in the year ended December 31, 2000 is non-cash
compensation expense and taxes on non-cash compensation expense totaling
approximately $12.8 million. Of this amount, approximately $8.5 million was the
non-cash compensation expense which related to a one-time charge for the
issuance of a 1.5% ownership interest to iPCS' President and Chief Executive
Officer based on an expected initial public offering price and approximately
$1.6 million of withholding taxes iPCS has paid in connection with the issuance
of this 1.5% ownership interest. The other $2.7 million of non-cash
compensation expense is related to the amortization of the deferred
compensation expense associated with the stock options granted in July 2000.
iPCS did not grant any options during 1999. In addition, iPCS recorded
approximately $1.3 million of expenses related to a planned initial public
offering of stock that did not occur in 2000. The remaining increase in general
and administrative expenses is due to the launching of sixteen new markets
during 2000.
Depreciation and amortization. Depreciation and amortization expense for the
year ended December 31, 2000 totaled approximately $8.6 million. iPCS recorded
$0.4 million of depreciation and amortization expense for the period ended
December 31, 1999. The increase in depreciation and amortization costs is due
to assets placed in service for the sixteen markets launched during 2000.
Interest income. For the year ended December 31, 2000, interest income was
approximately $3.4 million and was earned on the investment of available funds.
For the period ended December 31, 1999, interest income was approximately $0.1
million. Interest income increased due to the investment of the proceeds from
the senior discount notes and the sale of the Series A-1 convertible preferred
stock in July 2000.
Interest expense. For the year ended December 31, 2000, interest expense was
approximately $11.7 million, net of capitalized interest of approximately $3.0
million. In 1999, total interest expense of approximately $0.5 million, which
related to iPCS' Nortel credit facility, was capitalized. The increase in
interest expense in 2000, which related both to the Nortel financing and the
senior discount notes, is the result of the higher borrowings.
Gain on tower sales. For the year ended December 31, 2000, 55 towers were
sold to American Tower for approximately $14.0 million resulting in a gain of
approximately $5.4 million, of which approximately $0.8 million was recognized
at the time of the sales and the remainder was deferred and is being amortized
as a reduction in rental expense over the initial lease term of ten years for
the related towers. For the period ended December 31, 1999, iPCS sold 18 towers
for $4.5 million resulting in a gain of approximately $1.9 million of which
approximately $0.2 million was recognized and the remainder was deferred.
Extraordinary item. In connection with the refinancing of the Nortel credit
facility with the Toronto Dominion and GE Capital Corporation credit facility,
iPCS recorded an extraordinary loss on the early extinguishment of debt of
approximately $1.5 million in the year ended December 31, 2000 related to the
write-off of the unamortized deferred financing costs of the Nortel credit
facility.
Income Taxes
Prior to July 12, 2000, iPCS' predecessor company operated as a limited
liability company and, as a result, its losses were included in the income tax
returns of its members. Subsequent to July 12, 2000, the date of reorganization
as discussed in Note 3 to iPCS' unaudited financial statements, iPCS became a C
Corporation and began accounting for income taxes in accordance with SFAS No.
109, "Accounting for Income Taxes."
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No benefit for federal income taxes has been recorded for the six months ended
June 30, 2001 as the net deferred tax asset generated, primarily from temporary
differences related to the net operating loss carry forwards, would have been
offset by a full valuation allowance because it is not considered more likely
than not that these benefits will be realized due to the iPCS' limited
operating history. For the year ending December 31, 2001, management currently
estimates that a valuation allowance will be provided for the expected loss to
be incurred.
Liquidity and Capital Resources
Since inception, iPCS has financed its operations through capital
contributions from its initial investors, through debt financing and from the
proceeds of the sale of its Series A-1 and Series A-2 convertible preferred
stock.
On July 12, 2000, iPCS entered into a new senior secured credit facility
with Toronto Dominion (Texas), Inc. and GE Capital Corporation for $140.0
million to replace its original credit facility with Nortel that was repaid in
full on this same date. On February 23, 2001, iPCS entered into an amendment to
the senior secured credit facility which included a consent to the acquisition
from Sprint PCS of the Iowa City and Cedar Rapids, Iowa markets, and which
amended certain covenant definitions and requirements. As of September 28,
2001, iPCS entered into a second amendment to the senior secured credit
facility, which included a consent to the consummation of the merger with
AirGate, and which amended certain definitions with respect to the merger and
covenant requirements necessitated by merger related expenses. As of June 30,
2001, iPCS management believes that it is in compliance with the amended
covenants. iPCS had outstanding borrowings of $50.0 million at June 30, 2001
under the senior secured credit facility.
The senior secured credit agreement provides for two different tranches of
borrowings totaling $140.0 million. The Tranche A Commitment provides for
borrowings up to $90.0 million and the Tranche B Commitment provides for
borrowing up to $50.0 million.
Commencing March 31, 2004, and on the last day of each calendar quarter
ending during the periods set forth below, the Tranche A Commitment as of March
30, 2004 shall be automatically and permanently reduced by the percentage
amount set forth below for the quarters indicated:
. for the four quarters commencing with the fiscal quarter ending March 31,
2004, 2.50% per quarter;
. for quarters five through eight, 3.75% per quarter;
. for quarters nine through sixteen, 6.25% per quarter; and
. for the last two quarters, 12.5% per quarter.
Commencing March 31, 2004, iPCS must begin to repay, in quarterly
installments, the principal on all borrowings outstanding as of March 30, 2004,
made under the Tranche B Commitment. A fixed percentage on all Tranche B
borrowings will be due each quarter as follows:
. for the first four quarters commencing with the fiscal quarter ending
March 31, 2004, 2.50% of the principal balance of the loan is due per
quarter;
. for quarters five through eight, 3.75% per quarter;
. for quarters nine through sixteen, 6.25% per quarter; and
. for the last two quarters, 12.5% per quarter.
If iPCS borrows the maximum amount under Tranche B, the aggregate amount
required to be repaid for each of the four periods above will be $5.0 million,
$7.5 million, and $12.5 million, respectively.
Any principal that has not been paid by the maturity date, June 30, 2008, is
due at that time.
iPCS may voluntarily prepay any of the loans at any time. Tranche A permits
reborrowings on a revolving basis but amounts repaid under Tranche B may not be
reborrowed.
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iPCS will have to make mandatory prepayments under certain circumstances,
including among others:
. 50% of iPCS' excess annual cash flow as computed under the senior secured
credit agreement, commencing April 30, 2004 with respect to the fiscal
year ending December 31, 2003;
. any amount in excess of $1.0 million per calendar year received as net
proceeds subject to certain exceptions, to the extent not reinvested in
property or assets within a stated period of time;
. 50% of the net proceeds of any equity issuance by iPCS or any subsidiary
excluding the committed issuance of the convertible preferred stock, an
initial public offering and any offering to a borrower or guarantor party
of a debt issuance by iPCS or any subsidiary excluding permitted
indebtedness.
All prepayments described above are applied to the outstanding loan balances
pro rata between Tranche A and Tranche B and pro rata across the maturities.
From the date of the senior credit agreement through and including the date
on which EBITDA is greater than zero for two consecutive fiscal quarters, iPCS
may borrow money at the lesser of either:
. a base rate loan with an interest rate equal to 2.75% plus the higher of:
. the prime rate of the Toronto-Dominion Bank, New York Branch; or
. the federal funds effective rate plus 0.5%; or
. a Eurodollar loan with an interest rate equal to the London interbank
offered rate, plus 3.75%.
After the date on which EBITDA is greater than zero for two consecutive
fiscal quarters, the base rate margin will range from 2.75% to 2.25% and the
Eurodollar loan margin will range from 3.75% to 3.25%, depending upon iPCS'
leverage ratio as of the most recently ended fiscal quarter.
iPCS' senior secured credit facility will be used to finance capital
expenditures, certain acquisitions and investments for working capital needs
and other general corporate purposes.
iPCS' senior discount notes mature on July 15, 2010, carry a coupon rate of
14% and provide for interest deferral for the first five years. The senior
discount notes will accrete in value at a rate of 14% per annum until July 15,
2005, after which, interest will begin to accrue and will be payable
semiannually beginning on January 15, 2006.
iPCS believes that the net proceeds of its senior discount notes, the net
proceeds from the sales of its convertible preferred stock and borrowings under
its senior secured credit facility will be adequate to fund its network build-
out, anticipated operating losses, working capital requirements and other
capital needs through 2003.
Net cash used in operating activities was approximately $7.1 million for the
six months ended June 30, 2001 and was approximately $7.5 million for the six
months ended June 30, 2000. Cash used in operating activities was primarily
attributable to operating losses offset by depreciation and amortization
expense, non-cash interest, non-cash compensation expense and working capital
needs.
Net cash used in investing activities was approximately $92.8 million for
the six months ended June 30, 2001 and approximately $16.2 million for the same
period in 2000. The expenditures related primarily to the purchase of iPCS'
network infrastructure equipment and the acquisition of the markets in Iowa
from Sprint PCS in February 2001, offset partially with the proceeds from tower
sales and iPCS' build-to-suit agreement.
Net cash provided by financing activities was approximately $24.7 million
for the six months ended June 30, 2001 and consisted primarily of proceeds of
$25.0 million drawn on iPCS' senior secured credit facility offset somewhat by
debt issuance and interest rate protection costs. Net cash provided by
financing activities during the six months ended June 30, 2000 was
approximately $22.8 million and consisted primarily of equity contributions and
debt borrowings.
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Net cash used in operating activities was approximately $3.9 million from
the date of inception through December 31, 1999 and approximately $22.0 million
for the year ended December 31, 2000. Cash used in operating activities was
primarily attributable to iPCS' operating losses partially offset by
depreciation and amortization, non-cash interest, non-cash compensation expense
and working capital needs.
Net cash used in investing activities was approximately $32.8 million from
the date of inception through December 31, 1999 and approximately $82.5 million
for the year ended December 2000. The expenditures were related primarily to
the purchase of iPCS' network infrastructure equipment and the purchase from
Sprint PCS of network assets in Michigan, offset somewhat by the proceeds of
tower sale leaseback transactions.
Net cash provided by financing activities from the date of inception through
December 31, 1999 was approximately $39.5 million and approximately $267.7
million for the year ended December 31, 2000 and consisted primarily of equity
contributions, sales of redeemable convertible preferred stock and debt
borrowings offset by repayments of debt and debt issuance costs. The
significant increase in cash provided by financing activities in 2000 is
related to the proceeds from the sale of redeemable convertible preferred stock
and the issuance of iPCS senior discount notes offset somewhat by the repayment
in full of the Nortel debt of approximately $40.3 million.
In May 1999, iPCS signed a tower sale and leaseback agreement with American
Tower Corporation. iPCS agreed to construct between sixty and eighty wireless
communications towers, sell the towers to American Tower and then lease back
tower space from American Tower. Under the agreement iPCS received
approximately $250,000 for each tower sold to American Tower and iPCS will pay
rent in the amount of $1,100 per month (which increases at an annual rate of 3%
per annum) for tower space and no more than $350 per month for each
corresponding ground lease.
Since inception through June 30, 2001, iPCS received approximately $20.4
million related to the sale of eighty towers under this agreement and iPCS
received an additional $1.5 million for five towers sold to American Tower
under individual agreements in January 2001. iPCS incurred an aggregate of
approximately $13.4 million of costs to construct such towers. With the
eightieth tower sale in January 2001, iPCS has satisfied the terms of this
agreement.
In December 2000, iPCS signed a build-to-suit agreement with Trinity,
whereby iPCS agreed to locate and obtain ground leases and deliver assignments
of these ground leases to Trinity for at least seventy-five towers in Iowa and
Nebraska. Trinity agreed to reimburse iPCS for site acquisition and development
costs, build the tower, and to purchase the site from iPCS at the time of
commencement of the tower lease with Trinity. iPCS will lease a portion of the
tower built by Trinity. For the six months ended June 30, 2001, iPCS received
approximately $0.4 million for the reimbursement of site acquisition costs for
sixteen sites and iPCS received approximately $0.8 million for seventeen sites
for which the tower leases commenced.
In June 2001, iPCS signed a tower sale and leaseback agreement with Trinity.
iPCS will sell towers it has already constructed, and then lease back tower
space from Trinity. On June 29, 2001, iPCS sold sixteen towers to Trinity for
approximately $4.8 million. iPCS anticipates selling additional towers under
this agreement through December 29, 2001, when the agreement expires.
As of June 30, 2001, iPCS' primary source of liquidity was approximately
$90.8 million in cash and cash equivalents.
Seasonality
The wireless industry has historically experienced higher customer additions
and handset sales in the fourth calendar quarter as compared to the other three
calendar quarters. A number of factors contribute to this including:
. the primary focus on retail distribution, which is dependent upon the
year-end holiday shopping season;
. competitive pricing pressures; and
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. aggressive marketing and promotions initiated during the period.
Inflation
iPCS management believes that inflation has not had, and will not have, a
material adverse effect on iPCS' results of operations.
Effect of Recently Issued Accounting Pronouncements
In July 2001 the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 141 requires business combinations initiated after
June 30, 2001 to be accounted for using the purchase method of accounting, and
broadens the criteria for recording intangible assets separate from goodwill.
Recorded goodwill and intangibles will be evaluated against this new criteria
and may result in certain intangibles being subsumed into goodwill, or
alternatively, amounts initially recorded as goodwill may be separately
identified and recognized apart from goodwill. SFAS No. 142 requires the use of
a non-amortization approach to account for purchased goodwill and certain
intangibles. Under a non-amortization approach, goodwill and certain
intangibles will not be amortized into results of operations, but instead will
be reviewed for impairment and written down and charged to results of
operations only in the periods in which the recorded value of goodwill and
certain intangibles is more than its fair value. The provisions of each
statement, which apply to goodwill and intangible assets acquired prior to June
30, 2001 will be adopted by iPCS on January 1, 2002. iPCS is currently
assessing but has not yet determined the impact of these pronouncements on its
financial position and results of operations.
In November 2000, the EITF reached a consensus in EITF 00-14, "Accounting
for Certain Sales Incentives" that when recognized, the reduction in or refund
of the selling price of a product or service resulting from any cash incentive
should be classified as a reduction in revenue and not as an operating expense.
iPCS adopted the provisions of EITF 00-14 in the first quarter of 2001. See the
notes to iPCS' financial statements for further information related to EITF 00-
14.
In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities," an amendment of SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," which
is effective for all fiscal years beginning after June 15, 2000. iPCS' adoption
on January 1, 2001 did not have a material effect on iPCS' results of
operations, financial position, or cash flows.
Quantitative and Qualitative Disclosures About Market Risk.
iPCS does not engage in commodity futures trading activities and does not
enter into derivative financial instrument transactions for trading or other
speculative purposes. iPCS also does not engage in transactions in foreign
currencies that could expose it to market risk.
iPCS is subject to interest rate risk on its senior secured credit facility
and any future financing requirements. iPCS' variable rate debt consists of
borrowings made under its senior secured credit facility of which it had
borrowed $50.0 million at June 30, 2001. As required under the senior secured
credit facility, on January 12, 2001, iPCS entered into a three-year interest
rate protection agreement with a counter party for a notional amount of $12.5
million that caps the three-month floating LIBOR interest rate at 7.25%.
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The following table presents the estimated future outstanding long-term debt
at the end of each year and future required annual principal payments for each
year then ended associated with iPCS' senior secured credit facility based on
its projected level of long-term indebtedness:
Years Ending December 31
------------------------------------------------------------
2001 2002 2003 2004 2005 Thereafter
-------- -------- -------- -------- -------- ----------
(In thousands)
Senior Discount
Notes(/1/):............ $144,428 $157,334 $171,393 $186,708 $203,392 $ --
Fixed interest rate..... 14.00% 14.00% 14.00% 14.00% 14.00% 14.00%
Principal payments...... $ -- $ -- $ -- $ -- $ -- $300,000
Senior Secured Credit
Facility(/2/):......... $ 50,000 $140,000 $140,000 $126,000 $105,000 $ --
Variable interest
rate(/3/).............. 8.00% 8.00% 8.00% 8.00% 8.00% 8.00%
Principal payments...... $ -- $ -- $ -- $ 14,000 $ 21,000 $105,000
--------
(1) The amounts presented represent estimated year-end debt balances under
iPCS' senior discount notes based on amortizing the discount utilizing the
effective interest method over the term of the senior discount notes.
(2) The amounts presented represent estimated year-end debt balances under
iPCS' $140.0 million senior secured financing based upon a projection of
the funds borrowed under that facility pursuant to its current network
build-out plan.
(3) Interest rate on iPCS' senior secured financing equals the lesser of
either:
. a base rate loan with an interest rate equal to 2.75% plus the higher of:
. the prime rate of the Toronto-Dominion Bank, New York Branch; or
. the federal funds effective rate plus 0.5%; or
. a Eurodollar loan with an interest rate equal to the London interbank
offered rate plus 3.75%. The London interbank offered rate is assumed to
equal 4.25% for all periods presented.
iPCS' primary market risk exposure relates to:
. the interest rate risk on its long-term and short-term borrowings; and
. the impact of interest rate movements on its ability to meet interest
expense requirements and meet financial covenants.
iPCS manages the interest rate risk on its outstanding long-term and short-
term debt through the use of fixed and variable rate debt and interest rate
caps under the senior secured credit agreement. While iPCS cannot predict its
ability to refinance existing debt or the impact interest rate movements will
have its existing debt, it continues to evaluate its financial position on an
ongoing basis.
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DESCRIPTION OF CERTAIN iPCS INDEBTEDNESS
The Senior Secured Credit Facility
General
iPCS' wholly owned subsidiary, iPCS Wireless, Inc., entered into a
definitive amended and restated credit agreement, as amended, with Toronto
Dominion (Texas), Inc. and GE Capital Corporation for a $140.0 million senior
secured credit facility. This facility constitutes senior debt secured by a
first priority security interest in substantially all of iPCS' assets. The
senior secured credit agreement provides that iPCS and all of its current and
future subsidiaries guarantee this senior secured credit facility.
Amount and Purpose of Loans
The senior secured credit agreement provides for two different tranches of
borrowings totaling $140.0 million. The Tranche A commitment provides for
borrowings up to $90.0 million and the Tranche B commitment provides for
borrowings up to $50.0 million. This facility will be used to finance capital
expenditures, certain acquisitions and investments for working capital needs
and other general corporate purposes.
The amounts that can be borrowed will be further limited to a borrowing
base. The borrowing base is defined as 100% of the gross book value of all
property, plant and equipment owned by iPCS Wireless, Inc. and its subsidiaries
equipment used in iPCS' network. iPCS will have the option to reduce the amount
of any of the commitments, and to avoid the periodic fee charged on those
unborrowed amounts. Any reduction must be at least $3.0 million. Any such
reduction cannot be reinstated. Tranche A permits reborrowings on a revolving
basis but amounts repaid under Tranche B may not be reborrowed.
Commitment Termination
The Tranche A commitment is scheduled to terminate on June 30, 2008;
The Tranche A commitment may also terminate:
. if iPCS voluntarily terminates such commitment; and
. if the administrative agent terminates the Tranche A commitment due to
the occurrence of an event of default under the senior secured credit
agreement.
The Tranche B commitment is reduced by undrawn amounts on June 30, 2001. The
undrawn portion of the Tranche B commitment may also terminate:
. if iPCS voluntarily terminates such commitment; and
. if the administrative agent terminates the Tranche B commitment due to
the occurrence of an event of default under the credit agreement.
Syndication
TD Securities (USA) Inc. and GE Capital Corporation have syndicated the loan
to other lenders.
Loans and Interest Options
iPCS has multiple interest rate options available under the senior secured
credit agreement:
. from the date of the closing of the senior secured credit agreement
through and including the date on which EBITDA is greater than zero for
two consecutive fiscal quarters, iPCS may borrow money as either:
. a base rate loan with an interest rate equal to 2.75% plus the higher
of
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. the prime or base rate of the Toronto-Dominion Bank, New York Branch;
or
. the federal funds effective rate plus 0.5%; or
. Eurodollar loan with an interest rate equal to the London interbank
offered rate, plus 3.75%;
and after the date on which EBITDA is greater than zero for two consecutive
fiscal quarters, the margin for base rate loans and Eurodollar loans will be
determined based upon the leverage ratio as of the end of the fiscal quarter
most recently ended.
. iPCS may convert a base rate loan to a Eurodollar loan if it meets
specific conditions, or a Eurodollar loan to a base rate loan, from time
to time;
. iPCS pays accrued interest either on the last day of each quarter for
base rate loans, the last day of the interest period for Eurodollar loans
or, in the case of an interest period greater than three months, at three
month intervals after the first day of such interest period;
. iPCS pays interest due upon any prepayment or conversion from one
interest type to another; and
. iPCS pays all outstanding interest on the maturity date.
At June 30, 2001, the weighted average interest rate on borrowings under the
senior secured credit facility was 8.03%. After the date on which EBITDA is
greater than zero for two consecutive fiscal quarters, the base rate margin
will range from 2.75% to 2.25% and the Eurodollar loan margin will range from
3.75% to 3.25%, depending upon iPCS' leverage ratio as of the most recently
ended fiscal quarter.
Payment of Principal
Scheduled Payments. Commencing March 31, 2004, iPCS must begin to repay, in
quarterly installments, the principal on all Tranche B borrowings outstanding
as of March 30, 2004. A fixed percentage is due each quarter:
. for the first four quarters, commencing with the fiscal quarter ended
March 31, 2004, 2.50% of the principal balance of the loan is due per
quarter;
. for quarters five through eight, 3.75% per quarter;
. for quarters nine through sixteen, 6.25% per quarter; and
. for the last two quarters, 12.5% per quarter.
Any principal that has not been paid by June 30, 2008, the maturity date, is
due at that time.
Commencing March 31, 2004, and on the last day of each calendar quarter
ending during the periods set forth below, the Tranche A commitment as of March
30, 2004 shall be automatically and permanently reduced by the percentage
amount set forth below for the quarters indicated:
. for the four quarters commencing with the fiscal quarter ending March 31,
2004, 2.50% per quarter;
. for quarters five through eight, 3.75% per quarter; and
. for quarters nine through sixteen, 6.25% per quarter.
. for the last two quarters, 12.5% per quarter.
Optional Prepayments. iPCS may voluntarily prepay any of the loans at any
time. Tranche A permits reborrowing on a revolving basis but amounts repaid
under Tranche B may not be reborrowed.
Mandatory Prepayments. iPCS will also make mandatory prepayments under
certain circumstances, including among others:
. 50% of its excess annualized cash flow as computed under the senior
secured credit agreement, commencing on April 30, 2004 with respect to
the fiscal year ended December 31, 2003;
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. any amount in excess of $1.0 million per calendar year received as net
proceeds of asset sales outside the ordinary course of business or
insurance proceeds, to the extent not reinvested in property or assets;
. 50% of the net proceeds of any equity issuance by it or any subsidiary
excluding the committed issuance of the convertible preferred stock or an
initial public offering and any offering to a borrower or a guarantor
party to the senior secured financing; and 100% of the net proceeds of a
debt issuance by it or any subsidiary excluding permitted debt.
All prepayments described above are applied to the outstanding loan balances
pro rata between Tranche A and Tranche B and pro rata across maturities.
Collateral
iPCS' senior secured credit facility is secured by:
. a perfected first priority lien on substantially all of its current and
future assets, and the assets and stock of future subsidiaries;
. a collateral assignment of its affiliation agreements with Sprint PCS and
all of iPCS' other material contracts; and
. guarantees from all its future direct or indirect subsidiaries.
iPCS is obligated to grant to the administrative agent a first lien mortgage
on any material real property it acquires.
Conditions
iPCS must meet certain conditions at the dates it obtains any borrowings
including:
. that there has been no default that is continuing;
. a reaffirmation of representations; and
. that there has not been a material adverse effect, as defined in the
senior secured credit agreement.
Negative Covenants
Other Debt. Other than purchase money debt not to exceed $10.0 million in
principal, iPCS Wireless, Inc. has agreed not to, nor to permit any of its
subsidiaries to, incur additional indebtedness.
Organizational Issues and Capital Stock. iPCS has agreed, with the
exceptions for the merger with AirGate and the merger of subsidiaries of iPCS
Wireless, Inc. into iPCS Wireless, Inc. or its wholly owned subsidiaries, not
to:
. become a party to a merger or a consolidation;
. wind-up, dissolve or liquidate; or
. acquire all or a material or substantial part of the business or
properties of another person except for acquisitions from Sprint PCS
which are currently permitted under the Sprint PCS agreements.
Restricted Payments. iPCS Wireless, Inc. has agreed not to, nor to permit
any of its subsidiaries to, make any "restricted payments." Restricted payments
include the following:
. dividends or distributions on account of shares of capital stock, except
a dividend payable solely in shares of stock;
. any redemption, conversion, exchange, retirement, sinking fund, or other
similar purchase of shares of capital stock;
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. any payment or prepayment of principal, premium, if any, or interest on,
any subordinated debt;
. any redemption, conversion, exchange, purchase, retirement or defeasance
of, or payments with respect to, any subordinated debt; and
. any payment made to retire any outstanding warrants, options or other
rights to acquire capital stock.
The foregoing restriction will not prevent iPCS Wireless, Inc. from making
dividends to iPCS to service scheduled cash interest payments on the senior
discount notes, to pay merger related expenses (up to a maximum amount of $18.0
million) and to pay liquidated damages, up to a maximum of $500,000, upon the
occurrence of registration defaults under the registration rights agreements
applicable to the senior discount notes and accompanying warrants provided no
event of default or event which, with the passage of time or the giving of
notice or both, would constitute an event of default under the senior secured
credit facility exists at the time of any such dividend or would result from
any such dividend. iPCS Wireless, Inc. may make payments under subordinated
guarantees consistent with the applicable subordination provisions.
Modification of Agreements. iPCS has agreed that, with limited exceptions,
it will not consent to or implement any termination, amendment, modification,
supplement or waiver of:
. its affiliation agreements with Sprint PCS;
. its business plan;
. any senior notes indenture or the senior discount notes; or
. any material contract.
Other Negative Covenants. iPCS and the operating subsidiaries have agreed
not to:
. dispose of property;
. enter into sale/leaseback transactions;
. engage in any line of business other than operation of their network, and
related ownership and financing activities;
. conduct any activity on real property that would violate environmental
laws;
. pay management fees other than to Sprint PCS and fees payable by iPCS
Wireless, Inc. to iPCS and fees paid by iPCS Equipment, Inc. to iPCS
Wireless, Inc.;
. take certain actions that would violate ERISA;
. prepay fees owed to Sprint PCS;
. grant liens on assets;
. make investments, loans or advances;
. prepay other debt, other than in connection with certain refinancings and
the prepayment of any senior notes;
. permit subsidiaries to enter into dividend restrictions;
. enter into negative pledge or similar arrangements; or
. modify charter documents.
Financial and Operating Covenants
iPCS is subject to financial and operating covenants which are set forth
below according to whether they are applicable prior to June 30, 2003 or
thereafter including:
Applicable until June 29, 2003:
. a maximum ratio of total debt to total capitalization at iPCS' level;
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. a maximum ratio of senior debt to total capitalization of iPCS Wireless,
Inc. and its subsidiaries;
. minimum annualized EBITDA for iPCS Wireless, Inc. and its subsidiaries
for each quarter or maximum annualized EBITDA losses;
. minimum quarterly revenue for iPCS Wireless, Inc. and its subsidiaries;
and
. minimum number of subscribers.
Applicable as of and after June 30, 2003:
. a maximum ratio of total debt to annualized earnings before interest,
taxes, depreciation and amortization, referred to as EBITDA, for iPCS
Wireless, Inc. and its subsidiaries for each quarter;
. minimum quarterly interest coverage rates for iPCS Wireless, Inc. and its
subsidiaries which is the ratio of EBITDA to consolidated interest
expense;
. minimum ratio of senior funded indebtedness to annualized EBITDA for iPCS
Wireless, Inc. and its subsidiaries; and
. maximum ratio of annualized EBITDA to all principal payments and interest
scheduled to be made on indebtedness during the next twelve month period.
Applicable as of and after January 1, 2004:
. minimum quarterly fixed charge coverage ratio for iPCS Wireless, Inc. and
its subsidiaries, which is the ratio of EBITDA to consolidated fixed
charges.
Applicable until March 30, 2004:
. maximum cumulative capital expenditures for iPCS Wireless, Inc. and its
subsidiaries not to exceed a specified amount.
Events of Default
In addition to failing to perform, observe or comply with the covenants,
agreements and terms of the senior secured credit agreement, it is an event of
default under the senior secured credit agreement if any party with financial
responsibility for the loans, iPCS Wireless, Inc. or any signatory to the
Sprint PCS agreements, becomes insolvent, commences or suffers bankruptcy or
similar proceedings or suffers other indicia of extreme financial duress.
Other events of default include:
. an attachment against iPCS' property that is not released within 30 days
and the amount claimed in the proceeding is greater than $1.0 million;
. a judgment against iPCS of greater than $1.0 million remains undischarged
for a period of time;
. failure to pay other loans as they become due or a default that permits
acceleration of other debt with respect to debt of at least $1.0 million;
. a breach by iPCS under the consent and agreement among Sprint, holders of
indebtedness under the senior secured credit facility and iPCS Wireless,
Inc. or the Sprint PCS agreements;
. any change in control of iPCS or AirGate; or
. any material adverse change occurs, which effect is broadly defined in
the senior secured credit agreement to include things that could
reasonably be expected to have a material adverse effect on iPCS'
business or its ability to repay the loan.
The merger with AirGate will not be deemed a change in control. After the
effective time of the merger, a change in control will occur if:
. any person or group acquires more than 35% of AirGate's equity;
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. AirGate's directors as of the effective time of the merger, or any
directors who are approved by such directors, cease for any reason to
constitute at least a majority of AirGate's board of directors;
. AirGate ceases to own all of the capital stock of iPCS; or
. iPCS ceases to own all of the capital stock of iPCS Wireless, Inc. or any
subsidiary of iPCS Wireless, Inc.
Senior Discount Notes
On July 12, 2000, iPCS issued 300,000 units consisting of senior discount
notes due July 15, 2010 and warrants to purchase 2,982,699 shares of its common
stock, which yielded gross proceeds of $152.3 million. The senior discount
notes were issued under an indenture, dated as of July 12, 2000, by and among
iPCS, iPCS Equipment, Inc. and iPCS Wireless, Inc. and BNY Midwest Trust
Company, formerly known as CTC Illinois Trust Company, as trustee. The senior
discount notes:
. mature on July 15, 2010 and are limited to an aggregate principal amount
at maturity of $300.0 million;
. are general, unsecured obligations of iPCS, equal in right of payment to
all of its senior debt and senior in right of payment to all of iPCS'
subordinated debt;
. accrue interest at a rate of 14% per annum, computed on a semiannual
basis calculated beginning July 15, 2005 and interest will be payable in
cash beginning January 15, 2006, and semiannually on each January 15 and
July 15; and
. are guaranteed by iPCS' domestic subsidiaries on a senior subordinated
basis.
iPCS may elect to redeem all or part of the senior discount notes at any
time on or after July 15, 2005 and before maturity, at the following redemption
prices:
Redemption Price
per $1,000 of
Year Beginning Principal Amount
-------------- ----------------
July 15, 2005............................................. $1,070.00
July 15, 2006............................................. 1,046.67
July 15, 2007............................................. 1,023.33
July 15, 2008 and thereafter.............................. 1,000.00
In addition, on or before July 15, 2003, iPCS may redeem up to 35% of the
principal amount at maturity of senior discount notes issued under the
indenture, at a redemption price equal to $1,140 for each $1,000 of accreted
value of a senior discount note to the redemption date, with the net proceeds
of one or more equity offerings. However, at least 65% of the aggregate
principal amount at maturity of senior discount notes issued under the
indenture must remain outstanding immediately after giving effect to the
redemption.
If a change of control occurs, each noteholder may require iPCS to
repurchase its senior discount notes. The repurchase price will be:
. $1,010 per $1,000 of accreted value of the senior discount notes, if the
repurchase occurs before July 15, 2005, or
. $1,010 per $1,000 of principal amount of the senior discount notes, plus
any accrued interest, if the repurchase occurs on or after July 15, 2005.
A change of control will occur if:
. iPCS sells substantially all of its and its subsidiaries' assets;
. iPCS adopts a plan for its liquidation or dissolution;
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. any person or group of persons, other than certain current stockholders
or their affiliates, become the beneficial owner of more than 50% of the
voting power of iPCS' stock; or
. a majority of iPCS' board of directors no longer consists of continuing
directors, which are directors who were serving on July 12, 2000, or who
were nominated to serve as a director by a majority of the continuing
directors at the time. Changes in directors elected by particular
investors, such as holders of iPCS' convertible preferred stock, are
ignored for purposes of determining continuing directors.
. iPCS consolidates with or merges with or into any person pursuant to a
transaction in which any of the outstanding voting stock of iPCS is
converted into or exchanged for cash, securities or other property, other
than any such transaction where the voting stock of iPCS outstanding
immediately prior to such transaction is converted into or exchanged for
voting stock of the surviving or transferee person constituting a
majority of the outstanding shares of such voting stock of such surviving
or transferee person.
A change of control shall not be deemed to occur as a result of a merger or
consolidation of iPCS with or into a Sprint PCS network partner if:
. after the announcement of the merger or consolidation and prior to the
consummation thereof there shall not have occurred nor shall any notice
have been given of (that is not subsequently removed prior to the
consummation thereof):
. any potential or intended downgrading of any rating of the senior
discount notes to a rating that is lower than the rating that existed
or was indicated immediately prior to the announcement of the merger or
consolidation, in any case by a rating organization;
. any suspension or withdrawal of, any review (or of any potential or
intended review) for a possible change that does not indicate the
direction of the possible change in, any rating of the senior discount
notes (including, without limitation, the placing of any of the senior
discount notes on credit watch with negative or developing implications
or under review with an uncertain direction) by any rating
organization;
. of any change or potential or intended change in the outlook for any
rating of the senior discount notes to a rating that is lower than the
rating that existed or was indicated immediately prior to the
announcement of the merger or consolidation, in any case by any rating
organization;
. any rating organization has assigned (or is considering assigning) a
rating to the senior discount notes that is lower than the rating that
existed or was indicated immediately prior to the announcement of the
merger or consolidation; and
. the beneficial owners of voting stock of iPCS immediately preceding such
merger or consolidation shall continue to be the beneficial owners of at
least 25% of the outstanding voting stock of iPCS (or the surviving
transferee person or sole stockholder of such surviving or transferee
person) immediately after giving effect to the merger or consolidation.
iPCS' senior secured credit facility prohibits the purchase of outstanding
notes before repayment of the borrowings under the credit facility.
iPCS is also required to offer to repurchase the senior discount notes if
all or some of the net proceeds of an asset sale are not used to acquire an
entity engaged in a permitted business, to purchase other long-term assets used
or useful in a permitted business or to repay any senior indebtedness.
The indenture contains restrictive covenants which, among other things,
restrict iPCS and its restricted subsidiaries' ability to:
. incur additional indebtedness or issue preferred stock;
. pay dividends, make investments or redeem or retire stock;
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. cause encumbrances or restrictions to exist on the ability of its
subsidiaries to pay dividends and make investments in, or transfer
property or assets;
. create liens on their assets;
. sell assets;
. engage in transactions with affiliates;
. engage in businesses other than a permitted business; or
. engage in merger or consolidations.
The indenture also provides for customary events of default, including
cross-defaults, judgment defaults and events of bankruptcy. In addition, the
indenture provides for an event of default if iPCS has not received at least
$70.0 million in gross cash proceeds by December 31, 2000 from one or more
equity offerings or, in certain circumstances, if an event of termination has
occurred under the Sprint PCS agreements. The sale of iPCS' redeemable
convertible preferred stock to an investor group led by The Blackstone Group on
December 28, 2000 avoided the event of default related to the required equity
offering. In the case of an event of default, iPCS' trustee or the holders of
at least 25% in principal amount of the outstanding senior discount notes may
declare the senior discount notes immediately due and payable. iPCS is
currently in compliance with all covenants under the indenture governing the
senior discount notes.
iPCS is required, under the terms of a registration rights agreement, to
file an exchange offer registration statement and to use its reasonable best
efforts to cause the exchange offer registration statement to be declared
effective under the Securities Act covering the exchange of the senior discount
notes for registered notes. iPCS has satisfied its obligations to file the
exchange offer registration statement and has consummated the exchange offer.
iPCS may also be required to file a shelf registration statement to register
for public resale the senior discount notes held by any holder who may not
otherwise participate in the exchange offer.
If iPCS fails to file the shelf registration statement or fails to cause the
shelf registration statement to become effective, a registration default shall
be deemed to have occurred and iPCS will be required to pay liquidated damages
to each affected holder of the senior discount notes. The liquidated damages
payable to each holder of the senior discount notes will be in an amount equal
to $0.05 per week per $1,000 in principal amount of the senior discount notes
held by such holder for each week or portion thereof that the registration
default continues for the first 90-day period immediately following the
occurrence of such registration default. This amount will increase by an
additional $0.05 per week per $1,000 in principal amount of the notes with
respect to each subsequent 90-day period, up to a maximum amount equal to $0.50
per $1,000 in principal amount of the senior discount notes. The provision for
liquidated damages will continue until such registration default has been
cured. iPCS will not be required to pay liquidated damages for more than one
registration default at any given time. No liquidated damages are currently
payable.
iPCS paid fees to its initial purchasers of the senior discount notes and
warrants of approximately $6.1 million which will be amortized as interest
expense over the term of the financing using the effective interest method.
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DESCRIPTION OF iPCS CAPITAL STOCK
General
The following summarizes all of the material terms and provisions of iPCS'
capital stock. iPCS has 375,000,000 shares of authorized capital stock,
including 300,000,000 shares of common stock, par value $0.01 per share, and
75,000,000 shares of preferred stock, par value $0.01 per share. As of October
12, 2001, there were 44,869,643 shares of common stock and 23,090,909 shares of
convertible preferred stock issued and outstanding (not including additional
shares of convertible preferred stock issued in respect of accrued but unpaid
dividends). As of that date there were eight holders of record of the
outstanding shares of common stock and seventeen holders of record of the
convertible preferred stock.
Common Stock
The holders of iPCS common stock are entitled to one vote for each share
held of record on all matters submitted to a vote of stockholders and do not
have any cumulative rights. Subject to the rights of the holders of any series
of preferred stock, holders of common stock are entitled to receive ratably
such dividends as may be declared by the board of directors out of funds
legally available therefor. Holders of shares of common stock have no
preemptive or other similar rights. If iPCS liquidates, dissolves or winds up,
the holders of shares of common stock are entitled to share ratably in the
assets which are legally available for distribution, if any, remaining after
the payment or provision for the payment of all debts and other liabilities and
the payment and setting aside for payment of any preferential amount due to the
holders of shares of any series of preferred stock.
Preferred Stock
Under iPCS' certificate of incorporation, the board of directors is
authorized, subject to certain limitations prescribed by law and without
further stockholder approval, to issue up to an aggregate of 75,000,000 shares
of preferred stock. The preferred stock may be issued in one or more series.
Each series may have different rights, preferences and designations and
qualifications, limitations and restrictions that may be established by iPCS'
board of directors without approval from the stockholders. These rights,
designations and preferences include:
. number of shares to be issued;
. dividend rights;
. dividend rates;
. conversion rights;
. voting rights;
. liquidation preferences; and
. terms of redemption.
If iPCS' board of directors decides to issue any preferred stock, it could
have the effect of delaying or preventing another party from taking control of
iPCS. This is because the terms of the preferred stock could be designed to
make it prohibitively expensive for any unwanted third-party to make a bid for
iPCS' shares. iPCS has no present plans to issue any shares of preferred stock.
Series A-1 Preferred Stock and Series A-2 Preferred Stock
With respect to dividends and distributions upon iPCS' liquidation, winding-
up and dissolution, the Series A-1 Preferred Stock ranks senior to iPCS' common
stock and on parity with the Series A-2 Preferred Stock. In addition, upon
iPCS' liquidation, holders of Series A-1 Preferred Stock and Series A-2
Preferred Stock will be entitled to receive a liquidation preference of
approximately $50.0 million and $70.0 million, respectively, plus dividends of
7.5% per year.
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The Series A-1 Preferred Stock and Series A-2 Preferred Stock have a term
which expires on July 12, 2011 and iPCS will be obligated to redeem all
outstanding shares of Series A-1 Preferred Stock and Series A-2 Preferred Stock
on July 12, 2011 for an aggregate amount equal to their respective accrued
liquidation preference. At any time and from time to time prior to the
redemption date, holders of the Series A-1 Preferred Stock and Series A-2
Preferred Stock may, at their option, convert all or any such shares into
shares of iPCS' common stock. The conversion price is subject to adjustment
upon the occurrence of certain events, including the following:
. certain issuances of additional shares of common stock, or securities
convertible into shares of common stock, at a price below $5.50 per
share;
. a stock split or combination; and
. certain dividends and distributions.
Each share of Series A-1 Preferred Stock and Series A-2 Preferred Stock
shall automatically convert into shares of iPCS' common stock upon the earlier
to occur of the following:
. the closing of an underwritten public offering of iPCS' common stock in
which iPCS receives aggregate gross proceeds of at least $50.0 million
and in which the per share price at which such shares are sold in the
offering is at least $11.00 per share, subject to adjustment;
. upon iPCS' consummation of a transaction with a public company that
results in a change of control; and
. upon iPCS' consummation of a transaction with a private company that
results in a change of control and with respect to which the investor
group has not waived its right to receive the special dividend payable by
iPCS upon such change of control.
Dividends
Dividends shall be payable semiannually on each share of Series A-1
Preferred Stock and Series A-2 Preferred Stock at a rate of 7.5% per year and,
when paid, shall be paid only in additional shares of Series A-1 Preferred
Stock or Series A-2 Preferred Stock. Such dividends will accrue daily whether
or not iPCS has earnings or profit, whether or not there are funds legally
available for payment of such dividends and whether or not dividends are
declared. Dividends shall accumulate and compound semi-annually. In addition to
the 7.5% dividend, when and if iPCS' Board of Directors declares a dividend
payable with respect to the then outstanding shares of iPCS' common stock, the
holders of the Series A-1 Preferred Stock and Series A-2 Preferred Stock shall
be entitled to the amount of dividends per share as would be payable on the
number of shares of iPCS' common stock into which such share of Series A-1
Preferred Stock or Series A-2 Preferred Stock could then be converted. Upon the
occurrence of a change of control prior to July 12, 2005, iPCS will be
obligated to pay a special dividend to each holder of Series A-1 Preferred
Stock and Series A-2 Preferred Stock except as to any changes of control in
connection with a business combination with a private company as to which the
investor group waives its right to receive such dividend, in an amount equal to
the amount of all unpaid dividends that would have been payable through July
12, 2005.
With respect to iPCS' Series A-1 Preferred Stock and Series A-2 Preferred
Stock, a "change of control" occurs upon the happening of any of the following
events:
. any person who is not currently a holder of iPCS' stock is or becomes a
beneficial owner of more than 50% of the aggregate voting power of iPCS'
securities;
. Geneseo, Cambridge and their affiliates collectively do not beneficially
own more shares of iPCS' voting securities than any other person, other
than the investor group and its affiliates, which person beneficially
owns more than 35% of iPCS' voting securities;
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. any transaction occurs that results in iPCS' stockholders immediately
prior to such transaction being the holders of less than 50% of the
aggregate voting power of the securities of the resulting company after
such transaction;
. a majority of the members of iPCS' Board of Directors consists of
individuals who are neither members of the Board on the closing date or
appointed by the investor group, full time employees or directors of one
of iPCS' stockholders at such time or an individual who was requested to
be placed on the Board by a stockholder;
. a merger, consolidation, sale of assets or other similar business
combination transaction is consummated and, as a direct result, Mr. Yager
ceases to be iPCS' Chief Executive Officer or that of iPCS' successor; or
. any liquidation, dissolution or winding up of iPCS, or a dividend or
distribution to iPCS' stockholders of more than 50% of its assets.
Voting
Holders of iPCS' Series A-1 Preferred Stock and Series A-2 Preferred Stock
shall be entitled to vote on all matters submitted to a vote of iPCS'
stockholders as if the holders of Series A-1 Preferred Stock and Series A-2
Preferred Stock had converted their shares immediately prior to the vote. In
addition, the vote of at least a majority of the then outstanding shares of
Series A-1 Preferred Stock or Series A-2 Preferred Stock, voting together as a
single class, respectively, shall be necessary for effecting or validating the
following actions:
. any amendment, alteration or change to the rights, preferences,
privileges or powers of the Series A-1 Preferred Stock or Series A-2
Preferred Stock in any manner that adversely affects the shares of such
series;
. any increase or decrease in the total number of authorized or issued
shares of Series A-1 Preferred Stock or Series A-2 Preferred Stock, other
than the dividend issuances of such shares;
. any authorization, creation or issuance of any senior or parity
securities, other than in the case of the Series A-1 Preferred Stock, the
issuance of Series A-2 Preferred Stock;
. any redemption, acquisition or other purchase of any shares of iPCS', or
any of iPCS' subsidiary's, capital stock or other equity security,
subject to some exceptions;
. any change of iPCS' certificate of incorporation or bylaws that would
adversely affect the holders of the Series A-1 Preferred Stock or Series
A-2 Preferred Stock; or
. any voluntary liquidation, dissolution or winding up of iPCS.
Warrants
Sprint Warrants
As additional consideration to Sprint Spectrum L.P. for its agreement to
expand iPCS' initial territory by the additional 20 markets, iPCS has issued to
Sprint Spectrum L.P., or any of its designees controlled by, or under common
control with, Sprint Spectrum L.P. warrants for 1,151,938 shares. The warrants
are exercisable by Sprint Spectrum L.P. at an exercise price of $4.95 per share
beginning on or after July 15, 2001 and expiring on July 15, 2007. Sprint
Spectrum L.P. may transfer its rights with respect to the warrants only to a
company that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with Sprint Spectrum
L.P., and any warrants so transferred will be subject to the exercise time
periods. At such time as iPCS becomes eligible to file a registration statement
on Form S-3, Sprint Spectrum L.P. will be entitled to demand registration
rights for the underlying common stock until the common stock may be sold
without registration.
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Unit Warrants
As part of iPCS' units offering, iPCS issued and sold warrants to purchase
an aggregate of 2,982,699 shares of iPCS' common stock pursuant to a warrant
agreement between iPCS and ChaseMellon Shareholder Services, L.L.C., as the
warrant agent. iPCS has filed a copy of the warrant agreement as an exhibit to
its registration statement.
The holders of the unit warrants are entitled, in the aggregate, to
purchase 2,982,699 shares of iPCS' common stock, representing approximately 4%
of the issued and outstanding shares of iPCS' common stock on a fully diluted
basis, assuming exercise of the Sprint warrants and all options outstanding or
that have or may be issued under iPCS' Long-Term Incentive Plan. The unit
warrants became exercisable at any time after July 15, 2001 for a period of
ten years from the date of issuance. The unit warrants currently trade
separately from the notes in the Private Offerings and Resales trading through
Automated Linkages (PORTAL) market.
Each of the warrants, when exercised, will entitle the holder to receive
9.94233 fully paid and non-assessable shares of iPCS' common stock, at an
exercise price of $5.50 per share, subject to adjustment from time to time in
several circumstances including the following:
(1) the payment by iPCS of dividends and other distributions on iPCS'
common stock;
(2) subdivision, combinations and reclassifications of iPCS' common
stock;
(3) the issuance to all holders of common stock of such rights, options
or warrants entitling them to subscribe for iPCS' common stock or
securities convertible into, or exchangeable or exercisable for, iPCS'
common stock at a price which is less than the fair market value per share
of iPCS' common stock;
(4) certain distributions to all holders of iPCS' common stock of any of
iPCS' assets or debt securities or any rights or warrants to purchase any
such securities, excluding those rights and warrants referred to in clause
(3) above;
(5) the issuance of shares of iPCS' common stock for consideration per
share less than the then fair market value per share of iPCS' common stock
at the time of issuance of such convertible or exchangeable security,
excluding securities issued in transactions referred to in clauses (1)
through (4) above, or (6) below; and
(6) the issuance of securities convertible into or exchangeable for
iPCS' common stock for a conversion or exchange price plus consideration
received upon issuance less than the then fair market value per share of
iPCS' common stock at the time of issuance of such convertible or
exchangeable security, excluding securities issued in transactions referred
to in (1) through (4) above.
The events described above are subject to certain exceptions described in
the warrant agreement including:
. issuances of options, convertible securities or common stock to
employees, directors or consultants of iPCS or any of iPCS' subsidiaries
pursuant to a plan approved by iPCS' board of directors;
. rights to purchase common stock pursuant to a plan for reinvestment of
dividends or interest; and
. issuances of common stock, options or convertible securities in
connection with merger and acquisitions with non-affiliated third
parties.
iPCS is required, under the terms of a warrant registration rights
agreement to:
. file a shelf registration statement on or before October 10, 2000
covering the resale of the unit warrants, the issuance of the common
stock issuable upon exercise of the unit warrants and the resale of the
common stock issuable upon exercise of the unit warrants;
. use its reasonable best efforts to cause the shelf registration statement
to be declared effective under the Securities Act on or before January 8,
2000; and
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. keep the shelf registration statement continuously effective until the
date on which all of the unit warrants or shares of common stock issuable
thereunder have been sold pursuant to the shelf registration statement or
the unit warrants have expired.
iPCS has filed the registration statement and has caused the registration
statement to become effective on January 8, 2001. If iPCS fails to maintain its
effectiveness as specified above, a registration default shall be deemed to
have occurred and iPCS will be required to pay liquidated damages to each
holder of a unit warrant. The liquidated damages payable to each holder of a
warrant will be in an amount equal to $0.03 per week per unit warrant held by
such holder for each week or portion thereof that the registration default
continues for the first 90-day period immediately following the occurrence of
such registration default. This amount will increase by an additional $0.02 per
week per warrant with respect to each subsequent 90-day period, up to a maximum
amount equal to $0.07 per week per unit warrant. The provision for liquidated
damages will continue until such registration default has been cured. iPCS will
not be required to pay liquidated damages for more than one registration
default at any given time. No liquidated damages are currently payable.
Delaware Law and Certain Charter and By-Law Provisions
iPCS' certificate of incorporation and by-laws provide for the division of
the board of directors into three classes, as nearly equal in size as possible,
with each class beginning its three year term in a different year. A director
may be removed only for cause by the affirmative vote of the holders of at
least 80% of the voting power of all of the then-outstanding shares of capital
stock entitled to vote generally for the election of directors voting together
as a single class.
iPCS' certificate of incorporation will also require a stockholder who
intends to nominate a candidate for election or to raise new business at a
stockholder meeting to give at least 90 days' advance notice to the Secretary.
The notice provision will require a stockholder who desires to raise new
business to provide iPCS certain information concerning the nature of the new
business, the stockholder and the stockholder's interest in the business
matter. Similarly, a stockholder wishing to nominate any person for election as
a director will need to provide iPCS with certain information concerning the
nominee and the proposing stockholder.
iPCS' certificate of incorporation empowers its board of directors, when
considering a tender offer or merger or acquisition proposal, to take into
account factors in addition to potential economic benefits to stockholders.
These factors may include:
. comparison of the proposed consideration to be received by stockholders
in relation to the then current market price of iPCS' capital stock,
iPCS' estimated current value in a freely negotiated transaction and
iPCS' estimated future value as an independent entity; and
. the impact of a transaction on iPCS' employees, suppliers and customers
and its effect on the communities in which iPCS operate.
The provisions described above could make it more difficult for a third-
party to acquire control of iPCS and, furthermore, could discourage a third-
party from making any attempt to acquire control of iPCS.
iPCS' certificate of incorporation provides that any action required or
permitted to be taken by its stockholders may be taken only at a duly called
annual or special meeting of the stockholders, and that special meetings may be
called only by the chairman of the board, president and chief executive officer
or by the board pursuant to a resolution adopted by a majority of the board of
directors, or as otherwise provided in the by-laws. These provisions could have
the effect of delaying until the next annual stockholders meeting stockholder
actions that are favored by the holders of a majority of the outstanding voting
securities. These provisions may also discourage another person or entity from
making an offer to stockholders for the common stock. This is because the
person or entity making the offer, even if it acquired a majority of iPCS'
outstanding voting securities, would be unable to call a special meeting of the
stockholders and would further be unable to obtain
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unanimous written consent of the stockholders. As a result, any meeting as to
matters they endorse, including the election of new directors or the approval
of a merger, would have to wait for the next duly called stockholders meeting.
Delaware law provides that the affirmative vote of a majority of the shares
entitled to vote on any matter is required to amend a corporation's certificate
of incorporation or by-laws, unless the corporation's certificate of
incorporation or by-laws, as the case may be, requires a greater percentage.
iPCS' certificate of incorporation requires the affirmative vote of the holders
of at least 80% of the outstanding voting stock to amend or repeal any of the
provisions of the certificate of incorporation described above. The 80% vote is
also required to amend or repeal any of iPCS' by-law provisions described
above. The by-laws may also be amended or repealed by the board of directors.
The 80% stockholder vote would be in addition to any separate vote that each
class of preferred stock is entitled to that might in the future be required in
accordance with the terms of any preferred stock that might be outstanding at
the time any amendments are submitted to stockholders.
Transfer Agent and Registrar
The transfer agent and registrar for the iPCS common stock is Mellon
Investor Services LLC.
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SPRINT PCS AGREEMENTS
The following is a summary of the material terms and provisions of each of
AirGate's and iPCS' separate Sprint PCS agreements and the consent and
agreements modifying the Sprint PCS management agreements. The Sprint PCS
agreements and consent and agreements have been filed by each of AirGate and
iPCS, as applicable, as exhibits to certain of their respective filings with
the SEC. AirGate and iPCS urge you to carefully review the Sprint PCS
agreements and the consent and agreements.
The Sprint PCS agreements of one party and the rights and obligations of the
parties under such agreements are independent of the Sprint PCS agreements of
the other party and the rights and obligations of the parties under such
agreements. While a party's senior credit facility is outstanding, a default
under such party's Sprint PCS agreements is not, of itself, a default under the
other party's Sprint PCS agreements.
Overview of Sprint PCS Relationship and Agreements
Under their respective long-term agreements with Sprint PCS, AirGate and
iPCS will exclusively market PCS services under the Sprint and Sprint PCS brand
names in their territories. The agreements with Sprint PCS require AirGate and
iPCS to interface with the Sprint PCS wireless network by building their PCS
networks to operate on the 10 to 30 MHz of PCS frequencies licensed to Sprint
PCS in the 1900 MHz range. The Sprint PCS agreements also give AirGate and iPCS
access to Sprint PCS' equipment discounts, roaming revenue from Sprint PCS
customers traveling into their territory, and various other back office
services. AirGate's and iPCS' relationship and agreements with Sprint PCS
provide strategic advantages, including avoiding the need to fund up-front
spectrum acquisition costs and the costs of establishing billing and other
customer services infrastructure. The Sprint PCS agreements have an initial
term of 20 years with three 10-year renewals which can lengthen the contracts
to a total term of 50 years. AirGate's Sprint PCS agreements will automatically
renew for the first 10-year renewal period unless AirGate is in material
default on its obligations under the agreement. The Sprint PCS agreements will
automatically renew for two additional 10-year terms (and three additional 10-
year terms in the case of iPCS) unless either AirGate or iPCS on the one hand,
or Sprint PCS on the other hand, provides the other with two years prior
written notice to terminate the agreements.
Each of AirGate and iPCS has four major agreements with Sprint and Sprint
PCS:
. the management agreement;
. the services agreement;
. the trademark and service mark license agreement with Sprint; and
. the trademark and service mark license agreement with Sprint PCS.
In addition, Sprint PCS has entered into a consent and agreement with each
of AirGate and iPCS that modifies the respective management agreements for the
benefit of the lenders under AirGate's senior secured credit facility, in the
case of AirGate, and for the benefit of the lenders under iPCS' senior secured
credit facility, in the case of iPCS.
The Management Agreement
Under AirGate's and iPCS' management agreements with Sprint PCS, AirGate and
iPCS have each agreed to:
. construct and manage a network in its territory in compliance with Sprint
PCS' PCS licenses and the terms of the management agreement;
. distribute during the term of the management agreement, Sprint PCS
products and services;
. use Sprint PCS' and its own distribution channels in its territory;
. conduct advertising and promotion activities in its territory; and
. manage that portion of Sprint PCS' customer base assigned to its
territory.
Sprint PCS will supervise AirGate's and iPCS' PCS network operations and has
the right to unconditional access to their PCS networks.
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Exclusivity. AirGate and iPCS are designated as the only person or entity
that can manage or operate a PCS network for Sprint PCS in their respective
territories. Sprint PCS is prohibited from owning, operating, building or
managing another wireless mobility communications network in AirGate's or iPCS'
territories while their respective management agreements are in place and no
event has occurred that would permit the agreements to terminate. Sprint PCS is
permitted under the agreements to make national sales to companies in the
covered territories and, as required by the FCC, to permit resale of the Sprint
PCS products and services in the covered territory.
Network build-out. The management agreements each specify the terms of the
Sprint PCS affiliation, including the required network build-out plan.
(a) AirGate: AirGate agreed to cover a specified percentage of the
population at coverage levels ranging from 39% to 86% within each of the 21
markets which make up its territory by specified dates. AirGate has satisfied
these network build-out requirements. AirGate has agreed to operate its PCS
network, if technically feasible and commercially reasonable, to provide for a
seamless handoff of a call initiated in its territory to a neighboring Sprint
PCS network. If Sprint PCS decides to expand coverage within AirGate's
territory, Sprint PCS must provide AirGate with written notice of the proposed
expansion. AirGate has 90 days to determine whether AirGate will build out the
proposed area. If AirGate does not exercise this right, Sprint PCS can build
out the territory or permit another third party to do so. Any new area that
Sprint PCS or a third party builds out is removed from AirGate's territory.
(b) iPCS: iPCS agreed to cover a specified coverage percentage of the
population within each of its markets by the specified dates. iPCS believes its
current build-out plan will satisfy these obligations on a timely basis. The
management agreement also requires iPCS to reimburse Sprint PCS for 50% of the
microwave clearing cost for its territory. iPCS has agreed to operate its
network, if technically feasible and commercially reasonable, to provide for a
seamless handoff of a call initiated in its territory to a neighboring Sprint
PCS network. At any time after January 22, 2001, Sprint PCS can decide to
expand the coverage requirements of its territory by providing iPCS with
written notice as long as the expanded coverage requirements are for proposed
areas in which a tower would cover at least 10,000 residents. iPCS has 90 days
after receiving notice from Sprint PCS to determine whether it will build-out
the proposed area. As of January 22, 1999, Sprint PCS has identified nine
cities in iPCS' territory that meet the expanded coverage requirements
criteria. However, Sprint PCS cannot require iPCS to build-out these cities
until after December 31, 2002.
Products and services. The respective management agreements identify the
products and services that AirGate and iPCS can offer in their respective
territories. These services include, but are not limited to, Sprint PCS
consumer and business products and services available as of the date of the
agreement, or as modified by Sprint PCS. AirGate and iPCS may offer non-Sprint
PCS products and services in their respective territories under limited
circumstances and with Sprint PCS'concurrence. Neither company may offer
products and services that are confusingly similar to Sprint PCS products and
services. AirGate and iPCS may cross-sell services such as Internet access,
customer premises equipment, handsets, and prepaid phone cards with Sprint,
Sprint PCS and other Sprint PCS network partners. If AirGate or iPCS decide to
use third parties to provide these services, AirGate and iPCS must give Sprint
PCS an opportunity to provide the services on the same terms and conditions.
AirGate and iPCS cannot offer wireless local loop services specifically
designed for the competitive local exchange market in areas where Sprint owns
the local exchange carrier without Sprint PCS' consent, unless AirGate or iPCS,
as the case may be, name the Sprint-owned local exchange carrier as the
exclusive distributor.
AirGate and iPCS will participate in the Sprint PCS sales programs for
national sales to customers, and will pay the expenses and receive the
compensation from national accounts located in their respective territories.
AirGate and iPCS must use Sprint's long distance service which AirGate and iPCS
can buy at the best prices offered to comparably situated Sprint customers,
plus an additional administrative fee. Sprint has a right of last offer to
provide backhaul and transport services.
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Service pricing, roaming and fees. AirGate and iPCS must each offer Sprint
PCS subscriber pricing plans designated for regional or national offerings.
AirGate and iPCS will receive 92% of collected revenues received by Sprint PCS
for Sprint PCS products and services from customers in their respective
territories. This amount excludes roaming revenues, sales of handsets and
accessories, proceeds from sales not in the ordinary course of business and
amounts collected with respect to taxes. Except in the case of taxes, AirGate
and iPCS will retain 100% of these revenues. Although many Sprint PCS
subscribers will purchase a bundled pricing plan that allows roaming anywhere
on the Sprint PCS and network partners' networks without incremental roaming
charges, AirGate and iPCS will earn roaming revenues from every minute that a
Sprint PCS subscriber from outside the AirGate or iPCS territory is carried on
their respective PCS networks. AirGate and iPCS will earn revenues from Sprint
PCS based on an established per minute rate for Sprint PCS' subscribers
roaming in their territory. Similarly, AirGate and iPCS will pay for every
minute subscribers from their respective territories use the Sprint PCS
nationwide network outside such territories. The roaming rates earned, and
paid, by iPCS are fixed until December 31, 2001. The analog roaming rate onto
a non-Sprint PCS provider's network is set under Sprint PCS' third party
roaming agreements.
Advertising and promotions. Sprint PCS is responsible for all national
advertising and promotion of the Sprint PCS products and services. AirGate and
iPCS are responsible for advertising and promotion in their respective
territories, including a portion of the cost of any promotion or advertising
done by any third party retailers in its territory pursuant to a national
cooperative advertising agreement with Sprint PCS. Sprint PCS' service area
includes the urban markets around their respective territories. Sprint PCS
will pay for advertising in these markets. Given the proximity of those
markets to AirGate's and iPCS' markets, AirGate and iPCS both expect
considerable spill-over from Sprint PCS' advertising in surrounding urban
markets.
Program requirements. AirGate and iPCS will comply with Sprint PCS' program
requirements for technical standards, customer service standards, national and
regional distribution and national accounts programs. Sprint PCS can adjust
the program requirements from time to time under the conditions provided in
the management agreements. AirGate and iPCS each have the right to appeal to
Sprint PCS' management adjustments in the program requirements, if the
adjustment: (1) causes AirGate or iPCS, as the case may be, to spend more than
5% of the sum of the applicable company's equity and long term debt, or (2)
causes AirGate's or iPCS' operating expenses to increase by more than 10% on a
net present value basis. If Sprint PCS denies the company's appeal, then such
company has 10 days after the denial to submit the matter to arbitration. If
the company does not submit the matter to arbitration within the 10-day period
or comply with the program adjustment, Sprint PCS has the termination rights
described below.
Non-competition. AirGate and iPCS may not offer Sprint PCS products and
services outside their respective territories without the prior written
approval of Sprint PCS. Within their respective territories, AirGate and iPCS
may offer, market or promote telecommunications products and services only
under the Sprint PCS brands, their own brands, brands of related parties of
theirs or other products and services approved under the management
agreements, except that no brand of a significant competitor of Sprint PCS or
its related parties may be used for those products and services. To the extent
AirGate and iPCS have or obtain licenses to provide PCS services outside their
respective territories, neither AirGate nor iPCS may use the spectrum to offer
Sprint PCS products and services without prior written consent from Sprint
PCS.
Inability to use non-Sprint PCS brand. AirGate and iPCS may not market,
promote, advertise, distribute, lease or sell any of the Sprint PCS products
and services on a non-branded, "private label" basis or under any brand,
trademark or trade name other than the Sprint PCS brand, except for sales to
resellers approved by Sprint PCS or required by law or as otherwise permitted
under the trademark and service mark license agreements.
Rights of first refusal. Sprint PCS has certain rights of first refusal to
buy AirGate's and iPCS' assets upon a proposed sale of all or substantially
all of their respective assets.
Termination of management agreements. Each management agreement can be
terminated as a result of:
. termination of Sprint PCS' PCS licenses in the related company's
territory;
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. either AirGate or iPCS or their related parties fail to make any payment
due under the Sprint PCS agreements;
. any other uncured breach under the related management agreement;
. bankruptcy of a party to the related management agreement;
. subject to the limitations in the related management agreement, such
management agreement not complying with any applicable law in any
material respect;
. the termination of either of the related trademark and service mark
license agreements; or
. in the case of iPCS, its failure to obtain financing necessary for the
build-out of its network and for its working capital needs.
The termination or non-renewal of the management agreements triggers certain
of AirGate's and iPCS' rights, as applicable, and those of Sprint PCS. In the
case of iPCS, the right to purchase or sell the operating assets, as discussed
below, may not be exercised until January 21, 2002.
If AirGate or iPCS has the right to terminate its management agreement
because of an event of termination caused by Sprint PCS, generally the affected
party may:
. require Sprint PCS to purchase all of its operating assets used in
connection with its PCS networks for an amount equal to at least 80% of
its entire business value as defined below (88% in the case of AirGate,
unless Sprint PCS becomes the licensee for 20 MHz of spectrum in
AirGate's territory);
. if Sprint PCS is the licensee for 20 MHz or more of the spectrum on the
date AirGate terminates the management agreement (or in the case of iPCS,
the date the management agreement was executed), require Sprint PCS to
sell to AirGate or iPCS, as applicable, subject to governmental approval,
up to 10 MHz of licensed spectrum for an amount equal to the greater of
(1) the original cost to Sprint PCS of the license plus any microwave
relocation costs paid by Sprint PCS or (2) 9% of its entire business
value; or
. sue Sprint PCS for damages or submit the matter to arbitration and
thereby not terminate the related management agreement.
If Sprint PCS has the right to terminate a management agreement because of
an event of termination caused by AirGate or iPCS, as the case may be,
generally Sprint PCS may:
. require the defaulting party to sell its operating assets to Sprint PCS
for an amount equal to 72% of its entire business value;
. require the defaulting party to purchase, subject to governmental
approval, the licensed spectrum in its territory for an amount equal to
the greater of (1) the original cost to Sprint PCS of the license plus
any microwave relocation costs paid by Sprint or (2) 10% of its entire
business value;
. take any action as Sprint PCS deems necessary to cure the defaulting
party's breach of its management agreement, including assuming
responsibility for, and operating, the related PCS network; or
. sue the defaulting party for damages or submit the matter to arbitration
and thereby not terminate the related management agreement.
Non-renewal. If Sprint PCS gives either AirGate or iPCS timely notice that
it does not intend to renew such company's management agreement, AirGate or
iPCS, as the case may be, may:
. require Sprint PCS to purchase all of its operating assets used in
connection with the PCS network for an amount equal to at least 80% of
its entire business value (88% in the case of AirGate, unless Sprint PCS
becomes the licensee for 20 MHz of spectrum in AirGate's territory); or
. if Sprint PCS is the licensee for 20 MHz or more of the spectrum on the
date AirGate terminates the management agreement (or in the case of iPCS,
the date the management agreement is executed),
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require Sprint PCS to assign to it, subject to governmental approval, up
to 10 MHz of licensed spectrum for an amount equal to the greater of (1)
the original cost to Sprint PCS of the license plus any microwave
relocation costs paid by Sprint PCS or (2) 10% of its entire business
value.
If AirGate or iPCS gives Sprint PCS timely notice of non-renewal of the
related management agreement, or such company and Sprint PCS both give notice
of non-renewal, or the related management agreement can be terminated for
failure to comply with legal requirements or regulatory considerations, Sprint
PCS may:
. purchase all of the related company's operating assets for an amount
equal to 80% of its entire business value; or
. require the related company to purchase, subject to governmental
approval, the licensed spectrum for an amount equal to the greater of (1)
the original cost to Sprint PCS of the license plus any microwave
relocation costs paid by Sprint PCS or (2) 10% of its entire business
value.
Determination of Entire Business Value. If the entire business value is to
be determined, AirGate or iPCS, as the case may be, and Sprint PCS will each
select one independent appraiser and the two appraisers will select a third
appraiser. The three appraisers will determine the entire business value on a
going concern basis using the following guidelines:
. the entire business value is based on the price a willing buyer would pay
a willing seller for the entire on-going business;
. then-current customary means of valuing a wireless telecommunications
business will be used;
. the business is conducted under the Sprint and Sprint PCS brands and the
related Sprint PCS agreements;
. that the related company owns the spectrum and frequencies presently
owned by Sprint PCS and subject to the related Sprint PCS agreements; and
. the valuation will not include any value for businesses not directly
related to the Sprint PCS products and services, and such businesses will
not be included in the sale.
The rights and remedies of Sprint PCS outlined in the respective management
agreements resulting from an event of termination of the management agreement
have been materially amended by the related consent and agreement as discussed
below. However, at such time that there is no outstanding debt under the
related consent and agreement, such amendments to the rights and remedies of
Sprint PCS reflected in the related consent and agreement will not be in
effect.
Insurance. AirGate and iPCS are each required to obtain and maintain with
financially reputable insurers, who are licensed to do business in all
jurisdictions where any work is performed under the related management
agreement and who are reasonably acceptable to Sprint PCS, workers'
compensation insurance, commercial general liability insurance, business
automobile insurance, umbrella excess liability insurance and "all risk"
property insurance.
Indemnification. AirGate and iPCS have each agreed to indemnify Sprint PCS
and its directors, employees and agents and related parties of Sprint PCS and
their directors, employees and agents against any and all claims against any
of the foregoing arising from such company's violation of any law, a breach by
such company of any representation, warranty or covenant contained in their
respective management agreement or any other agreement between AirGate, iPCS
or either of their related parties and Sprint PCS, such company's ownership of
the operating assets or the actions or the failure to act of anyone employed
or hired by such company in the performance of any work under the related
management agreement, except AirGate and iPCS will not indemnify Sprint PCS
for any claims arising solely from the negligence or willful misconduct of
Sprint PCS. Sprint PCS has agreed to indemnify AirGate and iPCS, as the case
may be, and their directors, employees and agents against all claims against
any of the foregoing arising from Sprint PCS' violation of any law and from
Sprint PCS' breach of any representation, warranty or covenant contained in
the related management
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agreement or any other agreement between Sprint PCS and its related parties and
AirGate and iPCS or their related parties, except Sprint PCS will not indemnify
AirGate or iPCS for any claims arising solely from AirGate's or iPCS'
negligence or willful misconduct.
The Services Agreements
The respective services agreements outline various back office services
provided by Sprint PCS and available to each of AirGate and iPCS at established
rates. Sprint PCS can change any or all of the service rates one time in each
12-month period. Some of the available services include: billing, customer
care, activation, credit checks, handset logistics, home locator record, voice
mail, prepaid services, directory assistance, operator services, roaming fees,
roaming clearinghouse fees, interconnect fees and inter-service area fees.
Sprint PCS may contract with third parties to provide expertise and services
identical or similar to those to be made available or provided to AirGate and
iPCS. AirGate and iPCS have agreed not to use the services received under their
respective services agreement in connection with any other business or outside
their respective territories. AirGate and iPCS may discontinue use of selected
services upon three months' prior written notice, provided that certain
services many be terminated only with a group of other selected services.
Sprint PCS may discontinue a service upon nine months' prior written notice.
The services agreements automatically terminate upon termination of the
applicable management agreement. The services agreements may not be terminated
for any reason other than the termination of the applicable management
agreement.
AirGate or iPCS on the one hand and Sprint PCS on the other hand have each
agreed to indemnify each other as well as officers, directors, employees and
certain other related parties and their officers, directors and employees for
violations of law or the services agreement except for any liabilities
resulting from the indemnitee's negligence or willful misconduct. The services
agreement also provides that no party to the agreement will be liable to the
other party for special, indirect, incidental, exemplary, consequential or
punitive damages, or loss of profits arising from the relationship of the
parties or the conduct of business under, or breach of, the services agreement
except as may otherwise be required by the indemnification provisions.
The Trademark and Service Mark License Agreements
Both AirGate and iPCS have non-transferable, royalty-free licenses to use
the Sprint and Sprint PCS brand names and "diamond" symbol, and several other
U.S. trademarks and service marks such as "The Clear Alternative to Cellular"
and "Clear Across the Nation" on Sprint PCS products and services. AirGate and
iPCS believe that the Sprint and Sprint PCS brand names and symbols enjoy a
very high degree of awareness, providing AirGate and iPCS an immediate benefit
in the market place. AirGate's and iPCS' use of the licensed marks is subject
to their adherence to quality standards determined by Sprint and Sprint PCS and
use of the licensed marks in a manner which would not reflect adversely on the
image of quality symbolized by the licensed marks. AirGate and iPCS have agreed
to promptly notify Sprint and Sprint PCS of any infringement of any of the
licensed marks within their respective territories of which AirGate and iPCS
become aware and to provide assistance to Sprint and Sprint PCS in connection
with Sprint's and Sprint PCS' enforcement of their respective rights. AirGate
and iPCS have agreed with Sprint and Sprint PCS to indemnify each other for
losses incurred in connection with a material breach of the trademark license
agreements. In addition, AirGate and iPCS have agreed to indemnify Sprint and
Sprint PCS from any loss suffered by reason of its use of the licensed marks or
marketing, promotion, advertisement, distribution, lease or sale of any Sprint
or Sprint PCS products and services other than losses arising solely out of its
use of the licensed marks in compliance with certain guidelines.
Sprint and Sprint PCS can terminate the trademark and service mark license
agreements if AirGate or iPCS, as the case may be, file for bankruptcy,
materially breach the agreement or its management agreement is terminated.
AirGate and iPCS can terminate their respective trademark and service mark
license agreements upon Sprint's or Sprint PCS' abandonment of the licensed
marks or if Sprint or Sprint PCS files for bankruptcy, or the related
management agreement is terminated.
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Consents and Agreements in Connection with the Senior Credit Facilities
Sprint PCS has entered into a consent and agreement with the administrative
agent under AirGate's senior credit facility, which AirGate has acknowledged,
that modifies Sprint PCS' rights and remedies under AirGate's management
agreement for the benefit of the senior lenders and any refinancing of
AirGate's senior credit facility. Lehman Brothers Commercial Paper, Inc., a
subsidiary of Lehman Brothers, Inc., is the administrative agent under
AirGate's senior credit facility.
Similarly, Sprint PCS has entered into a consent and agreement with the
administrative agent under the senior secured credit facility of iPCS for the
benefit of the holders of indebtedness, which has been acknowledged by iPCS,
and modifies Sprint PCS' rights and remedies under iPCS' management agreement,
for the benefit of the existing and future holders of indebtedness under iPCS'
senior credit facility, and any refinancing thereof.
The consent and agreement of one party and the rights and obligations of
the parties thereunder, including its lenders, are independent of the consent
and agreement of the other party and the rights and obligations of the parties
under its consent and agreement.
Each consent generally provides, among other things, the following:
. Sprint PCS' consent to the pledge of the respective company's subsidiary
stock and the grant of a security interest in all of the respective
company's assets including the Sprint PCS agreements of such party;
. that the respective company's Sprint PCS agreements may not be terminated
by Sprint PCS until the respective senior credit facility is satisfied in
full pursuant to the terms of the respective consent, unless AirGate's
stock or assets or iPCS' subsidiaries or assets, as the case may be, are
sold to a purchaser who does not continue to operate such business as a
Sprint PCS network, which sale requires the approval of the applicable
administrative agent;
. a prohibition on competing Sprint PCS networks in AirGate's or iPCS'
territory;
. for Sprint PCS to maintain 10 MHz of PCS spectrum in all of either
AirGate's or iPCS' markets;
. for redirection of payments from Sprint PCS to the applicable
administrative agent under specified circumstances;
. for Sprint PCS and the applicable administrative agent to provide to each
other notices of default;
. the ability to appoint an interim replacement, including Sprint PCS, to
operate AirGate's or iPCS', as applicable, PCS network under such party's
Sprint PCS agreements after an acceleration of the respective senior
credit facility or an event of termination under the respective Sprint
PCS agreements;
. the ability of the applicable administrative agent or Sprint PCS to
assign the Sprint PCS agreements and sell AirGate's or iPCS' respective
assets or the equity interests of iPCS' operating subsidiaries, as the
case may be, to a qualified purchaser other than a major competitor of
Sprint PCS or Sprint;
. the ability to purchase spectrum from Sprint PCS and sell AirGate's or
iPCS' respective assets to any qualified purchaser; and
. the ability of Sprint PCS to purchase AirGate's or iPCS' respective
assets or debt.
Consent to security interest and pledge of stock. Sprint PCS has consented
to the grant of the following:
. a first priority security interest in all of the applicable party's
assets including such party's Sprint PCS agreements;
. a lien upon all of the applicable party's assets and property including
their rights under such party's Sprint PCS agreements; and
. a first priority security interest in the capital stock and equity
interests of the applicable party's subsidiaries and future subsidiaries.
Sprint PCS has agreed to acknowledge the grant of these security interests
and to waive its right to challenge or contest the validity of the interests.
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Agreement not to terminate Sprint PCS agreements until the obligations under
related financings are repaid. Sprint PCS has agreed not to exercise its rights
or remedies under the respective Sprint PCS agreements, except its right to
cure certain defaults, including its right to terminate the applicable Sprint
PCS agreements and withhold payments, other than rights of setoff, until the
respective financing is satisfied in full pursuant to the terms of the
respective consent. Sprint PCS has agreed that until AirGate's or iPCS'
respective senior credit facility is satisfied in full, the failure of a party
related to AirGate or iPCS to pay any amount under any agreement with Sprint
PCS, other than the Sprint PCS agreements, or its related parties will not
constitute a breach of the applicable Sprint PCS agreements.
No competition until obligations under the senior credit facilities are
repaid. Sprint PCS has agreed that it will not permit any person other than
AirGate or iPCS, as applicable, or a successor manager to be a manager or
operator for Sprint PCS in AirGate's or iPCS' applicable territories, until
that company's senior credit facility is satisfied in full pursuant to the
terms of that company's consent. Consistent with the management agreements,
while the applicable senior credit facility is outstanding, Sprint PCS can sell
PCS services through its national accounts, permit resellers and build new
geographical areas within AirGate's or iPCS', as applicable, territory (for
which AirGate has chosen not to exercise its rights of first refusal).
Similarly, Sprint PCS has agreed that it will not own, operate, build or manage
another wireless mobility communications network in AirGate's or iPCS', as
applicable, territory unless it is permitted under the applicable management
agreement or such management agreement is terminated in accordance with the
applicable consent, and, in each case, the applicable senior credit facility is
satisfied in full pursuant to the terms of the applicable consent.
Maintain 10 MHz of spectrum. Sprint PCS has agreed to own at least 10 MHz of
PCS spectrum in each of AirGate's and iPCS' territories until the first of the
following events occurs:
. the obligations under the applicable senior credit facility is satisfied
in full pursuant to the terms of AirGate's or iPCS' respective consent;
. the sale of spectrum is completed under the applicable consent, as
discussed below;
. the sale of operating assets is completed under the applicable consent,
as discussed below; or
. the termination of AirGate's or iPCS', as applicable, management
agreement.
Restrictions on assignment and change of control do not apply to lenders and
the administrative agent. Sprint PCS has agreed not to apply the restrictions
on assignment of the Sprint PCS agreements and changes in control of AirGate's
or iPCS' ownership to the lenders under the senior credit facilities or the
administrative agents. The assignment and change of control provisions in the
Sprint PCS agreements will apply if the assignment or change of control is to
someone other than the applicable administrative agent or a lender under the
senior credit facilities, or is not permitted under the consents.
Redirection of payments from Sprint PCS to the applicable administrative
agent. Sprint PCS has agreed to make all payments due from Sprint PCS to
AirGate or iPCS under the respective Sprint PCS agreements directly to the
applicable administrative agent if such administrative agent provides Sprint
PCS with notice that an event of default has occurred and is continuing under
the applicable senior credit facility. Payments to such administrative agent
would cease upon the cure of the event of default.
Notice of defaults. Sprint PCS has agreed to provide to the applicable
administrative agent a copy of any written notice it sends to either AirGate or
iPCS regarding an event of termination or an event that if not cured, or if
notice is provided, would be an event of termination under the applicable
Sprint PCS agreements. Sprint PCS also has acknowledged that notice of an event
of termination under the Sprint PCS agreements constitutes an event of default
under the senior credit facilities. The administrative agents are, or will be,
required to provide Sprint PCS a copy of any written notice sent to either
AirGate or iPCS, as applicable, regarding an event of default or default under
the respective senior credit facility instruments.
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Right to cure. Sprint PCS and the respective applicable administrative
agents have the right, but not the obligation, to cure a default under the
respective Sprint PCS agreements. During the first six months as interim
manager Sprint PCS' right to reimbursement of any expenses incurred in
connection with the cure are subordinated to the satisfaction in full, pursuant
to the terms of the consents, of the obligations under the applicable senior
credit facility.
Modification of termination rights. The consents modify the rights and
remedies under the management agreements provided in an event of termination
and grant the providers of the senior credit facilities certain rights in the
event of a default under the instruments governing the applicable senior debt.
The rights and remedies of the administrative agent under each senior credit
facility vary based on whether AirGate or iPCS, as applicable, has:
. defaulted under its debt obligations but no event of termination has
occurred under its respective management agreement; or
. breached its respective management agreement.
Each consent generally permits the appointment of a person to run AirGate's
or iPCS' business, as the case may be, under its Sprint PCS agreements on an
interim basis and establish a process for sale of such business. The person
designated to operate such business on an interim basis is permitted to collect
a reasonable management fee. If Sprint PCS or a related party is the interim
operator, the amount of the fee is not to exceed the amount of direct expenses
of its employees to operate such business plus out-of-pocket expenses. Sprint
PCS shall collect its fee by setoff against the amounts owed to the defaulting
party under its Sprint PCS agreements with them. In the event of an
acceleration of obligations under the applicable senior credit facility and for
up to two years thereafter, Sprint PCS shall retain only one-half of the 8% of
collected revenues that it would otherwise be entitled to retain under the
defaulting party's Sprint PCS agreements. Sprint PCS may retain the full 8%
after the second anniversary of the date of acceleration if Sprint PCS has not
been appointed to run such business on an interim basis or earlier if such
business is sold to a third party. The defaulting party or the applicable
administrative agent, as the case may be, shall be entitled to receive the
remaining one-half of the collected revenues that Sprint PCS would otherwise
have retained. The amount advanced to the defaulting party or the applicable
administrative agent is to be evidenced by an interest-bearing promissory note.
The promissory note will mature on the earlier of (1) the date a successor
manager is qualified and assumes the defaulting party's rights and obligations,
as the case may be, under its Sprint PCS agreements or (2) the date on which
such company's operating assets or equity are purchased by a third party.
Default under the respective senior credit facility without a management
agreement breach. If either AirGate or iPCS defaults on its obligations under
its respective senior credit facility and there is no default under its
management agreement with Sprint PCS, Sprint PCS has agreed to permit the
applicable administrative agent to elect to take any of the following actions:
. allow the defaulting party to continue to operate its business under its
Sprint PCS agreements;
. appoint Sprint PCS to operate such business on an interim basis; or
. appoint a person other than Sprint PCS to operate such business on an
interim basis.
Appointment of Sprint PCS or third party designee by applicable
administrative agent to operate business. If an applicable administrative
agent appoints Sprint PCS to operate AirGate's or iPCS', as applicable,
business, Sprint PCS must accept the appointment within 14 days or
designate to operate such business another person who also is an
affiliate of Sprint PCS or is acceptable to such administrative agent.
Sprint PCS or its designated person must agree to operate the business
for up to six months. At the end of the six months, the period may be
extended by such administrative agent for an additional six months or an
additional 12 months if the aggregate population served by all of Sprint
PCS' affiliates is less than 40 million. If the term is extended beyond
the initial six-month period, such administrative agent will be required
to reimburse Sprint PCS or its designated person for amounts
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previously expended and to be incurred as interim manager to cure a
default up to an aggregate amount that is equal to 5% of the sum of the
defaulting party's stockholders' equity value plus the outstanding amount
of the defaulting party's long term debt. Sprint PCS or its designated
person is not required to incur expenses beyond this 5% limit. At the end
of the initial six-month interim term, the applicable administrative
agent has the right to appoint a successor to the defaulting party
subject to the requirements described below.
Appointment of third party by administrative agent to operate
business. If an administrative agent appoints a person other than Sprint
PCS to operate a defaulting party's business on an interim basis, the
third party must:
. agree to serve for six months unless terminated by Sprint PCS or
such administrative agent for cause;
. meet the requirements for a successor to an affiliate and not be
challenged by Sprint PCS for failing to meet these requirements
within 20 days after the administrative agent provides Sprint PCS
with information on the third party; and
. agree to comply with the terms of the applicable Sprint PCS
agreements.
The third party is required to operate the Sprint PCS network in the
defaulting party's territory but is not required to assume its existing
liabilities. If the third party materially breaches the defaulting party's
Sprint PCS agreements, this breach will be treated as an event of default under
the related management agreement with Sprint PCS.
Management agreement breach. If AirGate or iPCS breaches its Sprint PCS
agreements and such breach causes a default under such company's respective
senior credit facility, Sprint PCS has the right to designate who will operate
the business of the defaulting party on an interim basis. Sprint PCS has the
right to:
. allow the defaulting party to continue to operate such business under its
Sprint PCS agreements if approved by its administrative agent;
. operate such business on an interim basis; or
. appoint a person other than Sprint PCS that is acceptable to the
applicable administrative agent, which acceptance cannot be unreasonably
withheld and must be given for another Sprint PCS affiliate, to operate
such business on an interim basis.
When a debt default is caused by a breach of AirGate's or iPCS' management
agreement with Sprint PCS, the applicable administrative agent only has a right
to designate who will operate such business on an interim basis if Sprint PCS
elects not to operate such business or designate a third party to operate such
business on an interim basis.
Election of Sprint PCS to serve as interim manager or designate a
third party to operate business. If Sprint PCS elects to operate such
business on an interim basis or designate a third party to operate such
business on an interim basis, Sprint PCS or the third party may operate
such business for up to six months at the discretion of Sprint PCS. At
the end of the six months, the period may be extended for an additional
six months or an additional 12 months if the aggregate population served
by AirGate and iPCS and all other affiliates of Sprint PCS is less than
40 million. If the term is extended beyond the initial six-month period,
the applicable administrative agent will be required to reimburse Sprint
PCS or its third party designee for amounts previously expended and to be
incurred as interim manager to cure a default up to an aggregate amount
that is equal to 5% of the sum of the defaulting party's stockholder's
equity value plus the outstanding amount of such company's long term
debt. Sprint PCS or its third party designee is not required to incur
expenses beyond this 5% limit. At the end of the initial six-month
interim term, Sprint PCS, subject to the approval of the applicable
administrative agent, has the right to appoint a successor interim
manager to operate such business.
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Appointment of third party by administrative agent to operate
business. If Sprint PCS gives the applicable administrative agent notice
of a breach of AirGate's or iPCS' management agreement, the debt
repayment is accelerated, and Sprint PCS does not agree to operate such
business or is unable to find a designee, such administrative agent may
designate a third party to operate such business. Such administrative
agent has this same right if Sprint PCS or the third party designated by
Sprint PCS resigns and is not replaced within 30 days. The third party
selected by such administrative agent must:
. agree to serve for six months unless terminated by Sprint PCS for
cause by such administrative agent;
. meet the requirements for a successor to an affiliate and not be
challenged by Sprint PCS for failing to meet the requirements within
20 days after such administrative agent provides Sprint PCS with
information on the third party; and
. agree to comply with the terms of the applicable Sprint PCS
agreements.
The third party may continue to operate the business after the six
month period at the applicable administrative agent's discretion, so long
as the third party continues to satisfy the requirements to be a
successor to an affiliate. The third party is required to operate the
Sprint PCS network in the defaulting party's territory, but is not
required to assume such company's existing liabilities.
Purchase and sale of operating assets. Each of the consents establishes a
process for the sale of either AirGate's or iPCS' operating assets, as the case
may be, in the event of a default and acceleration under the applicable senior
credit facility. AirGate's stockholders have approved the sale of its operating
assets pursuant to the terms of AirGate's consent.
Sprint PCS' right to purchase on acceleration of amounts outstanding under
the respective senior credit facility. Subject to the requirements of
applicable law, Sprint PCS has the right to purchase AirGate's or iPCS'
operating assets, as applicable, upon notice of an acceleration of the
respective senior credit facility under the following terms:
. in addition to the purchase price requirements of the respective
management agreement, the purchase price must include the payment or
assumption in full, pursuant to the terms of the respective consent, of
the respective senior credit facility;
. Sprint PCS must notify the applicable administrative agent of its
intention to exercise the purchase right within 60 days of receipt of the
notice of acceleration;
. such administrative agent is prohibited for a period of at least 120 days
after the acceleration or until Sprint PCS rescinds its intention to
purchase from enforcing its security interest if Sprint PCS has given
notice of its intention to exercise the purchase right;
. if the defaulting party receives a written offer that is acceptable to
such company to purchase its operating assets within a specified period
after the acceleration, Sprint PCS has the right to purchase such
operating assets on terms and conditions at least as favorable to such
company as the offer such company receives. Sprint PCS must agree to
purchase the operating assets within 14 business days of its receipt of
the offer, on acceptable conditions, and in an amount of time acceptable
to such company; and
. upon completion of the sale to Sprint PCS, such administrative agent must
release the security interests upon satisfaction in full pursuant to the
terms of the respective consent of the obligations under the respective
senior credit facility.
If the applicable administrative agent acquires the defaulting party's
operating assets, Sprint PCS has the right for 60 days to notify such
administrative agent that it wants to purchase such operating assets for an
amount not less than the sum of the aggregate amount paid by the lenders under
the related senior credit
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facility for such operating assets plus an aggregate amount sufficient to
satisfy in full the obligations under such senior credit facility pursuant to
the terms of the respective company's consent. If Sprint PCS purchases such
operating assets under these provisions, the administrative agent must release
the security interests securing such senior credit facility.
If such administrative agent receives an offer to purchase the operating
assets of the defaulting party, Sprint PCS has the right to purchase the
operating assets on terms and conditions at least as favorable as the terms and
conditions in the proposed offer within 14 days of Sprint PCS' receipt of
notice of the offer, and so long as the conditions of Sprint PCS' offer and the
amount of time to complete the purchase is acceptable to the administrative
agent.
Sale of operating assets to third parties. If Sprint PCS does not purchase
the operating assets, following an acceleration of the obligations under the
related senior credit facility, the applicable administrative agent may sell
the operating assets of the defaulting party. Subject to the requirements of
applicable law, such administrative agent has two options:
. to sell the assets to an entity that meets the requirements to be a
successor under the related Sprint PCS agreements; or
. to sell the assets to any third party, subject to specified conditions.
Sale of assets to qualified successor. Subject to the requirements of
applicable law, the related administrative agent may sell the operating assets
and assign the agreements to entities that meet the following requirements to
succeed the defaulting party:
. the person has not materially breached a material agreement with Sprint
PCS or its related parties that has resulted in the exercise of a
termination right or in the initiation of judicial or arbitration
proceedings during the past three years;
. the person is not named by Sprint PCS as a prohibited successor;
. the person has reasonably demonstrated its credit worthiness and can
demonstrate the ability to service the indebtedness and meet the
requirements of the related build-out plan; and
. the person agrees to be bound by the applicable Sprint PCS agreements.
Such administrative agent is required to provide Sprint PCS with information
necessary to determine if a buyer meets the requirements to succeed the
defaulting party. Sprint PCS has 20 days after its receipt of this information
to object to the qualifications of the buyer to succeed the defaulting party.
If Sprint PCS does not object to the buyer's qualifications, subject to the
requirements of applicable law, the buyer can purchase the assets and assume
our rights and responsibilities under the related Sprint PCS agreements. The
consents will remain in full force and effect for the benefit of the buyer and
its lenders. The buyer also has a period to cure any defaults under the
applicable Sprint PCS agreements.
Sale of assets to non-successor. Subject to the requirements of applicable
law, the related administrative agent may sell a defaulting party's assets to a
party that does not meet the requirements to succeed the defaulting party. If
such a sale is made:
. Sprint PCS may terminate the related Sprint PCS agreements;
. the buyer may purchase from Sprint PCS 5, 7.5 or 10 MHz of the PCS
spectrum licensed to Sprint PCS in AirGate's or iPCS' territory under
specified terms, as the case may be;
. if the buyer controls, is controlled by or is under common control with
an entity that owns a license to provide wireless service to at least 50%
of the population in a basic trading area where the buyer proposes to
purchase the spectrum from Sprint PCS, the buyer may only buy 5MHz of
spectrum;
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. the price to purchase the spectrum is equal to the sum of the original
cost of the license to Sprint PCS pro rated on a population and a
spectrum basis, plus the cost paid by Sprint PCS for microwave clearing
in the spectrum ultimately acquired by the buyer of the defaulting
party's assets and the amount of carrying costs attributable to the
license and microwave clearing costs from the date of the appropriate
consent until the closing of the sale, based on a rate of 12% per annum;
. the buyer will receive from Sprint PCS the customers with the MIN
assigned to the market area covered by the purchased spectrum except for
customers of national accounts and resellers;
. with limited exceptions, Sprint PCS will not solicit for six months the
customers transferred to the buyer with the MIN assigned to the market
area;
. the buyer and Sprint PCS will enter into a mutual roaming agreement with
prices equal to the lesser of the most favored pricing provided by buyer
to third parties roaming in the geographic area and the national average
paid by Sprint PCS to third parties; and
. Sprint PCS will have the right to resell the buyer's wireless services at
most favored nations pricing.
Right to purchase debt obligations. Following an acceleration under the
applicable senior credit facility and until the 60-day anniversary of the
filing of a petition of bankruptcy, Sprint PCS has the right to purchase
AirGate's or iPCS' obligations under such senior credit facility, as the case
may be, at a purchase price equal to the amount of the obligations other than
interest accrued and fees and expenses that are deemed to be unreasonable.
Modification and amendment of consent. If Sprint PCS modifies or amends the
form of consent and agreement it enters into with a lender to another Sprint
PCS affiliate that serves an area with population exceeding 5.0 million, then
Sprint PCS agrees to give the administrative agents written notice of the
amendments and to amend the consents in the same manner at the applicable
administrative agent's request; provided, however, that Sprint PCS is not
required to amend the consents to:
. incorporate selected changes designated by such administrative agent
unless Sprint PCS consents to making only the selected changes; or
. incorporate changes made for the benefit of a lender because of
circumstances related to a particular Sprint PCS affiliate other than
AirGate or iPCS.
The following circumstances would not be considered related to a particular
Sprint PCS affiliate and, subject to the provisions described in the preceding
sentence, could result in amendment of the consents (if the 5.0 million
population threshold is met as described above):
. any form of recourse to Sprint PCS or similar form of credit enhancement;
. any change in Sprint PCS's right to purchase our operating assets or
capital stock under the management agreement or Sprint PCS's right to
purchase the obligations under the senior credit facilities;
. any change to the right of AirGate or iPCS or the right of the related
administrative agent or the lenders under the related senior credit
facilities to sell the collateral or purchase spectrum from Sprint PCS;
. any change in the ownership status, terms of usage or the amount of
spectrum that may be purchased by AirGate or iPCS from Sprint PCS;
. any material change in the flow of certain revenues between Sprint PCS
and AirGate or iPCS;
. any changes to the obligations required to be assumed by, or
qualifications for, or appointment of, anyone other than AirGate or iPCS
who can be appointed to operate such business on an interim basis under
such management agreement or purchase such business and continue to
operate under such management agreement;
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. any changes to the consent and agreements terms on confidentiality, non-
compete or eligible buyers of the business;
. any clarifications of FCC compliance issues;
. any issuance of legal opinions; and
. any changes to the requirements described in this section.
Termination of consents. The consents will terminate upon the first to occur
of:
. repayment in full of all obligations under the applicable senior credit
facility and termination of such senior credit facility; and
. termination of the applicable Sprint PCS agreements.
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REGULATION OF THE WIRELESS TELECOMMUNICATIONS INDUSTRY
Federal Communications Commission Regulation. The FCC regulates the
licensing, construction, operation, acquisition and interconnection
arrangements of wireless telecommunications systems in the United States.
Specifically, AirGate and iPCS are subject to radio license regulation under
Title III of the Communications Act, as amended, as well as common carrier
regulation under Title II of the Communications Act, as amended. In addition,
AirGate's and iPCS' operations are subject to regulation as commercial mobile
radio services, commonly referred to as CMRS, and to service-specific personal
communications service regulations.
The FCC has promulgated, and is in the process of promulgating and revising,
a series of rules, regulations and policies that affect AirGate's and iPCS'
operations. Penalties for violating the FCC's rules and policies can range from
monetary forfeitures to license revocation or nonrenewal of licenses. The FCC
Title II regulations applicable to AirGate's and iPCS' wireless operations
include, among other things:
. requirements and standards, discussed further below, for the
interconnection of PCS networks with other wireless and wireline
carriers;
. requirements to provide service upon reasonable request and prohibitions
on unjust or unreasonable discrimination by carriers between similarly
situated customers and the charging of unreasonable or unjust rates; and
. requirements to pay access charges, universal service funding (as
discussed below), and other regulatory and non-regulatory fees and
charges.
Neither AirGate nor iPCS holds any radio licenses, but rather operates using
spectrum licensed to Sprint PCS under the Sprint PCS management agreements.
Nonetheless, AirGate and iPCS are subject to, or impacted by, a number of
additional regulations and requirements under Title III of the Communications
Act, as amended. These requirements include, among other things:
. requirements in most cases to obtain prior consent before the assignment
and/or transfer of control of a PCS license, as discussed below;
. limitations on the extent of non-U.S. ownership of radio licenses and the
qualifications of holders of radio licenses; and
. requirements for compliance of antenna sites with the National
Environmental and Policy Act, including restrictions on emissions of
radiofrequency radiation, as well as requirements on the marking and
lighting of antenna structures, and related notifications to the Federal
Aviation Administration, for certain antenna sites.
Furthermore, AirGate's and iPCS' operations are also subject to CMRS and
service specific regulation by the FCC. CMRS regulations include, among other
things:
. limitations on having attributable interests (usually 20% or greater) in
broadband PCS, cellular and specialized mobile radio service, or SMR,
spectrum totaling more than 45 MHz in any urban areas, and 55 MHz in
rural areas;
. requirements for carriers to provide access to 9-1-1 services from mobile
handsets, including handsets of users who are not subscribers of such
carrier, and for the network to provide enhanced location and other
mobile identification information to public safety answering points, as
discussed below;
. requirements to comply with the Communications Assistance to Law
Enforcement Act, commonly known as CALEA, including the dedication of
capacity and provision of access points for law enforcement agencies to
facilitate wiretaps and intercepts with valid authority; and
. rules requiring implementation by November 24, 2002 of service provider
number portability, including the ability to deliver calls from the
company's networks to ported numbers anywhere in the country, and to
contribute to the Local Number Portability Fund.
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The FCC has divided the 120 MHz of spectrum allocated to broadband PCS into
six frequency blocks, A through F. Through Sprint PCS, AirGate and iPCS operate
under blocks B, D and E. PCS specific regulations that affect AirGate's and
iPCS' operations include, among other things:
. presumptions regarding the grant or denial of PCS license renewals, as
discussed below;
. rules governing the height, power and physical emissions characteristics
of PCS transmitters;
. rules, discussed further below, requiring service providers to meet
specific coverage benchmarks by the end of the fifth year from being
licensed;
. rules to allow broadband PCS licensees to partition their market areas
and/or to disaggregate their assigned spectrum and to transfer partial
market areas or spectrum assignments to eligible third parties;
. prohibitions on a provider's restriction of resale, which will expire
November 24, 2002 unless the FCC extends them, although these
prohibitions apply to services and not to equipment such as handsets,
whether alone or in bundled packages; and
. rules requiring PCS providers to relocate, or otherwise compensate,
incumbent microwave users (or share in the relocation costs, if the
microwave user has already relocated) in the band if the deployment of
PCS would interfere with the microwave user's system.
Interconnection
The FCC has the authority to order interconnection between CMRS providers
(which includes us) and any other common carrier. The FCC has ordered local
exchange carriers to provide reciprocal compensation to CMRS providers for the
termination of traffic. Under these new rules, AirGate and iPCS benefit from
interconnection agreements negotiated by Sprint PCS for AirGate's and iPCS'
networks with Qwest, SBC, GTE and several smaller independent local exchange
carriers. Interconnection agreements are negotiated on a statewide basis. If an
agreement cannot be reached, parties to interconnection negotiations can submit
outstanding disputes to state authorities for arbitration. Negotiated
interconnection agreements are subject to state approval.
Universal Service Requirements
The FCC and the states are required to establish a universal service program
to ensure that affordable, quality telecommunications services are available to
all Americans. Sprint PCS is required to contribute to the federal universal
service program as well as existing state programs. The FCC has determined that
Sprint PCS' contribution to the federal universal service program is a variable
percentage of interstate end-user telecommunications revenues and is
approximately 6.8% for the second quarter of 2001. Although many states are
likely to adopt a similar assessment methodology for intrastate revenues, the
states are free to calculate telecommunications service provider contributions
in any manner they choose as long as the process is not inconsistent with the
FCC's rules. At the present time it is not possible to predict the extent of
the Sprint PCS total federal and state universal service assessments or its
ability to recover from the universal service fund.
Transfers, Assignments and Control of PCS Licenses
The FCC must give prior approval to the assignment of, or transfers
involving, substantial changes in ownership or control of a PCS license. Non-
controlling interests in an entity that holds a PCS license or operates PCS
networks generally may be bought or sold without prior FCC approval. In
addition, a recent FCC order requires only post-consummation notification of
certain pro forma assignments or transfers of control.
An integral element of these rules is that the FCC also requires licensees
to maintain a certain degree of control over their licenses. The Sprint PCS
agreements reflect an alliance that the parties believe meets the FCC
requirements for licensee control of licensed spectrum. If the FCC were to
determine that the Sprint PCS agreements need to be modified to increase the
level of licensee control, AirGate and iPCS have agreed with
151
Sprint PCS under the terms of their respective Sprint PCS agreements to use
their respective best efforts to modify the agreements as necessary to cause
the agreements to comply with applicable law and to preserve to the extent
possible the economic arrangements set forth in the agreements. If the
agreements cannot be modified, the agreements may be terminated pursuant to
their terms. In addition to revoking the licenses, the FCC could also impose
monetary penalties on AirGate or iPCS.
Enhanced 911
In June 1996, the FCC adopted rules requiring broadband PCS and other CMRS
providers to implement enhanced emergency 911 capabilities by October 1, 2001.
Sprint PCS has obtained a waiver of the enhanced emergency 911 capability
requirements on a modified deployment plan that would provide for completing
emergency 911 deployment by 2005.
Communications Assistance for Law Enforcement Act
CALEA was enacted in 1994 to preserve electronic surveillance capabilities
by law enforcement officials in the face of rapidly changing telecommunications
technology. CALEA requires telecommunications carriers, including AirGate and
iPCS, to modify their equipment, facilities, and services to allow for
authorized electronic surveillance based on either industry or FCC standards.
In 1997, industry standard-setting organizations developed interim standards
for wireline, cellular, and broadband PCS carriers to comply with CALEA. In
August 1999, the FCC supplemented the interim industry standards with
additional standards. For interim industry standards, the deadline for
compliance was June 30, 2000, and for the additional standards established by
the FCC, the deadline is September 30, 2001. Due to required hardware changes
that have not yet been developed and implemented by switch manufacturers,
AirGate and iPCS have joined with Sprint PCS to request an extension of time
for compliance with these requirements. AirGate and iPCS may be granted
extensions for compliance, or we may be subject to penalties if we fail to
comply, including being assessed fines or having conditions put on our
licenses.
PCS License Renewal
PCS licensees can renew their licenses for additional 10 year terms. PCS
renewal applications are not subject to auctions. However, under the FCC's
rules, third parties may oppose renewal applications and/or file competing
applications. If one or more competing applications are filed, a renewal
application will be subject to a comparative renewal hearing. The FCC's rules
afford PCS renewal applicants involved in comparative renewal hearings with a
"renewal expectancy." The renewal expectancy is the most important comparative
factor in a comparative renewal hearing and is applicable if the PCS renewal
applicant has:
. provided "substantial service" during its license term; and
. substantially complied with all applicable laws and FCC rules and
policies.
The FCC's rules define "substantial service" in this context as service that
is sound, favorable and substantially above the level of mediocre service that
might minimally warrant renewal.
Build-Out Conditions of PCS Licenses
All PCS licenses are granted for 10-year terms conditioned upon timely
compliance with the FCC's build-out requirements. Pursuant to the FCC's build-
out requirements, all 30 MHz broadband PCS licensees must construct facilities
that offer coverage to one-third of the population within 5 years and to two-
thirds of the population within 10 years, and all 10 MHz broadband PCS
licensees must construct facilities that offer coverage to at least one-quarter
of the population within 5 years or make a showing of "substantial service"
within that 5 year period. Rule violations could result in license cancellation
or revocation.
Other Federal Regulations
Wireless systems, which AirGate and iPCS use in the provision of services,
must comply with certain FCC and FAA regulations regarding the siting, lighting
and construction of transmitter towers and antennas.
152
The FCC also requires that aggregate radio wave emissions from every site
location meet certain standards. Although AirGate and iPCS believe that our
respective existing networks meet these standards, a site audit may reveal the
need to reduce or modify emissions at one or more sites. This would increase
AirGate's and iPCS' costs and have a material adverse affect on our respective
operations. In addition, these regulations will also affect site selection for
new network build-outs and may increase the costs of building out our
respective network. The increased costs and delays from these regulations may
have a material adverse affect on our respective operations. In addition,
certain FCC environmental regulations may cause certain cell site locations to
become subject to regulation under the National Environmental Policy Act. The
FCC is required to implement this statute by requiring carriers to meet certain
land use and radio frequency standards.
Wireless Facilities Siting
States and localities are not permitted to regulate the placement of
wireless facilities so as to prohibit the provision of wireless services or to
discriminate among providers of such services. In addition, as long as a
wireless system complies with the FCC's rules, states and localities are
prohibited from using radio frequency health effects as a basis to regulate the
placement, construction or operation of wireless facilities. The FCC is
considering numerous requests for preemption of local actions affecting
wireless facilities siting.
Equal Access
Wireless providers are not required to provide equal access to common
carriers for toll services. However, the FCC is authorized to require unblocked
access to toll carriers subject to certain conditions.
State Regulation of Wireless Service
Section 332 of the Communications Act preempts states from regulating the
rates and entry of CMRS providers. However, states may petition the FCC to
regulate such providers and the FCC may grant such petition if the state
demonstrates that:
. market conditions fail to protect subscribers from unjust and
unreasonable rates or rates that are unjustly or unreasonably
discriminatory; or
. when CMRS is a replacement for landline telephone service within the
state.
To date, the FCC has granted no such petition. To the extent AirGate or iPCS
provide fixed wireless service, we may be subject to additional state
regulation.
153
COMPARISON OF CERTAIN RIGHTS OF COMMON STOCKHOLDERS OF AIRGATE AND COMMON
STOCKHOLDERS OF iPCS
The rights of AirGate and iPCS stockholders are currently governed by the
Delaware General Corporation Law, and the respective certificates of
incorporation and by-laws of AirGate and iPCS. Upon completion of the merger,
the rights of iPCS stockholders who become AirGate stockholders in the merger
will be governed by the Delaware General Corporation Law, AirGate's certificate
of incorporation and AirGate's by-laws, as described in "Description of AirGate
Capital Stock" beginning on page 90.
The following description summarizes certain material differences that may
affect the rights of AirGate stockholders and iPCS stockholders but does not
purport to be a complete statement of all those differences, or a complete
description of the specific provisions referred to in this summary. The
identification of specific differences is not intended to indicate that other
equally or more significant differences do not exist. You should read carefully
the relevant provisions of the Delaware General Corporation Law, AirGate's
certificate of incorporation, AirGate's by-laws, iPCS' certificate of
incorporation and iPCS' by-laws.
Capitalization
AirGate. As discussed in "Description of AirGate Capital Stock" beginning on
page 90, AirGate's authorized capital stock consists of 150,000,000 shares of
common stock, par value $0.01 per share, and 5,000,000 shares of preferred
stock, par value $0.01 per share. As of October 12, 2001, there were 13,364,980
shares of common stock and no shares of preferred stock issued and outstanding.
iPCS. As discussed in "Description of iPCS Capital Stock" beginning on page
130, iPCS' authorized capital stock consists of 300,000,000 shares of common
stock, par value $0.01 per share, and 75,000,000 shares of preferred stock, par
value $0.01 per share. As of October 12, 2001, there were 44,869,643 shares of
common stock and 23,090,909 shares of convertible preferred stock issued and
outstanding (not including additional shares of convertible preferred stock
issued in respect of accrued but unpaid dividends).
Number of Directors
AirGate. The AirGate by-laws provide that the AirGate board of directors
shall consist of eight directors.
In accordance with the merger agreement, AirGate has caused two of the eight
members of its board of directors to resign from the board and will increase
the authorized number of members of the board of directors to nine. In
addition, AirGate has agreed to cause its remaining directors to fill the
resulting vacancies so that the board of directors will include one member
designated by iPCS, one member designated by Blackstone and one member, to be
an independent director, designated by iPCS with the approval of AirGate.
iPCS. iPCS' certificate of incorporation provides that the iPCS board of
directors must be comprised of at least three directors. The iPCS board
currently consists of nine directors.
Filling Vacancies on the Board Of Directors
AirGate. AirGate's by-laws provide that a vacancy on the board of directors,
however occurring, including a vacancy resulting from an enlargement of the
board, may be filled only by a vote of a majority of the directors then in
office, though less than a quorum, for the unexpired portion of the term.
iPCS. iPCS' certificate of incorporation provides that a vacancy on the
board of directors, however occurring, including a vacancy resulting from an
enlargement of the board, may be filled only by a vote of a majority of
directors then in office, although less than a quorum. Each director so chosen
shall hold office until his or her successor is elected and qualified or until
his or her earlier death, resignation or removal.
154
Amendments to By-Laws
AirGate. AirGate's certificate of incorporation authorizes the board of
directors to adopt, amend or repeal AirGate's by-laws, and to adopt new by-
laws. The certificate of incorporation also provides that stockholders entitled
to vote also have the power to adopt, amend or repeal the by-laws. Amendment of
the AirGate by-laws by the AirGate stockholders requires, in addition to any
vote of the holders of any class or series of stock of AirGate required by law
or by the certificate of incorporation, the affirmative vote of the holders of
at least 80% of the voting power of all the then-outstanding shares of the
capital stock of AirGate entitled to vote generally in the election of
directors, voting together as a single class.
iPCS. iPCS' certificate of incorporation authorizes the board of directors
to adopt, amend or repeal iPCS' by-laws without any action on the part of the
iPCS stockholders. However, the adoption, amendment or repeal of the by-laws in
a manner that would make them inconsistent with certain provisions of the
certificate of incorporation requires the affirmative vote of at least 80% of
the voting power of the outstanding shares of iPCS capital stock entitled to
vote in the election of directors, voting together as a single class.
Special Stockholder Meetings
AirGate. The AirGate by-laws provide that the AirGate board of directors may
call a special meeting.
iPCS. iPCS' certificate of incorporation provides that special meetings may
be called by the chairman of the board, by the president and chief executive
officer, by the secretary at the direction of a majority of the board of
directors or by stockholders, in a written request, holding a majority of the
capital stock issued and outstanding and entitled to vote.
Stockholder Action by Written Consent
AirGate. AirGate's by-laws do not allow stockholder action by written
consent in lieu of a stockholder meeting unless there is only one stockholder.
iPCS. Subsequent to the consummation of an initial public offering, iPCS'
certificate of incorporation does not allow stockholder action by written
consent in lieu of a stockholder meeting.
Limitation of Personal Liability of Directors and Indemnification
AirGate. AirGate's certificate of incorporation provides that a director
will not be personally liable to the corporation or to its stockholders for
monetary damages for a breach of fiduciary duty as a director, except, if
required by law, for liability:
. for any breach of the director's duty of loyalty to the corporation or
its stockholders;
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. under Section 174 of the Delaware General Corporation Law regarding
unlawful payment of dividends or unlawful stock purchases or redemptions;
or
. for any transaction from which the director derived an improper personal
benefit.
AirGate's certificate of incorporation provides a right to indemnification
to directors and officers of AirGate to the fullest extent permitted by the
Delaware General Corporation Law. AirGate must indemnify any present or former
director or officer of the corporation or any person who is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation who was or is made a party or is threatened to be made a
party to or is otherwise involved in any action, suit or proceeding for
expenses (including attorneys' fees) actually and reasonably incurred. AirGate
will indemnify in connection with a proceeding initiated by such indemnitee
only if such proceeding was authorized by AirGate's board of directors.
155
iPCS. iPCS' certificate of incorporation provides that a director will not
be personally liable to the corporation or to its stockholders for monetary
damages for a breach of fiduciary duty as a director, except, if required by
law, for liability:
. for any breach of the director's duty of loyalty to the corporation or
its stockholders;
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. under Section 174 of the Delaware General Corporation Law regarding
unlawful payment of dividends or unlawful stock purchases or redemptions;
or
. for any transaction from which the director derived an improper personal
benefit.
iPCS' certificate of incorporation provides a right to indemnification to
directors and officers of iPCS to the fullest extent permitted by the Delaware
General Corporation Law. In addition, iPCS must indemnify any present or former
director or officer of the corporation or any person who while a director or
officer of the corporation is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation who was or is
made a party or is threatened to be made a party to any action, suit or
proceeding for expenses (including attorneys' fees) actually and reasonably
incurred. iPCS will indemnify in connection with a proceeding initiated by such
indemnitee only if such proceeding was authorized by iPCS' board of directors.
Dividends
AirGate. AirGate's by-laws provide that dividends upon the capital stock of
AirGate may be declared by the board of directors pursuant to law.
iPCS. iPCS' certificate of incorporation provides that dividends upon the
capital stock of iPCS may be declared by the board of directors pursuant to
law. Dividends may be paid in cash, in property or in securities of iPCS,
subject to the provisions of the certificate of incorporation.
Business Transactions with Interested Stockholders
AirGate. Certain business transactions with interested stockholders require
the approval of at least 80% of the voting power of the then-outstanding shares
of stock of AirGate entitled to vote in the election of directors, voting
together as a single class. However, the affirmative vote of a majority of the
shares of outstanding stock entitled to vote, or such vote as is required by
law or AirGate's certificate of incorporation, will suffice with respect to a
business combination with an interested stockholder if the consideration
received meets certain fair price standards.
iPCS. Neither iPCS' certificate of incorporation nor its by-laws contain
provisions regarding business transactions with interested stockholders.
156
LEGAL AND TAX MATTERS
The validity of the AirGate common stock to be issued in the merger will be
passed upon by Winston & Strawn, counsel to AirGate.
Certain of the tax consequences of the merger will be passed upon at the
effective time of the merger, as a condition to the merger, by Winston &
Strawn, counsel to AirGate, and by Mayer, Brown & Platt, counsel to iPCS. See
"The Merger Agreement and Related Agreements--Closing Conditions of AirGate and
the AirGate Merger Subsidiary" beginning on page 46 and "The Merger Agreement
and Related Agreements--Closing Conditions of iPCS" beginning on page 46.
EXPERTS
The consolidated financial statements and schedule of AirGate PCS, Inc. and
subsidiaries as of September 30, 2000 and 1999, and for the year ended
September 30, 2000, the nine month period ended September 30, 1999, and the
year ended December 31, 1998, have been included herein and in the registration
statement and incorporated by reference herein in reliance upon the reports of
KPMG LLP, independent certified public accountants, appearing herein and in the
registration statement and incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
The consolidated financial statements of iPCS, Inc. and Subsidiaries and
Predecessor as of December 31, 2000 and 1999, and for the year ended December
31, 2000 and for the period from January 22, 1999 (date of inception) through
December 31, 1999, included in this proxy statement/prospectus and registration
statement have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing herein and elsewhere in the registration
statement, and have been so included in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.
OTHER MATTERS
AirGate is not currently aware of any other business to be acted upon at the
special meeting of its stockholders. If, however, other matters are properly
brought before the AirGate special meeting or any adjourned meeting, the
proxies for AirGate stockholders will have discretion to vote or act on those
matters according to their best judgment. The deadline for receipt of a
proposal to be considered for inclusion in AirGate's proxy statement for the
2002 annual meeting has passed. The deadline for notice of a proposal for which
an AirGate stockholder will conduct his, her or its own solicitation has also
passed.
157
WHERE YOU CAN FIND MORE INFORMATION
AirGate files annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any document AirGate
files at the SEC's public reference room located at 450 5th Street, N.W.,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference room. AirGate's SEC filings are also
available to the public from commercial document retrieval services and at the
web site maintained by the SEC at: http://www.sec.gov. Reports, proxy
statements and other information pertaining to AirGate may also be inspected at
the offices of The Nasdaq National Market, which is located at 1735 K. Street,
N.W., Washington, D.C. 20006.
You may obtain additional proxy cards and other information related to the
proxy solicitation by contacting the following proxy solicitation firm:
Georgeson Shareholder Communications Inc.
17 State Street
New York, New York 10004
Telephone: (800) 223-2064
Banks and Brokers (collect): (212) 440-9800
AirGate filed a registration statement on Form S-4 on September 21, 2001, as
amended on October 16, 2001, to register with the SEC the AirGate common stock
to be issued in the merger. This proxy statement/prospectus is a part of that
registration statement and constitutes a prospectus of AirGate in addition to
being a proxy statement of AirGate. As allowed by SEC rules, this proxy
statement/prospectus does not contain all of the information you can find in
AirGate's registration statement or the exhibits to the registration statement.
You should rely only on the information or representations provided in this
proxy statement/prospectus or any prospectus supplement. AirGate has not
authorized anyone else to provide you with different information. AirGate may
not make an offer of the common stock in any state where the offer is not
permitted. The delivery of this proxy statement/prospectus does not, under any
circumstances, mean that there has not been a change in AirGate's affairs since
the date of this proxy statement/prospectus. It also does not mean that the
information in this proxy statement/prospectus is correct after this date.
AirGate's address on the world wide web is http://www.airgatepcsa.com. The
information on AirGate's web site is not a part of this document.
Incorporation by Reference
The SEC allows AirGate to "incorporate by reference" the information AirGate
files with it, which means that AirGate can disclose important information to
you by referring you to those documents. The information incorporated by
reference is considered to be part of this document, and information that
AirGate files later with the SEC will automatically update and supersede this
information. AirGate incorporates by reference the documents listed below and
any future filings it will make with the SEC under Sections 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934:
AirGate Filings Period or Date Filed
--------------- --------------------
Annual Report on Form 10- Year ended September 30, 2000
K........................
Quarterly Reports on Form Quarters ended June 30, 2001, March 31, 2001 and
10-Q..................... December 31, 2000
Current Reports on Form 8- August 29, 2001 and August 31, 2001
K........................
The description of
AirGate's common stock set
forth in the registration
statement on Form 8-A
(File No. 0-27455), as
filed with the SEC on
September 24, 1999
158
AirGate incorporates by reference additional documents that it may file with
the SEC between the date of this document and the date of the AirGate special
meeting. These documents include periodic reports, such as Annual Reports on
Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as
well as proxy statements.
All information in this document concerning AirGate has been furnished by
AirGate. All information in this document concerning iPCS has been furnished by
iPCS. AirGate has represented to iPCS, and iPCS has represented to AirGate,
that the information furnished by and concerning it is true and complete.
You can obtain any of the documents incorporated by reference in this
document from AirGate, or from the SEC through the SEC's Internet world wide
web site at the address described above. Documents incorporated by reference
are available from AirGate without charge, excluding any exhibits to those
documents, unless the exhibit is specifically incorporated by reference as an
exhibit in this document. You can obtain documents incorporated by reference in
this document by requesting them in writing or by telephone from AirGate at the
following address:
AirGate PCS, Inc.
Harris Tower
233 Peachtree Street NE, Suite 1700
Atlanta, Georgia 30303
Attention: Sharon Kushner
(404) 525-7272
If you are an AirGate stockholder and would like to request documents,
please do so by November 16, 2001 to receive them before the AirGate special
meeting. If you request any incorporated documents from AirGate, AirGate will
mail them to you by first class mail, or another equally prompt means, within
one business day after AirGate receives your request.
AirGate has not authorized anyone to give any information or make any
representation about the merger or AirGate that is different from, or in
addition to, that contained in this document. Therefore, if anyone does give
you information of this sort, you should not rely on it. The information
contained in this document speaks only as of the date of this document unless
the information specifically indicates that another date applies.
Any statement contained in a document incorporated or deemed incorporated
herein by reference shall be deemed to be modified or superseded for the
purpose of this prospectus to the extent that a statement contained herein or
in any subsequently filed document which also is, or is deemed to be,
incorporated herein by reference modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this prospectus.
159
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AIRGATE PCS, INC. AND SUBSIDIARIES--CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report............................................. F-2
Consolidated Balance Sheets as of September 30, 2000 and 1999............ F-3
Consolidated Statements of Operations for the year ended September 30,
2000, the nine months
ended September 30, 1999 and the year ended December 31, 1998........... F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the year
ended September 30, 2000, the nine months ended September 30, 1999 and
the year ended December 31, 1998........................................ F-5
Consolidated Statements of Cash Flows for the year ended September 30,
2000, the nine months
ended September 30, 1999 and the year ended December 31, 1998........... F-6
Notes to Consolidated Financial Statements............................... F-8
Schedule--Valuation and Qualifying Accounts.............................. F-25
Unaudited Consolidated Balance Sheets as of June 30, 2001 and September
30, 2000................................................................ F-26
Unaudited Consolidated Statements of Operations for the nine months ended
June 30, 2001 and 2000.................................................. F-27
Unaudited Consolidated Statements of Cash Flows for the nine months ended
June 30, 2001 and 2000.................................................. F-28
Notes to Unaudited Consolidated Financial Statements..................... F-29
iPCS, INC. AND SUBSIDIARIES AND PREDECESSOR--CONSOLIDATED FINANCIAL
STATEMENTS
Independent Auditors' Report............................................. F-35
Consolidated Balance Sheets as of December 31, 2000 and 1999............. F-36
Consolidated Statements of Operations for the year ended December 31,
2000 and for the Period from January 22, 1999 (date of inception)
through December 31, 1999............................................... F-37
Consolidated Statements of Redeemable Preferred Stock and Equity for the
year ended December 31, 2000 and for the Period from January 22, 1999
(date of inception) through December 31, 1999........................... F-38
Consolidated Statements of Cash Flows for the year ended December 31,
2000 and for the Period from January 22, 1999 (date of inception)
through December 31, 1999............................................... F-39
Notes to Consolidated Financial Statements............................... F-40
Unaudited Consolidated Balance Sheet as of June 30, 2001................. F-65
Unaudited Consolidated Statements of Operations for the six months ended
June 30, 2001 and 2000.................................................. F-66
Unaudited Consolidated Statement of Redeemable Preferred Stock and
Equity/Deficiency for the six months ended June 30, 2001................ F-67
Unaudited Consolidated Statements of Cash Flows for the six months ended
June 30, 2001 and 2000.................................................. F-68
Notes to Unaudited Consolidated Financial Statements..................... F-69
F-1
INDEPENDENT AUDITORS' REPORT
The Board of Directors
AirGate PCS, Inc.:
We have audited the accompanying consolidated balance sheets of AirGate PCS,
Inc. and subsidiaries as of September 30, 2000 and 1999, and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for the year ended September 30, 2000, the nine month period ended
September 30, 1999, and the year ended December 31, 1998. In connection with
our audits of the consolidated financial statements, we also have audited the
accompanying financial statement schedule. These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and the financial statement schedule based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of AirGate
PCS, Inc. and subsidiaries as of September 30, 2000 and 1999 and the results of
their operations and their cash flows for the year ended September 30, 2000,
the nine month period ended September 30, 1999, and the year ended December 31,
1998, in conformity with accounting principles generally accepted in the United
States of America. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
/s/ KPMG LLP
Atlanta, Georgia
November 10, 2000, except as to note 14(b)
which is as of August 28, 2001
F-2
AIRGATE PCS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share and per share amounts)
September 30, September 30,
2000 1999
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents........................ $ 58,384 $258,900
Accounts receivable, net (note 3)................ 8,696 --
Inventories...................................... 2,902 --
Prepaid expenses................................. 2,106 1,596
Other current assets (note 4).................... 2,227 1,974
--------- --------
Total current assets........................... 74,315 262,470
Property and equipment, net (note 5)............... 183,581 44,206
Financing costs.................................... 9,098 10,399
Other assets....................................... 1,954 245
--------- --------
$ 268,948 $317,320
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................. $ 21,009 $ 2,216
Accrued expenses................................. 9,320 20,178
Payable to Sprint PCS............................ 5,292 --
Deferred revenue................................. 1,828 --
Accrued interest................................. 228 1,413
Current maturities of long-term debt (note 6).... -- 7,700
--------- --------
Total current liabilities...................... 37,677 31,507
Deferred revenue................................... 671 --
Long-term debt, excluding current maturities (note
6)................................................ 180,727 157,967
--------- --------
Total liabilities.............................. 219,075 189,474
--------- --------
Stockholders' equity (note 8):
Preferred stock, par value, $.01 per share;
5,000,000 shares authorized;
no shares issued and outstanding................ -- --
Common stock, par value, $.01 per share;
150,000,000 shares authorized; 12,816,783 and
11,957,201 shares issued and outstanding at
September 30, 2000 and September 30, 1999,
respectively.................................... 128 120
Additional paid-in-capital....................... 161,575 157,880
Accumulated deficit.............................. (108,577) (27,254)
Unearned stock option compensation............... (3,253) (2,900)
--------- --------
Total stockholders' equity..................... 49,873 127,846
--------- --------
Commitments and contingencies (notes 2, 6 and
11).............................................
--------- --------
$ 268,948 $317,320
========= ========
See accompanying notes to consolidated financial statements.
F-3
AIRGATE PCS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except share and per share amounts)
Year Nine Months Year
Ended Ended Ended
September 30, September 30, December 31,
2000 1999 1998
------------- ------------- ------------
Revenues:
Service revenue..................... $ 9,183 $ -- $ --
Roaming revenue..................... 12,338 -- --
Equipment revenue................... 2,981 -- --
----------- ---------- ----------
Total revenues.................... $ 24,502 $ -- $ --
Operating expenses:
Cost of service and roaming......... (27,207) -- --
Cost of equipment................... (5,685) -- --
Selling and marketing............... (28,357) -- --
General and administrative.......... (14,078) (5,294) (2,597)
Noncash stock option compensation
(In 2000, $1,260 related to general
and administrative, $210 related to
cost of service and roaming, and
$195 related to selling and
marketing. In 1999, $325 related to
general and administrative)........ (1,665) (325) --
Depreciation and amortization....... (12,034) (622) (1,204)
----------- ---------- ----------
Operating loss.................... (64,524) (6,241) (3,801)
Interest income....................... 9,321 -- --
Interest expense...................... (26,120) (9,358) (1,392)
----------- ---------- ----------
Net loss.......................... $ (81,323) $ (15,599) $ (5,193)
=========== ========== ==========
Basic and diluted net loss per share
of common stock...................... $ (6.60) $ (4.57) $ (1.54)
=========== ========== ==========
Weighted-average outstanding common
shares............................... 12,329,149 3,414,276 3,382,518
=========== ========== ==========
Weighted-average potentially dilutive
common stock equivalents:
Common stock options................ 777,758 42,157 --
Stock purchase warrants............. 142,492 29,187 --
Convertible promissory notes........ -- 433,249 --
----------- ---------- ----------
Weighted-average outstanding common
shares including potentially dilutive
common stock equivalents............. 13,249,399 3,918,869 3,382,518
=========== ========== ==========
See accompanying notes to consolidated financial statements.
F-4
AIRGATE PCS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(dollars in thousands, except share amounts)
Year ended September 30, 2000, nine months ended September 30, 1999,
and the year ended December 31, 1998
Total
Common stock Additional Unearned stockholders'
----------------- paid-in Accumulated stock option equity
Shares Amount capital deficit compensation (deficit)
---------- ------ ---------- ----------- ------------ -------------
Balance at December 31,
1997................... -- $-- $ 4,712 $ (6,462) $ -- $ (1,750)
Formation of AirGate
PCS, Inc. (note 1(a)).. 3,382,518 34 (34) -- -- --
Distribution of AirGate
Wireless, LLC.......... -- -- 1,593 -- -- 1,593
Net loss................ -- -- -- (5,193) -- (5,193)
---------- ---- -------- --------- ------- --------
Balance at December 31,
1998................... 3,382,518 34 6,271 (11,655) -- (5,350)
Issuance of stock
purchase warrants in
connection with
issuance of convertible
notes payable to
stockholders and Lucent
Financing (notes
8(b)(i) and 8(b)(ii)).. -- -- 2,369 -- -- 2,369
Beneficial conversion
feature of convertible
notes payable to
stockholders (note
8(a)(iii))............. -- -- 6,979 -- -- 6,979
Unearned compensation
related to grant of
compensatory stock
options (note 8(c)).... -- -- 3,225 -- (3,225) --
Stock option
compensation (note
8(c)).................. -- -- -- -- 325 325
Issuance of common
stock, net of offering
costs (note 8(a)(ii)).. 7,705,000 77 120,391 -- -- 120,468
Issuance of warrants in
connection with units
offering (note
8(b)(iii))............. -- -- 10,948 -- -- 10,948
Conversion of notes
payable to stockholders
to common stock (note
8(a)(iii))............. 869,683 9 7,697 -- -- 7,706
Net loss................ -- -- -- (15,599) -- (15,599)
---------- ---- -------- --------- ------- --------
Balance at September 30,
1999................... 11,957,201 120 157,880 (27,254) (2,900) 127,846
Conversion of notes
payable to stockholders
to common stock
including beneficial
conversion feature
(note 8(a)(iii))....... 12,533 -- 213 -- -- 213
Exercise of common stock
purchase warrants in
connection with
issuance of convertible
notes payable to
stockholders, the
Lucent Financing and
the units offering
(notes 8(b)(i), 8(b)(ii)
and 8(b)(iii))......... 762,444 8 (3) -- -- 5
Unearned compensation
related to grant of
compensatory stock
options (note 8(c)).... -- -- 2,231 -- (2,231) --
Issuance of stock
purchase warrants in
connection with Lucent
Financing (note
8(b)(ii)).............. -- -- 282 -- -- 282
Exercise of stock
options (note 8(c)).... 84,605 -- 1,185 -- -- 1,185
Forfeiture of
compensatory stock
options (note 8(c)).... -- -- (213) -- 213 --
Stock option
compensation (note
8(c)).................. -- -- -- -- 1,665 1,665
Net loss................ -- -- -- (81,323) -- (81,323)
---------- ---- -------- --------- ------- --------
Balance at September 30,
2000................... 12,816,783 $128 $161,575 $(108,577) $(3,253) $ 49,873
========== ==== ======== ========= ======= ========
See accompanying notes to consolidated financial statements.
F-5
AIRGATE PCS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Nine Months
Year Ended Ended Year Ended
September 30, September 30, December 31,
2000 1999 1998
------------- ------------- ------------
Cash flows from operating activities:
Net loss............................. $ (81,323) $(15,599) $(5,193)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization...... 12,034 622 1,204
Amortization of financing costs.... 1,192 -- --
Provision for doubtful accounts.... 563 -- --
Loss on sale of fixed assets....... -- 19 --
Interest expense associated with
accretion of discount and
beneficial conversion feature..... 23,043 8,707 --
Stock option compensation.......... 1,665 325 --
(Increase) decrease in:
Trade receivables................ (9,259) -- --
Inventories...................... (2,902) -- --
Prepaid expenses................. (511) (1,496) (95)
Other current assets............. (253) (373) (378)
Other assets..................... (1,709) (114) (131)
Increase (decrease) in:
Accounts payable................. 5,016 767 1,411
Accrued expenses................. 4,126 3,942 --
Payable to Sprint PCS............ 5,292 -- --
Deferred revenue................. 2,499 -- --
Accrued interest................. (1,082) 727 1,007
--------- -------- -------
Net cash used in operating
activities..................... (41,609) (2,473) (2,175)
--------- -------- -------
Cash flows from investing activities:
Capital expenditures................. (152,397) (15,706) (5,176)
--------- -------- -------
Net cash used in investing
activities..................... (152,397) (15,706) (5,176)
--------- -------- -------
Cash flows from financing activities:
Proceeds from issuance of notes
payable and related warrants to
Lucent.............................. -- 18,500 5,000
Payment on notes payable to Lucent... -- (10,000) --
Proceeds from issuance of warrants
and senior subordinated discount
notes in units offering............. -- 156,057 --
Financing cost on Lucent Financing
and units offering.................. -- (11,622) --
Proceeds from issuance of common
stock............................... -- 130,985 --
Offering costs....................... -- (10,517) --
Payment of note payable.............. -- (1,000) --
Payment of note payable to Sprint
PCS................................. (7,700) -- --
Proceeds from issuance of convertible
notes payable to stockholders and
related warrants.................... -- 2,530 5,200
Payments on notes payable to
stockholders........................ -- (150) (700)
Proceeds from exercise of stock
purchase warrants................... 5 -- --
Proceeds from exercise of employee
stock options....................... 1,185 -- --
--------- -------- -------
Net cash (used in) provided by
financing activities........... (6,510) 274,783 9,500
--------- -------- -------
Net (decrease) increase in cash
and cash equivalents........... (200,516) 256,604 2,149
Cash and cash equivalents at beginning
of period............................ 258,900 2,296 147
--------- -------- -------
Cash and cash equivalents at end of
period............................... $ 58,384 $258,900 $ 2,296
========= ======== =======
Supplemental disclosure of cash flow
information--cash paid for interest.. $ 2,609 $ 503 $ 1,279
========= ======== =======
(continued)
F-6
AIRGATE PCS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Nine Months
Year Ended Ended Year Ended
September 30, September 30, December 31,
2000 1999 1998
------------- ------------- ------------
Supplemental disclosure of non-cash
investing and financing activities:
Capitalized interest................. $ 5,938 $ 1,109 $ --
Grant of common stock purchase
warrants related to convertible
notes payable to stockholders and
Lucent Financing.................... 282 2,369 --
Convertible notes payable to
stockholders and accrued interest
converted to equity................. 102 7,706 --
Beneficial conversion feature of
convertible notes payable to
stockholders........................ 111 6,979 --
Grant of compensatory stock
options............................. 2,231 3,225 --
Forfeiture of compensatory stock
options............................. (213) -- --
Network assets acquired and not yet
paid for............................ 15,248 16,236 --
Assets acquired through debt
financing........................... -- -- 7,700
Distribution of FCC licenses:
Accrued interest................... -- -- (894)
Long-term debt..................... -- -- (11,745)
FCC licenses....................... -- -- 12,846
Line of credit..................... -- -- (1,800)
See accompanying notes to consolidated financial statements.
F-7
AIRGATE PCS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
(1) Business, Basis of Presentation and Summary of Significant Accounting
Policies
(a) Business and Basis of Presentation
AirGate PCS, Inc. and subsidiaries (collectively, the "Company") were
created for the purpose of becoming a leading provider of wireless Personal
Communication Services ("PCS"). AirGate PCS, Inc., formed in October 1998, is
the exclusive affiliate of Sprint PCS in its territory and is licensed to use
the Sprint PCS brand name in 21 markets located in the southeastern United
States. The consolidated financial statements included herein include the
accounts of AirGate PCS, Inc. and its wholly-owned subsidiaries, AGW Leasing
Company, Inc. and AirGate Network Services, LLC, for all periods presented. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Prior to October 1998, the predecessor entities' operating activities
focused on developing a PCS business in the southeastern United States. These
activities included the purchase of four Federal Communications Commission
("FCC") PCS licenses. In July 1998, the Company decided to pursue a different
PCS business opportunity and signed a series of agreements with Sprint and
Sprint PCS (the "Sprint Agreements") to build, construct and manage a PCS
network that will support the offering of Sprint PCS products and services in
the Company's territory. As a result of this change in business strategy,
AirGate Wireless, LLC, which consisted solely of the FCC licenses and related
liabilities, was not transferred to its successor entity, AirGate PCS, Inc.
because its assets and liabilities were not included in the continuing
operations of AirGate PCS, Inc.
The PCS market is characterized by significant risks as a result of rapid
changes in technology, increasing competition and the cost associated with the
build-out of a PCS network. The Company's continuing operations are dependent
upon Sprint's ability to perform its obligations under the Sprint Agreements.
Additionally, the Company's ability to attract and maintain a sufficient
customer base is critical to achieving breakeven cash flow. Changes in
technology, increased competition, economic conditions or the inability to
achieve breakeven cash flow, among other factors, could have an adverse effect
on the Company's financial position and results of operations.
(b) Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, demand deposits, money
market accounts, and investments in commercial paper rated A-1/P-1 or better
with original maturities of three months or less.
(c) Inventories
Inventories consist of handsets and related accessories. Inventories are
carried at the lower of cost (determined using the weighted average method) or
market (replacement cost).
(d) Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation is provided using the straight-line method over the
estimated useful lives of the assets. Asset lives used by the Company are as
follows:
USEFUL
LIFE
-------
Network assets....................................................... 7 years
Computer equipment................................................... 3 years
Furniture, fixtures, and office equipment............................ 5 years
F-8
AIRGATE PCS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Construction in progress includes expenditures for the purchase of capital
equipment, design services, construction services, and testing of the Company's
network. The Company capitalizes interest on its construction in progress
activities. Interest capitalized for the year ended September 30, 2000 totaled
$5.9 million and $1.1 million for the nine months ended September 30, 1999.
Capitalized interest on construction activities in prior periods was not
material. When the network assets are placed in service, the Company transfers
the assets from construction in progress to network assets and depreciates
those assets over their estimated useful life.
(e) Financing Costs
Costs incurred in connection with the Lucent Financing and the Company's
issuance of senior subordinated discount notes were deferred and are amortized
into interest expense over the term of the respective financing using the
effective interest method.
(f) Income Taxes
Prior to the formation of AirGate PCS, Inc. in October 1998, the
predecessors of AirGate PCS, Inc. were operated as limited liability companies.
As a result, income taxes were passed through to and were the responsibility of
the stockholders of the predecessors.
The Company has not provided any pro forma income tax information for
periods prior to October 1998 because such information would not be significant
to the accompanying consolidated financial statements.
The Company uses the asset and liability method of accounting for income
taxes. Deferred income tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amount of existing assets and liabilities and their respective tax
basis and net operating loss and tax credit carryforwards. Deferred income tax
assets and liabilities are measured using enacted tax rate expected to apply to
taxable income in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred income tax assets and
liabilities of a change in tax rates is recognized in the statement of
operations in the period that includes the enactment date.
(g) Net Loss Per Share
The Company computes net loss per common share in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share" and
SEC Staff Accounting Bulletin No. 98. Basic and diluted net loss per share of
common stock is computed by dividing net loss for each period by the weighted-
average outstanding common shares. No conversion of common stock equivalents
has been assumed in the calculations since the effect would be antidilutive. As
a result, the number of weighted-average outstanding common shares as well as
the amount of net loss per share are the same for basic and diluted net loss
per share calculations for all periods presented.
(h) Revenue Recognition
The Company sells handsets and accessories which are recorded at the time of
the sale as equipment revenue. After the handset has been purchased, the
subscriber purchases a service package which is recognized monthly as service
is provided and is included as service revenue. Roaming revenue is recorded
when Sprint PCS subscribers, other Sprint PCS affiliate subscribers and non-
Sprint PCS subscribers roam onto the Company's network.
F-9
AIRGATE PCS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The accounting policy for the recognition of activation fee revenue is to
record the revenue over the periods such revenue is earned in accordance with
current interpretations of SEC Staff Accounting Bulletin No. 101 (SAB 101),
"Revenue Recognition in Financial Statements." Accordingly, activation fee
revenue and direct customer activation costs have been deferred and will be
recorded over the average life for those customers (30 months) who do not sign
a fixed term service agreement. Activation fee revenue and direct customer
activation costs have been deferred and will be recorded over the contractual
term (12 months) for those customers who sign a fixed term service agreement.
As of September 30, 2000, the Company has recognized approximately $0.1 million
of activation fee revenue and direct customer activation costs and has deferred
$1.2 million of activation fee revenue and $1.0 million of direct customer
activation costs to future periods.
(i) Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of
The Company accounts for long-lived assets in accordance with the provisions
of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-
Lived Assets to be Disposed Of." SFAS No. 121 requires that long-lived assets
and certain identifiable intangibles be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is measured by
a comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount or fair
value less costs to sell. At September 30, 2000 and 1999, the Company had no
impaired assets.
(j) Advertising Costs
The Company expenses advertising costs when the advertisement occurs. Total
advertising expense was approximately $7.5 million and $0.1 million for the
year ended September 30, 2000 and the nine months ended September 30, 1999,
respectively. No advertising expense was recorded in 1998.
(k) New Accounting Pronouncements
On July 8, 1999, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 137, "Deferral of the Effective Date of SFAS 133." SFAS No. 137 defers
the effective date of SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," to all fiscal quarters of all fiscal years beginning after
June 15, 2000. The adoption is not expected to have a material effect on the
Company's consolidated results of operations, financial position, or cash
flows.
In March 2000, the FASB issued FASB Interpretation No. 44, Accounting for
Certain Transactions Involving Stock Compensation ("FIN No. 44"). FIN No. 44
clarifies the application of APB No. 25, Accounting for Stock Issued to
Employees, to certain areas of stock-based compensation. Among other issues,
FIN No. 44 clarifies the accounting consequences of a modification to the terms
of a fixed stock option award. FIN No. 44 is effective July 1, 2000 but covers
specific events, such as option repricing, which occurred after either December
15, 1998 or January 12, 2000.
(l) Development Stage Enterprise
AirGate LLC, the first predecessor of the Company, was established on June
15, 1995 (inception). The Company and its predecessor devoted most of their
efforts through December 31, 1999, to activities such as preparing business
plans, raising capital and planning and executing the build-out of its PCS
network. With the
F-10
AIRGATE PCS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
launch of commercial service in several markets during the second fiscal
quarter of 2000, the Company has completed its development stage activities.
(m) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent liabilities at the dates of the consolidated balance sheets and
revenues and expenses during the reporting periods to prepare these
consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America. Actual results could
differ from those estimates.
(n) Change of Fiscal Year
On October 21, 1999, the Company changed its fiscal year from a calendar
year ending on December 31 to a fiscal year ending on September 30 effective
September 30, 1999.
(o) Concentration of Risk
The Company maintains cash and cash equivalents in an account with a
financial institution in excess of the amount insured by the Federal Deposit
Insurance Corporation. The financial institution is one of the five largest
banks in the United States and management does not believe there is
significant credit risk associated with deposits in excess of federally
insured amounts.
Further, the Company maintains accounts with nationally recognized
investment managers. Such deposits are not insured by the Federal Deposit
Insurance Corporation. Management does not believe there is significant credit
risk associated with these uninsured deposits.
(p) Comprehensive Income
No statements of comprehensive income have been included in the
accompanying consolidated financial statements since the Company does not have
any "Other Comprehensive Income" to report.
(q) Reclassification
Certain reclassifications have been made to prior year balances to conform
to the current year presentation.
(2) Sprint Agreements
In July 1998, the Company signed four major agreements with Sprint and
Sprint PCS. They are the management agreement, the services agreement, the
trademark and service license agreement with Sprint and the trademark and
service license agreement with Sprint PCS. These agreements allow the Company
to exclusively offer Sprint PCS services in the Company's territory.
The management agreement has an initial term of 20 years with three 10-year
renewals, the first renewal being automatic. The key clauses within the
management agreement refer to exclusivity, network build-out, products and
services offered for sale, service pricing, roaming, advertising and
promotion, program requirements including technical and customer care
standards, non-competition, the inability to use non-Sprint PCS brands and
rights of first refusal and are summarized as follows:
(a) Exclusivity. The Company is designated as the only person or entity
that can manage or operate a PCS network for Sprint PCS in the Company's
territory. Sprint PCS is prohibited from owning,
F-11
AIRGATE PCS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
operating, building or managing another wireless mobility communications
network in the Company's territory while the management agreement is in
place.
(b) Network build-out. In the management agreement, the Company has
agreed to cover a specified percentage of the population at coverage levels
ranging from 39% to 86% within each of the 21 markets that comprise the
Company's territory by specified dates beginning on March 31, 2000 and
ending on December 31, 2000. The required aggregate coverage of all markets
is approximately 65% of the 7.1 million in population within the Company's
territory by December 31, 2000. As of October 16, 2000, the Company had
exceeded its build-out requirements in all 21 of its markets.
(c) Products and services offered for sale. The management agreement
identifies the products and services that can be offered for sale in the
Company's territory. The Company cannot offer wireless local loop services
specifically designed for the competitive local market in areas where
Sprint owns the local exchange carrier unless the Sprint owned local
exchange carrier is named as the exclusive distributor or Sprint PCS
approves the terms and conditions.
(d) Service pricing. The Company must offer Sprint PCS subscriber
pricing plans designated for national offerings. The Company is permitted
to establish local price plans for Sprint PCS products and services only
offered in the Company's market. Sprint PCS will retain 8% of the Company's
collected service revenues but will remit 100% of revenues derived from
roaming and sales of handsets and accessories and proceeds from sales not
in the ordinary course of business.
(e) Roaming. The Company will earn roaming revenues when a Sprint PCS
customer from outside of the Company's territory roams onto the Company's
network. There are established rates for Sprint PCS subscribers, Sprint PCS
affiliates' subscribers, and non-Sprint PCS subscribers roaming and
similarly, the Company will pay Sprint PCS when the Company's own
subscribers use the Sprint PCS nationwide network outside the Company's
territory. Sprint PCS reserves the right to change the established per
minute rate for roaming.
(f) Advertising and Promotion. Sprint PCS is responsible for all
national advertising and promotion of Sprint PCS products and services. The
Company is responsible for local advertising and promotion in the Company's
territory.
(g) Program requirements including technical and customer care
standards. The Company will comply with Sprint PCS' program requirements
for technical standards, customer service standards, national and regional
distribution and national accounts programs.
(h) Non-competition. The Company may not offer Sprint PCS products and
services outside the Company's territory.
(i) Inability to use non-Sprint PCS brands. Without Sprint PCS' consent,
the Company may not market, promote, advertise, distribute, lease or sell
any of the Sprint PCS products on a non-branded, "private label" basis or
under any brand, trademark or trade name other than the Sprint PCS brand,
except for sales to resellers.
(j) Rights of first refusal. Sprint PCS has certain rights of first
refusal to buy the Company's assets upon a proposed sale.
The management agreement can be terminated as a result of a number of events
including an uncured breach of the management agreement or bankruptcy of either
party to the agreement. In the event that the management agreement is not
renewed or terminated, certain formulas apply to the valuation and disposition
of the Company's assets.
F-12
AIRGATE PCS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The services agreement outlines various support services such as activation,
billing and customer care that are provided to the Company by Sprint PCS. These
services are available to the Company at established rates. Sprint PCS can
change any or all of the service rates one time in each twelve month period.
The Company may discontinue the use of any service upon three months written
notice. Sprint PCS has agreed that the services presently offered will be
available until at least December 31, 2001. After that date, Sprint PCS may
discontinue a service provided that it gives nine months written notice. The
services agreement automatically terminates upon the termination of the
management agreement.
The trademark and service mark license agreements with Sprint and Sprint PCS
provide the Company with non-transferable, royalty free licenses to use the
Sprint and Sprint PCS brand names, the "diamond" symbol and several other
trademarks and service marks. The Company's use of the licensed marks is
subject to adherence to quality standards determined by Sprint and Sprint PCS.
Sprint and Sprint PCS can terminate the trademark and service mark license
agreements if the Company files for bankruptcy, materially breaches the
agreement or if the management agreement is terminated.
(3) Accounts Receivable, Net
Accounts receivable, net includes amounts due from Sprint PCS relating to
roaming revenues, amounts from customers with respect to airtime service
charges and amounts from local third party vendors relating to the sale of
handsets and accessories. For the year ended September 30, 2000, roaming
revenues from Sprint PCS totaled $12.3 million, or 50% of total revenues. Of
this amount, $5.3 million was recorded as accounts receivable at September 30,
2000. There were no revenues for the nine months ended September 30, 1999 or
the year ended December 31, 1998.
The Company records an allowance for doubtful accounts to reflect the
expected loss on the collection of receivables. Such allowance is recorded for
accounts receivable from customers and third party vendors and totaled $0.6
million at September 30, 2000. There were no accounts receivable outstanding at
September 30, 1999.
(4) Other Current Assets
Other current assets consists of the following at September 30 (dollars in
thousands):
2000 1999
------ ------
Current portion of financing costs............................ $1,215 $1,223
Direct customer activation costs.............................. 627 --
Due from AirGate Wireless, LLC................................ -- 751
Interest receivable and other................................. 385 --
------ ------
Other current assets........................................ $2,227 $1,974
====== ======
The assets and liabilities of AirGate Wireless, LLC, a predecessor entity,
which consisted solely of the FCC licenses and related liabilities, were not
transferred to AirGate PCS, Inc. because its assets and liabilities would not
be used in the continuing operations of the Company. The Company made interest
payments totaling $0.4 million during the nine month period ended September 30,
1999 and $0.4 million during the year ended December 31, 1998 related to these
liabilities on behalf of AirGate Wireless, LLC. On January 28, 2000, AirGate
Wireless LLC repaid the Company $0.8 million representing amounts previously
paid by AirGate PCS plus accrued interest.
F-13
AIRGATE PCS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(5) Property and Equipment
Property and equipment consists of the following at September 30 (dollars in
thousands):
2000 1999
-------- -------
Network assets.......................................... $158,720 $ 7,700
Computer equipment...................................... 3,081 89
Furniture, fixtures, leasehold improvements, and office
equipment.............................................. 6,800 87
-------- -------
Total network assets and equipment.................... 168,601 7,876
Less accumulated depreciation and amortization.......... (13,005) (971)
-------- -------
Total network assets and equipment, net............... 155,596 6,905
Construction in progress................................ 27,985 37,301
-------- -------
Property and equipment, net........................... $183,581 $44,206
======== =======
(6) Long-Term Debt
Long-term debt consists of the following at September 30 (dollars in
thousands):
2000 1999
-------- --------
Unsecured promissory note payable to Sprint PCS dated
July 22, 1998; interest at 14%; due November 15, 1999... $ -- $ 7,700
Lucent Financing dated August 16, 1999; variable interest
of LIBOR + 3.75% (10.44% and 9.25% at September 30, 2000
and 1999, respectively); interest due quarterly; (net of
unaccreted original issue discount of $772 and $642 at
September 30, 2000 and 1999, respectively, see note
8(b)(ii))............................................... 12,728 12,858
Senior Subordinated Discount Notes due 2009; interest at
13.5%; interest accretes until October 1, 2004 after
which semi-annual interest payments are required
beginning April 1, 2005 (net of unaccreted original
issue discount of $9,853 and $10,948 at September 30,
2000 and 1999, respectively, see note 8(b)(iii))........ 167,999 145,109
-------- --------
Total long-term debt................................... 180,727 165,667
Less current maturities of long-term debt................ -- (7,700)
-------- --------
Long-term debt, excluding current maturities........... $180,727 $157,967
======== ========
Unsecured Promissory Note Payable to Sprint PCS
On August 31, 1999, the Company entered into a loan modification agreement
with the holder to defer the initial principal and interest payments due on the
Company's $7.7 million unsecured promissory note from March 1, 1999 to October
15, 1999. On November 15, 1999, the Company entered into an additional loan
modification to defer the maturity date to November 15, 1999. On November 15,
1999, the Company paid all outstanding principal and interest due under the
unsecured promissory note.
Lucent Financing
On August 16, 1999, the Company entered into a $153.5 million Credit
Agreement with Lucent (the "Lucent Financing" or "Credit Facility"). The Credit
Facility provides for (i) a $13.5 million senior secured term loan (the
"Tranche I Term Loan") which matures on June 6, 2007, and (ii) a $140.0 million
senior secured term loan (the "Tranche II Term Loan") which matures on
September 30, 2008. Mandatory
F-14
AIRGATE PCS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
quarterly payments of principal are required beginning December 31, 2002 for
the Tranche I Term Loan and March 31, 2004 for the Tranche II Term Loan
initially in the amount of 3.75% of the loan balance then outstanding and
increasing thereafter. A commitment fee of 3.75% on unused borrowings under the
Credit Facility is payable quarterly. For the year ended September 30, 2000,
commitment fees totaled $6.0 million. After October 1, 2000, if the Company
borrows at least 30% of the Tranche II Term Loan, or $42 million, the
commitment fee on unused borrowings decreases to 1.50%, payable quarterly. The
Lucent Facility is secured by all the assets of the Company. In connection with
this financing, the Company issued to Lucent warrants to purchase 139,035
shares of common stock that were exercisable upon issuance (see note 8(b)(ii)).
Additionally, the Company incurred origination fees and expenses of $5.0
million which have been recorded as financing cost and are recorded as interest
expense using the effective interest method.
The Lucent Financing is subject to certain restrictive covenants including
maintaining certain financial ratios, reaching defined subscriber growth and
network covered population goals, and limiting annual capital expenditures.
Further, the Credit Facility restricts the payment of dividends on the
Company's common stock. As of September 30, 2000, management believes that the
Company is in compliance with all covenants governing the Lucent Financing.
Senior Subordinated Discount Notes
On September 30, 1999, the Company received proceeds of $156.1 million from
the issuance of 300,000 units, each unit consisting of $1,000 principal amount
at maturity of 13.5% senior subordinated discount notes due 2009 and one
warrant to purchase 2.148 shares of common stock at a price of $0.01 per share
(see note 8(b)(iii)) pursuant to a registration statement filed on Form S-1
declared effective by the Securities and Exchange Commission on September 27,
1999. The aggregate principal amount outstanding as of September 30, 2000 of
the senior subordinated discount notes was $168.0 million (net of original
issue discount of $9.9 million) which will accrete to the full aggregate
principal amount of $300.0 million by October 1, 2004. The Company incurred
expenses, underwriting discounts and commissions of $6.6 million related to the
units offering which have been recorded as financing costs and are recorded as
interest expense using the effective interest method.
The senior subordinated discount notes contain certain covenants relating to
limitations on the Company's ability to, among other acts, sell assets, incur
additional indebtedness, and make certain payments. As of September 30, 2000,
management believes that the Company is in compliance with all covenants
governing the senior subordinated discount notes.
Aggregate minimum annual principal payments due on all issues of long-term
debt for the next five years at September 30, 2000 and thereafter are as
follows (dollars in thousands):
Years ending September 30,
--------------------------
2001............................................................... $ --
2002............................................................... --
2003............................................................... 2,025
2004............................................................... 2,025
2005............................................................... 2,700
Thereafter......................................................... 305,978
---------
Total.......................................................... 312,728
Less: Unaccreted interest portion of long-term debt................ (122,148)
Unaccreted original issue discounts............................. (9,853)
---------
Total long-term debt........................................... $ 180,727
=========
F-15
AIRGATE PCS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(7) Fair Value of Financial Instruments
Fair value estimates, assumptions, and methods used to estimate the fair
value of the Company's financial instruments are made in accordance with the
requirements of SFAS No. 107, "Disclosure about Fair Value of Financial
Instruments." The Company has used available information to derive its
estimates. However, because these estimates are made as of a specific point in
time, they are not necessarily indicative of amounts the Company could realize
currently. The use of different assumptions or estimating methods may have a
material effect on the estimated fair value amounts (dollars in thousands).
September 30, 2000 September 30, 1999
------------------ ------------------
Estimated Estimated
Carrying fair Carrying fair
amount value amount value
-------- --------- -------- ---------
Cash and cash equivalents................. $ 58,384 $ 58,384 $258,900 $258,900
Accounts receivable, net.................. 8,696 8,696 -- --
Accounts payable.......................... 21,009 21,009 2,216 2,216
Accrued expenses.......................... 9,320 9,320 20,178 20,178
Payable to Sprint PCS..................... 5,292 5,292 -- --
Long-term debt............................ 180,727 181,500 165,667 165,667
(a) Cash and cash equivalents, net accounts receivable, accounts payable,
accrued expenses, and payable to Sprint PCS
The carrying amounts of these items are a reasonable estimate of their fair
value due to the short-term nature of the instruments.
(b) Long-term debt
Long-term debt is comprised of the senior subordinated discount notes, the
Lucent Financing, and the unsecured promissory note payable to Sprint PCS. The
fair value of the senior subordinated discount notes is stated at quoted
market value as of September 30, 2000 and September 30, 1999. As there is no
active market for the remaining items of long-term debt, management believes
that the carrying amounts of the Lucent Financing and the unsecured promissory
note payable to Sprint PCS are a reasonable estimate of their fair value.
(8) Stockholders' Equity
(a) Common stock
(i) Increase in authorized common shares
On May 26, 2000, at a Special Meeting of the stockholders of AirGate PCS,
Inc., the stockholders voted to amend our Amended and Restated Certificate of
Incorporation to increase the number of authorized shares of our common stock,
par value $0.01 per share, from 25,000,000 to 150,000,000 shares.
(ii) Initial Public Offering
On September 30, 1999, the Company sold 7,705,000 shares of its common
stock at a price of $17.00 per share in its initial public offering pursuant
to a registration statement filed on Form S-1 declared effective by the
Securities and Exchange Commission on September 27, 1999. Proceeds from the
initial public offering were $131.0 million. The Company incurred expenses,
underwriting discounts and commissions related to the initial public offering
of $10.5 million, which have been reflected as a reduction of the offering
proceeds.
(iii) Conversion of Notes Payable to Stockholders to Common Stock
On September 30, 1999, $7.3 million of convertible notes payable to
stockholders and accrued interest were converted into 869,683 shares of common
stock at the applicable conversion price of $8.84 per share, a
F-16
AIRGATE PCS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
48% discount from the initial public offering price. The amount related to the
fair value of the beneficial conversion feature of $7.0 million as of the date
of issuance (May 1999) has been recorded as additional paid-in-capital and
recognized as interest expense from the date of issuance to the expected date
of conversion (August 1999).
On October 21, 1999, the Company's Board of Directors authorized the
issuance of 12,533 additional shares of common stock to the affiliates of
Weiss, Peck & Greer Venture Partners and the affiliates of JAFCO American
Ventures, Inc. pursuant to a previously authorized promissory note issued by
the Company. The shares were authorized for issuance in consideration of $0.1
million of interest that accrued from the period June 30, 1999 to September 28,
1999 on promissory notes issued to the affiliates of Weiss, Peck & Greer
Venture Partners and the affiliates of JAFCO American Ventures, Inc. The
promissory notes and related accrued interest were converted into shares of
common stock at a price 48% less than the price of a share of common stock sold
in the Company's initial public offering of common stock. The amount related to
the fair value of the beneficial conversion feature of $0.1 million has been
recorded as additional paid-in-capital and recognized as interest expense in
the year ended September 30, 2000.
(iv) Stock splits
Shares of common stock outstanding reflect a 39,134-for-one stock split
effective July 9, 1999 and subsequent reverse stock splits of 0.996-for-one,
which was effective July 28, 1999, 0.900-for-one which was effective September
15, 1999, and 0.965-for-one which was effective September 27, 1999. All share
and stockholders' equity amounts have been restated for all periods presented
for these stock splits.
(b) Common Stock Purchase Warrants
(i) Warrants Issued to Stockholders
In August 1998, the Company issued stock purchase warrants to stockholders
in consideration for: (1) loans made by the stockholders to the Company which
have been converted to additional paid-in capital, (2) guarantees of certain
bank loans provided by the stockholders, and (3) in connection with $4.8
million in financing provided by the stockholders.
In connection with a refinancing of the convertible notes payable to
stockholders in May 1999, the Company cancelled the August 1998 warrants and
issued new warrants to Weiss, Peck & Greer Venture Partners Affiliated Funds to
purchase shares of common stock for an aggregate amount up to $2.7 million at
an exercise price 25% less than the price of a share of common stock sold in
the initial public offering, or $12.75 per share. The warrants for 214,413
shares were exercisable upon issuance and may be exercised for two years from
the date of issuance. The Company allocated $1.7 million of the proceeds from
this refinancing to the fair value of the warrants and recorded a discount on
the related debt, which was recognized as interest expense from the date of
issuance (May 1999) to the expected date of conversion (August 1999).
On July 11, 2000, all such warrants were exercised. Net of 40,956 shares
surrendered in payment of the exercise price, 173,457 shares of common stock
were issued.
(ii) Lucent Financing
On August 16, 1999, the Company issued stock purchase warrants to Lucent in
consideration of the Lucent Financing. The base price of the warrants equals
120% of the price of one share of common stock at the closing of the initial
public offering, or $20.40 per share, and the warrants are exercisable for an
aggregate of 128,860 shares of the Company's common stock. The warrants expire
on the earlier of August 15, 2004 or
F-17
AIRGATE PCS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
August 15, 2001, if, as of such date, the Company has paid in full all
outstanding amounts under the Lucent Financing and has terminated the remaining
unused portion of the commitments under the Lucent Financing. The Company
allocated $0.7 million of the proceeds from the Lucent Financing to the fair
value of the warrants and recorded a discount on the associated credit
facility, which is recognized as interest expense over the period from the date
of issuance to the maturity date using the effective interest method.
On June 1, 2000, AirGate PCS issued stock purchase warrants for Lucent
Technologies to acquire 10,175 shares of common stock on terms identical to
those identified above. The Company recorded a discount on the associated
credit facility of $0.3 million, which represents the fair value of the
warrants on the date of grant using a Black-Scholes valuation. The discount is
recognized as interest expense over the period from the date of issuance to
maturity using the effective interest method. Interest expense relating to both
grants of warrants to Lucent Technologies for the year ended September 30, 2000
and the nine months ended September 30, 1999, was $0.2 million and $0.1
million, respectively.
On September 14, 2000, warrants to acquire 128,860 shares of common stock at
a price of $20.40 per share were exercised. Net of 48,457 shares surrendered in
payment of the exercise price, 80,403 shares of common stock were issued. As of
September 30, 2000, warrants to acquire 10,175 shares of common stock remain
outstanding.
(iii) Senior Subordinated Discount Notes
On September 30, 1999, as part of the Company's senior subordinated discount
note offering, the Company issued warrants to purchase 2.148 shares of common
stock for each unit at a price of $0.01 per share. On January 3, 2000, the
Company's registration statement on Form S-1, relating to warrants to purchase
644,400 shares of common stock, was declared effective by the Securities and
Exchange Commission. The warrants expire October 1, 2009. The Company allocated
$10.9 million of the proceeds from the units offering to the fair value of the
warrants and recorded a discount on the notes, which is recognized as interest
expense over the period from issuance to the maturity date using the effective
interest method. For the year ended September 30, 2000, amortization of the
fair value of the warrants totaling $1.1 million was recorded as interest
expense. As of September 30, 2000, warrants representing 508,584 shares of
common stock had been exercised and warrants representing 135,816 shares of
common stock remain outstanding.
(c) Stock Option Plan
On July 28, 1999, the Board of Directors approved an incentive stock option
plan, whereby 2.0 million shares of common stock were reserved for issuance to
current and future employees. Options under the plan vest at various terms up
to a 5 year period beginning at the grant date and expire ten years from the
date of grant. In the nine months ended September 30, 1999, unearned noncash
stock option compensation of $3.2 million was recorded for compensatory stock
options, for the difference between the initial public offering price of $17.00
per share and the exercise price at the date of grant of $14.00 per share.
During the year ended September 30, 2000, unearned noncash stock option
compensation of $2.2 million was recorded for compensatory stock options
granted during 2000. Noncash stock option compensation is recognized over the
period in which the related employee services are rendered and totaled $1.7
million and $0.3 million for the year ended September 30, 2000 and nine months
ended September 30, 1999, respectively.
The Company applies the provisions of APB Opinion No. 25 and related
interpretations in accounting for its stock option plan. Had compensation costs
for the Company's stock option plan been determined in accordance with SFAS No.
123, the Company's net loss and basic and diluted net loss per share of common
F-18
AIRGATE PCS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
stock for the year ended September 30, 2000 and the nine months ended September
30, 1999 would have increased to the pro forma amounts indicated below (dollars
in thousands, except for per share amounts):
Nine Months
Year Ended Ended Year Ended
September 30, September 30, December 31,
2000 1999 1998
------------- ------------- ------------
Net loss:
As reported..................... $(81,323) $(15,599) $(5,193)
Pro forma....................... (84,521) (16,274) (5,193)
Basic and diluted net loss per
share of common stock:
As reported..................... $ (6.60) $ (4.57) $ (1.54)
Pro forma....................... $ (6.86) $ (4.77) $ (1.54)
The fair value for stock options granted was estimated at the date of grant
using the Black-Scholes option pricing model with the following assumptions:
Nine Months
Year Ended Ended Year Ended
September 30, September 30, December 31,
2000 1999 1998
------------- ------------- ------------
Risk-free rate of return............ 6.5% 6.0% --
Volatility.......................... 120.0% 60.0% --
Dividend yield...................... 0 0 --
Expected life in years.............. 5 5 --
The following table summarizes activity under the stock option plan:
Weighted-average
Number of exercise price
options per share
--------- ----------------
Options outstanding as of December 31, 1998..... -- --
Granted....................................... 1,075,000 $14.00
--------- ------
Options outstanding as of September 30, 1999.... 1,075,000 $14.00
Granted....................................... 600,500 $51.63
Exercised..................................... (84,605) $14.00
Forfeited..................................... (86,250) $19.15
--------- ------
Options outstanding as of September 30, 2000.... 1,504,645 $28.72
Options exercisable as of September 30, 2000.... 285,395 $14.00
========= ======
The following table summarizes information for stock options outstanding at
September 30, 2000:
Options
Weighted-average exercisable
remaining at
Exercise Number of Weighted-average contractual life September 30,
prices options exercise price (in years) 2000
-------- --------- ---------------- ---------------- -------------
$ 2.00 20,000 $ 2.00 9.18 --
14.00 959,145 14.00 8.83 285,395
35.875 - 47.50 270,500 44.50 9.45 --
65.125 - 66.94 230,000 66.31 9.71 --
98.50 25,000 98.50 9.44 --
--------- ------ ---- -------
1,504,645 $28.72 9.09 285,395
========= ====== ==== =======
F-19
AIRGATE PCS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(d) Preferred Stock
The Company's articles of incorporation authorize the Company's Board of
Directors to issue up to 5 million shares of preferred stock without
stockholder approval. The Company has not issued any preferred stock as of
September 30, 2000.
(9) Income Taxes
Prior to the formation of AirGate PCS, Inc. in October 1998, the
predecessors of the Company were operated as limited liability companies. As a
result, income taxes were passed through to and were the responsibility of the
stockholders of the predecessors.
The Company has not provided any pro forma tax information for periods prior
to October 1998 because such information would not be significant to the
accompanying consolidated financial statements.
The provision for income taxes includes income taxes currently payable and
those deferred because of temporary differences between the financial statement
and tax bases of assets and liabilities that will result in taxable or
deductible amounts in the future and any increase or decrease in the valuation
allowance for deferred income tax assets.
Income tax benefit for the year ended September 30, 2000, the nine months
ended September 30, 1999 and the year ended December 31, 1998 differed from the
amounts computed by applying the statutory U.S. Federal income tax rate of 34%
to loss before income taxes as a result of the following (dollars in
thousands):
Nine Months
Year Ended Ended Year Ended
September 30, September 30, December 31,
2000 1999 1998
------------- ------------- ------------
Computed "expected" tax benefit... $(27,650) $(5,304) $(1,765)
(Increase) decrease in income tax
benefit resulting from:
Expenses related to LLC
predecessors................... -- 7 569
State income tax benefit, net of
Federal effect................. (5,116) (325) (187)
Increase in valuation
allowance...................... 31,000 3,869 1,893
Benefit derived from
contribution of tax assets..... -- -- (415)
Nondeductible interest expense.. 1,224 1,916 --
Other, net...................... 542 (163) (95)
-------- ------- -------
Total income tax benefit...... $ -- $ -- $ --
======== ======= =======
F-20
AIRGATE PCS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The income tax effect of temporary differences that give rise to significant
portions of the Company's deferred income tax assets and liabilities as of
September 30, 2000 and 1999 are presented below (dollars in thousands):
2000 1999
-------- -------
Deferred income tax assets:
Net operating loss carryforwards...................... $ 24,549 $ 1,784
Capitalized start-up costs............................ 7,259 3,669
Accrued expenses...................................... 295 10
Deferred interest expense............................. 7,321 --
Property and equipment, principally due to differences
in depreciation and amortization..................... -- 299
-------- -------
Gross deferred income tax assets.................... 39,424 5,762
Less valuation allowance................................ (36,762) (5,762)
-------- -------
Net deferred income tax assets...................... 2,662 --
Deferred income tax liabilities, principally due to
differences in depreciation and amortization........... (2,662) --
-------- -------
Net deferred income tax assets...................... $ -- $ --
======== =======
Deferred income tax assets and liabilities are recognized for differences
between the financial statement carrying amounts and the tax basis of assets
and liabilities which result in future deductible or taxable amounts and for
net operating loss and tax credit carryforwards. In assessing the realizability
of deferred income tax assets, management considers whether it is more likely
than not that some portion of the deferred income tax assets will be realized.
The ultimate realization of deferred income tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary
differences become deductible. Management has provided a valuation allowance
against all of its deferred income tax assets because the realization of those
deferred tax assets is uncertain.
The valuation allowance for deferred income tax assets as of September 30,
2000 and 1999 was $36.8 million and $5.8 million, respectively. The net change
in the total valuation allowance for the year ended September 30, 2000 and the
nine months ended September 30, 1999 was an increase of $31.0 million and $3.9
million, respectively.
At September 30, 2000, the Company has net operating loss carryforwards for
Federal income tax purposes of approximately $60.0 million, which will expire
in various amounts beginning in the year 2019. Approximately $1.4 million of
the net operating loss carryforwards that the Company may use to offset taxable
income in future years is limited as a result of an ownership change, as
defined under Internal Revenue Code Section 382, which occurred effective with
the Company's initial public offering of stock on September 30, 1999. The
amount of this annual limitation is approximately $2.8 million per year. As a
result, it is anticipated that the net operating losses of the Company will be
free of any limitation, as a result of the September 30, 1999 change of
ownership, in the year ended September 30, 2001. At September 30, 2000, the
Company also has a South Carolina general business credit carryforward of
approximately $0.5 million available to offset income tax expense from this
state that will expire in the year 2009.
(10) Condensed Consolidating Financial Information
AGW Leasing Company, Inc. ("AGW") is a wholly-owned subsidiary of AirGate
PCS, Inc. AGW has fully and unconditionally guaranteed the Company's senior
subordinated discount notes and the Lucent Financing.
F-21
AIRGATE PCS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
AGW was formed to hold the real estate interests for the Company's PCS network.
AGW also was a registrant under the Company's registration statement declared
effective by the Securities and Exchange Commission on September 27, 1999. AGW
jointly and severably guarantees the Company's long-term debt.
During fiscal 2000, AirGate Network Services, LLC ("ANS") was created as a
wholly-owned subsidiary of AirGate PCS, Inc. ANS has fully and unconditionally
guaranteed the Company's senior subordinated discount notes and Lucent
Financing. ANS was formed to provide construction management services for the
Company's PCS network. ANS jointly and severably guarantees the Company's long-
term debt.
The unaudited condensed consolidating financial information for AGW and ANS
as of September 30, 2000 and for the year then ended is as follows (dollars in
thousands):
AirGate
AirGate AGW Leasing Network
PCS, Inc. Company, Inc. Services LLC Eliminations Consolidation
--------- ------------- ------------ ------------ -------------
Cash and cash
equivalents............ $ 58,636 $ -- $ (252) $ -- $ 58,384
Property and equipment,
net.................... 138,924 -- 44,657 -- 183,581
Other assets............ 85,055 -- 500 (58,572) 26,983
--------- -------- -------- -------- ---------
Total assets.......... $ 282,615 $ -- $ 44,905 $(58,572) $ 268,948
========= ======== ======== ======== =========
Current liabilities..... $ 36,760 $ 11,133 $ 48,356 $(58,572) $ 37,677
Long-term deferred
revenue................ 671 -- -- -- 671
Long-term debt.......... 180,727 -- -- -- 180,727
--------- -------- -------- -------- ---------
Total liabilities..... 218,158 11,133 48,356 (58,572) 219,075
--------- -------- -------- -------- ---------
Common stock............ 128 -- -- -- 128
Additional paid-in-
capital................ 161,575 -- -- -- 161,575
Accumulated deficit..... (93,993) (11,133) (3,451) -- (108,577)
Unearned stock option
compensation........... (3,253) -- -- -- (3,253)
--------- -------- -------- -------- ---------
Total liabilities and
stockholders'
equity............... $ 282,615 $ -- $ 44,905 $(58,572) $ 268,948
========= ======== ======== ======== =========
Total revenues.......... 24,502 -- -- -- 24,502
Cost of service and
roaming................ (18,350) (8,857) -- -- (27,207)
Selling and marketing... (27,832) (525) -- -- (28,357)
General and
administrative......... (13,706) (372) -- -- (14,078)
Other................... (24,149) -- -- -- (24,149)
Depreciation and
amortization........... (8,583) -- (3,451) -- (12,034)
--------- -------- -------- -------- ---------
Total expenses.......... (92,620) (9,754) (3,451) -- (105,825)
--------- -------- -------- -------- ---------
Net loss................ $ (68,118) $ (9,754) $ (3,451) $ -- $ (81,323)
========= ======== ======== ======== =========
Operating activities,
net.................... $ (89,165) -- $ 47,556 -- $ (41,609)
Investment activities -
capital expenditures... (104,589) -- (47,808) -- (152,397)
Financing activities.... (6,510) -- -- -- (6,510)
--------- -------- -------- -------- ---------
Decrease in cash or cash
equivalents............ (200,264) -- (252) -- (200,516)
Cash and cash
equivalents at end of
period................. $ 58,636 $ -- $ (252) $ -- $ 58,384
========= ======== ======== ======== =========
F-22
AIRGATE PCS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The unaudited condensed consolidating financial information for AGW and ANS
as of September 30, 1999 and for the nine months then ended is as follows
(dollars in thousands):
AirGate AirGate
PCS, AGW Leasing Network
Inc. Company, Inc. Services LLC Eliminations Consolidation
-------- ------------- ------------ ------------ -------------
Cash and cash
equivalents............ $258,900 $ -- $ -- $ -- $258,900
Property and equipment,
net.................... 44,206 -- -- -- 44,206
Other assets............ 15,593 -- -- (1,379) 14,214
-------- ------- ----- ------- --------
Total assets.......... $318,699 $ -- $ -- $(1,379) $317,320
======== ======= ===== ======= ========
Current liabilities..... $ 31,507 $ 1,379 $ -- $(1,379) $ 31,507
Long-term debt.......... 157,967 -- -- -- 157,967
-------- ------- ----- ------- --------
Total liabilities..... 189,474 1,379 -- (1,379) 189,474
-------- ------- ----- ------- --------
Common stock............ 120 -- -- -- 120
Additional paid-in-
capital................ 157,880 -- -- -- 157,880
Accumulated deficit..... (25,875) (1,379) -- -- (27,254)
Unearned stock option
compensation........... (2,900) -- -- -- (2,900)
-------- ------- ----- ------- --------
Total liabilities and
stockholders'
equity............... $318,699 $ -- $ -- $(1,379) $317,320
======== ======= ===== ======= ========
Total expenses.......... (14,220) (1,379) -- -- (15,599)
-------- ------- ----- ------- --------
Net loss................ $(14,220) $(1,379) $ -- $ -- $(15,599)
======== ======= ===== ======= ========
(11) Commitments
(a) Leases
The Company is obligated under noncancelable operating lease agreements for
office space, cell sites, vehicles and office equipment. Future minimum annual
lease payments under these noncancelable operating lease agreements for the
next five years and in the aggregate at September 30, 2000, are as follows
(dollars in thousands):
Years ending September 30,
--------------------------
2001.................................................................. $14,022
2002.................................................................. 14,149
2003.................................................................. 13,585
2004.................................................................. 12,787
2005.................................................................. 7,303
Thereafter............................................................ 18,463
-------
Total future minimum annual lease payments.......................... $80,309
=======
Rental expense for all operating leases was $9.8 million, $1.4 million and
$0.3 million for the year ended September 30, 2000, the nine months ended
September 30, 1999, and the year ended December 31, 1998, respectively.
(b) Employment Agreements
The Company has entered into employment agreements with certain employees
which provide that the employee will not compete in the business of wireless
telecommunications in the Company's territory for a specified period after
their respective termination dates. The employment agreements also define
employment terms including salary, bonus and benefits to be provided to the
respective employees.
F-23
AIRGATE PCS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On May 4, 2000, the Company entered into a retention bonus agreement with
Thomas M. Dougherty, its Chief Executive Officer. So long as Mr. Dougherty is
not terminated for cause or does not voluntarily terminate employment, the
Company must make on specified payment dates, generally quarterly, extending to
January 15, 2004, periodic retention bonus payments totaling $3.6 million.
Compensation expense of $1.2 million was recorded in the year ended September
30, 2000 related to amounts earned under the retention bonus agreement. Under
the terms of the agreement, partial acceleration of the future payments would
occur upon a change in control of the Company.
(c) Employee Benefit Plans
In February 2000, the Company established the AirGate PCS 401(k) Retirement
Plan, a defined contribution employee savings plan under Section 401(k) of the
Internal Revenue Code. For the year ended September 30, 2000, employer
contributions of $0.2 million were made to the plan.
(12) Related Party
For the year ended September 30, 2000, an affiliated company provided the
Company investment management services with fees totaling $44,000.
(13) Selected Quarterly Financial Data (Unaudited):
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- -------- -------- -------- --------
Year Ended September 30,
2000:
Total revenue.............. $ 130 $ 1,580 $ 6,542 $ 16,250 $ 24,502
Operating loss............. (6,331) (13,987) (20,300) (23,906) (64,524)
Net loss................... (9,828) (17,104) (25,196) (29,195) (81,323)
Net loss per share:
Basic and diluted........ (0.82) (1.40) (2.03) (2.30) (6.60)
Nine Months Ended September
30, 1999:
Total revenue.............. $ -- $ -- $ -- $ -- $ --
Operating loss............. (836) (1,372) (4,033) -- (6,241)
Net loss................... (1,580) (6,185) (7,834) -- (15,599)
Net loss per share:
Basic and diluted........ (0.47) (1.83) (2.25) -- (4.57)
(14) Subsequent Events
(a) On October 2, 2000, the Company borrowed an additional $42.0 million
under the Lucent Financing. As a result, the commitment fee for undrawn
commitments under the facility decreased to 1.50% per annum, payable quarterly.
(b) On August 28, 2001, the Company signed an agreement and plan of merger
under which AirGate PCS, Inc. and iPCS, Inc. will combine in a tax-free, stock
for stock transaction for up to 13.5 million shares of AirGate PCS, Inc. common
stock, which includes 1.1 million shares reserved for issuance upon the
exercise of outstanding iPCS, Inc. options and warrants. At the effective date
of the merger, each issued and outstanding share of iPCS, Inc. common stock
will be converted in the right to receive approximately 0.1594 of a share of
the common stock of AirGate PCS, Inc. Assuming the full conversion of each
company's outstanding options and warrants, shareholders of AirGate PCS, Inc.
will own 52.5 percent of the combined company, and iPCS' shareholders will own
47.5 percent of the combined Company immediately following the merger. The
combination will be accounted for using the purchase method of accounting. The
transaction is subject to the customary regulatory review, approvals by the
stockholders of AirGate PCS, Inc., both companies' senior secured lenders, and
Sprint PCS, and is expected to close on or before March 1, 2002.
F-24
AIRGATE PCS, INC. AND SUBSIDIARIES
SCHEDULE
VALUATION AND QUALIFYING ACCOUNTS
For the Year Ended September 30, 2000,
the Nine Months Ended September 30, 1999,
and the Year Ended December 31, 1998
(in thousands)
Balance at Additions
Beginning of Charged to Balance at
Classification Period Revenues Deductions End of Period
-------------- ------------ ---------- ---------- -------------
September 30, 2000
Allowance for Doubtful
Accounts................... $ -- $ 563 $ -- $ 563
Income Tax Valuation
Allowance.................. $5,762 $31,000 $ -- $36,762
September 30, 1999
Allowance for Doubtful
Accounts................... $ -- $ -- $ -- $ --
Income Tax Valuation
Allowance.................. $1,893 $ 3,869 $ -- $ 5,762
December 31, 1998
Allowance for Doubtful
Accounts................... $ -- $ -- $ -- $ --
Income Tax Valuation
Allowance.................. $ -- $ 1,893 $ -- $ 1,893
F-25
AIRGATE PCS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
(dollars in thousands, except share and per share amounts)
June 30, September 30,
2001 2000
--------- -------------
ASSETS
Current assets:
Cash and cash equivalents........................... $ 7,846 $ 58,384
Trade receivables, net.............................. 28,458 8,696
Inventories, net.................................... 1,456 2,902
Prepaid expenses.................................... 3,137 2,106
Direct customer activation costs.................... 3,380 627
Other current assets................................ 1,364 1,600
--------- ---------
Total current assets.............................. 45,641 74,315
Property and equipment, net........................... 203,157 183,581
Financing costs, net.................................. 8,307 9,098
Other assets.......................................... 711 1,954
--------- ---------
$ 257,816 $ 268,948
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.................................... $ 4,995 $ 21,009
Accrued expenses.................................... 8,591 9,548
Payable to Sprint PCS............................... 20,091 5,292
Deferred revenue.................................... 11,009 1,828
--------- ---------
Total current liabilities......................... 44,686 37,677
Deferred revenue...................................... 273 671
Long-term debt........................................ 242,122 180,727
--------- ---------
Total liabilities................................. 287,081 219,075
--------- ---------
Stockholders' equity (deficit):
Preferred stock, par value, $.01 per share;
5,000,000 shares authorized; no shares issued and
outstanding........................................ -- --
Common stock, par value, $.01 per share; 150,000,000
shares authorized; 13,271,488 and 12,816,783 shares
issued and outstanding at June 30, 2001 and
September 30, 2000, respectively................... 133 128
Additional paid-in capital.......................... 167,103 161,575
Accumulated deficit................................. (194,555) (108,577)
Unearned stock option compensation.................. (1,946) (3,253)
--------- ---------
Total stockholders' equity (deficit).............. (29,265) 49,873
Commitments and contingencies.....................
--------- ---------
$ 257,816 $ 268,948
========= =========
See accompanying notes to unaudited consolidated financial statements
F-26
AIRGATE PCS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(dollars in thousands, except share and per share amounts)
Nine Months
Ended
June 30,
------------------------
2001 2000
----------- -----------
Revenues:
Service revenue................................... $ 61,882 $ 2,494
Roaming revenue................................... 35,516 4,717
Equipment revenue................................. 7,400 1,041
----------- -----------
Total revenues.................................. 104,798 8,252
Operating expenses:
Cost of service and roaming....................... (71,420) (15,786)
Cost of equipment................................. (14,408) (1,974)
Selling and marketing............................. (49,170) (13,723)
General and administrative........................ (12,149) (9,525)
Noncash stock option compensation................. (1,225) (1,067)
Depreciation and amortization..................... (21,463) (6,795)
----------- -----------
Operating loss.................................... (65,037) (40,618)
Interest income..................................... 2,350 8,083
Interest expense.................................... (23,291) (19,593)
----------- -----------
Net loss............................................ $ (85,978) $ (52,128)
=========== ===========
Basic and diluted net loss per share of common
stock.............................................. $ (6.61) $ (4.27)
=========== ===========
Weighted-average outstanding common shares.......... 13,007,119 12,212,480
=========== ===========
See accompanying notes to unaudited consolidated financial statements
F-27
AIRGATE PCS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
Nine Months
Ended June 30,
-------------------
2001 2000
-------- ---------
Cash flows from operating activities:
Net loss................................................. $(85,978) $ (52,128)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 21,463 6,795
Amortization of financing costs......................... 908 897
Provision for doubtful accounts......................... 5,037 162
Interest expense associated with accretion of discount
and beneficial conversion feature...................... 19,395 17,091
Stock option compensation............................... 1,225 1,067
(Increase) decrease in:
Due from AirGate Wireless, LLC........................ -- 751
Trade receivables..................................... (24,799) (3,821)
Inventories, net...................................... 1,446 (1,378)
Prepaid expenses...................................... (1,031) (1,530)
Other assets.......................................... (1,140) (910)
Increase (decrease) in:
Accounts payable...................................... (2,236) 1,238
Accrued expenses...................................... 398 5,445
Payable to Sprint PCS................................. 14,799 --
Deferred revenue...................................... 8,783 743
-------- ---------
Net cash used in operating activities................ (41,730) (25,578)
-------- ---------
Cash flows from investing activities:
Capital expenditures..................................... (55,920) (133,506)
Acquisition of assets.................................... (502) --
-------- ---------
Net cash used in investing activities................ (56,422) (133,506)
-------- ---------
Cash flows from financing activities:
Proceeds from senior credit facility..................... 42,000 --
Payment on notes payable to Sprint PCS................... -- (7,700)
Proceeds from exercise of stock purchase warrants........ -- 5
Proceeds from exercise of employee stock options......... 5,614 100
-------- ---------
Net cash provided by (used in) financing activities.. 47,614 (7,595)
-------- ---------
Net decrease in cash and cash equivalents............ (50,538) (166,679)
Cash and cash equivalents at beginning of period.......... 58,384 258,900
-------- ---------
Cash and cash equivalents at end of period................ $ 7,846 $ 92,221
======== =========
Supplemental disclosure of cash flow information--cash
paid for interest........................................ $ 4,015 $ 2,094
======== =========
Supplemental disclosure of noncash investing and financing
activities:
Capitalized interest.................................. $ 2,199 $ 4,733
Grant of common stock purchase warrants related to
Lucent Financing..................................... -- 282
Grant of compensatory stock options................... -- 2,231
Convertible notes payable to stockholders and accrued
interest converted to equity......................... -- 102
Beneficial conversion feature of convertible notes
payable to stockholders.............................. -- 111
See accompanying notes to unaudited consolidated financial statements
F-28
AIRGATE PCS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001
(unaudited)
(1) Basis of Presentation
The accompanying consolidated financial statements are unaudited and have
been prepared by management. The consolidated financial statements included
herein include the accounts of AirGate PCS, Inc. and its wholly-owned
subsidiaries, AGW Leasing Company, Inc. ("AGW") and AirGate Network Services,
LLC ("ANS"), for all periods presented. In the opinion of management, these
consolidated financial statements contain all of the adjustments, consisting of
normal recurring adjustments, necessary to present fairly, in summarized form,
the financial position and the results of operations of AirGate PCS, Inc. and
subsidiaries (collectively "AirGate" or the "Company"). The results of
operations for the nine months ended June 30, 2001 are not indicative of the
results that may be expected for the full fiscal year of 2001. The financial
information presented herein should be read in conjunction with the Company's
Form 10-K for the year ended September 30, 2000 which includes information and
disclosures not included herein. All significant intercompany accounts or
balances have been eliminated in consolidation. Certain amounts have been
reclassified to conform to the current year presentation.
(2) Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141, "Business Combinations
("SFAS 141"), which is effective for all business combinations initiated after
June 30, 2001. SFAS 141 requires companies to account for all business
combinations using the purchase method of accounting, recognize intangible
assets if certain criteria are met, as well as provide additional disclosures
regarding business combinations and allocation of purchase price. The Company
has adopted SFAS No. 141 as of July 1, 2001, and the impact of such adoption is
not anticipated to have a material adverse impact on the Company's financial
statements.
In June 2001, the FASB issued Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), which requires
nonamortization of goodwill and intangible assets that have indefinite useful
lives and annual tests of impairments of those assets. The statement also
provides specific guidance about how to determine and measure goodwill and
intangible asset impairments, and requires additional disclosure of information
about goodwill and other intangible assets. The provisions of this statement
are required to be applied starting with fiscal years beginning after December
15, 2001 and applied to all goodwill and other intangible assets recognized in
its financial statements at that date. Goodwill and intangible assets acquired
after June 30, 2001 will be subject to the nonamortization provisions of the
statement. The Company will adopt SFAS No. 142 beginning October 1, 2001, and
the impact of such adoption is not anticipated to have a material adverse
impact on the Company's financial statements.
(3) Net Loss Per Share
The Company computes net loss per common share in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 128 "Earnings per Share." Basic
and diluted net loss per share of common stock is computed by dividing net loss
for each period by the weighted-average outstanding common shares. No
conversion of common stock equivalents has been assumed in the calculations
since the effect would be antidilutive. As a result, the number of weighted-
average outstanding common shares as well as the amount of net loss per share
are the same for both the basic and diluted net loss per share calculations for
all periods presented.
F-29
AIRGATE PCS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The reconciliation of weighted-average outstanding common shares to
weighted-average outstanding shares including potentially dilutive common stock
equivalents is set forth below:
Nine Months Ended
June 30,
---------------------
2001 2000
---------- ----------
Weighted-average outstanding common shares.............. 13,007,119 12,212,480
Weighted-average potentially dilutive common stock
equivalents:
Common stock options.................................. 382,457 884,135
Non-executive common stock options and employee stock
purchase plan........................................ 239 --
Stock purchase warrants............................... 93,613 407,787
---------- ----------
Weighted-average outstanding shares including
potentially dilutive common stock equivalents.......... 13,483,428 13,504,402
========== ==========
(4) Revenue Recognition and Customer Activation Costs
The accounting policy for the recognition of activation fee revenue is to
record the revenue over the periods such revenue is earned in accordance with
current interpretations of Staff Accounting Bulletin No. 101 (SAB 101),
"Revenue Recognition in Financial Statements." The Company does not recognize
revenue from subscribers for which the likelihood of collecting such revenue is
not reasonably assured.
Pursuant to SAB 101, activation fee revenue and direct customer activation
costs have been deferred and are recorded either: over the average life for
those customers (30 months) that do not commit to a fixed service term or the
contractual service term (generally 12 months) for those customers that do
commit to a fixed service term. For the nine months ended June 30, 2001, the
Company recognized approximately $1.7 million of activation fee revenue and
$1.3 million of direct customer activation costs. The Company has deferred $4.3
million of activation fee revenue and $3.6 million of direct customer
activation costs to future periods, as of June 30, 2001. As of June 30, 2000,
the Company had recognized $20,000 of activation fee revenue and expense and
had deferred $0.4 million of activation fee revenue and expense to future
periods.
(5) Trade Receivables, net
Trade receivables, net, including $10.5 million due from Sprint PCS, relates
to roaming revenues, amounts due from customers with respect to airtime service
charges and amounts due from local third party resellers relating to the sale
of handsets and accessories. For the nine months ended June 30, 2001, roaming
revenues from Sprint PCS totaled $35.5 million, or 34% of total revenues. For
the nine months ended June 30, 2000, roaming revenues from Sprint PCS totaled
$4.7 million, or 57% of total revenues.
On April 27, 2001, the Company and Sprint PCS announced that they had
reached an agreement in principle to reduce the reciprocal roaming rate
exchanged between Sprint PCS and AirGate PCS for customers who roam into the
other party's territory. The rate was reduced from $.20 per minute of use to
$.15 per minute of use beginning June 1, 2001, and to $.12 per minute of use
beginning October 1, 2001. Beginning January 1, 2002, and for the remainder of
the term of the management agreement with Sprint PCS, the rate will be adjusted
to provide a fair and reasonable return on the cost of the underlying network.
In accordance with the agreement in principle, on May 1, 2001, Sprint PCS
provided notice of reduction of the roaming rate to $0.15 per minute of use on
June 1, 2001, and to $0.12 per minute of use on October 1, 2001. The details of
the agreement in principle with respect to periods after December 31, 2001 have
not yet been finalized.
F-30
AIRGATE PCS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company records an allowance for doubtful accounts to reflect the
expected loss on the collection of receivables. Such allowance is recorded for
accounts receivables from customers and third party vendors and totaled $2.7
million at June 30, 2001 compared to $0.6 million at September 30, 2000.
(6) Property and Equipment
Property and equipment consist of the following at June 30, 2001 and
September 30, 2000 (dollars in thousands):
June 30, September 30,
2001 2000
-------- -------------
Network assets..................................... $195,838 $158,720
Computer equipment................................. 3,175 3,081
Furniture, fixtures, leasehold improvements, and
office equipment.................................. 10,832 6,800
-------- --------
Total network assets and equipment............... 209,845 168,601
Less accumulated depreciation and amortization..... (34,442) (13,005)
-------- --------
Total network assets and equipment, net.......... 175,403 155,596
Construction in progress........................... 27,754 27,985
-------- --------
Property and equipment, net...................... $203,157 $183,581
======== ========
(7) Payable to Sprint PCS
The payable to Sprint PCS consists of amounts owed to Sprint PCS related to
roaming, purchases of handsets and accessories, services provided including
customer care and customer billing, equipment subsidies payable to third party
national retailers and the 8% affiliation fee. The amount payable to Sprint PCS
totaled $20.1 million and $5.3 million at June 30, 2001 and September 30, 2000,
respectively.
F-31
AIRGATE PCS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(8) Long-Term Debt
On April 26, 2001, Lehman Brothers Commercial Paper, Inc., a subsidiary of
Lehman Brothers, Inc., assumed the responsibilities of Lucent Technologies Inc.
as Administrative Agent under the $153.5 Senior Credit Facility (formerly the
Lucent Financing). Lucent Technologies Inc. no longer holds a financial
position in the Senior Credit Facility.
Long-term debt consists of the following at June 30, 2001 and September 30,
2000 (dollars in thousands):
June 30, September 30,
2001 2000
-------- -------------
Senior Credit Facility:
Gross borrowings................................... $ 55,500 $ 13,500
Unaccreted original issue discount................. (623) (772)
-------- --------
Net Senior Credit Facility........................... 54,877 12,728
-------- --------
Senior Subordinated Discount Notes:
Outstanding borrowings............................. 196,277 177,852
Unaccreted original issue discount................. (9,032) (9,853)
-------- --------
Net Senior Subordinated Discount Notes............... 187,245 167,999
-------- --------
Long-term debt..................................... $242,122 $180,727
======== ========
As of June 30, 2001, $98 million was available for borrowing under the
Senior Credit Facility.
(9) Common Stock Purchase Warrants
(a) Senior Credit Facility
On June 1, 2000, the Company issued stock purchase warrants to Lucent
Technologies in consideration of the Senior Credit Facility. The exercise price
of the warrants equals $20.40 per share, and the warrants are exercisable for
an aggregate of 10,175 shares of the Company's common stock at any time. The
warrants expire on the earlier of August 15, 2004 or August 15, 2001, if, as of
such date, the Company has paid in full all outstanding amounts under the
Senior Credit Facility and has terminated the remaining unused portion of the
commitments. The Company recorded a discount on the associated credit facility
of $0.3 million which represents the fair value of the warrants on the date of
grant using the Black-Scholes option pricing model. The discount is recognized
as interest expense over the period from the date of issuance to maturity using
the effective interest method. All of these warrants remain outstanding at June
30, 2001.
(b) Senior Subordinated Discount Notes
On January 3, 2000, the Company's registration statement on Form S-1,
relating to warrants to purchase 644,400 shares of common stock issued
together, as units, with the Company's $300 million of 13.5% senior
subordinated discount notes due 2009, was declared effective by the Securities
and Exchange Commission. On September 30, 1999, the Company received gross
proceeds of $156.1 million from the issuance of 300,000 units, each unit
consisting of a $1,000 principal amount at maturity 13.5% senior subordinated
discount note due 2009 and one warrant to purchase 2.148 shares of common stock
at a price of $0.01 per share. The warrants were exercisable beginning upon the
effective date of the registration statement registering such warrants, for an
aggregate of 644,400 shares of common stock. The warrants expire October 1,
2009. As of June 30, 2001, warrants representing 555,843 shares of common stock
had been exercised, and warrants representing 88,557 shares of common stock
remain outstanding.
F-32
AIRGATE PCS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(10) Stockholders' Equity
(a) On January 31, 2001, the Board of Directors approved the 2001 Non-
Executive Stock Option Plan, whereby 150,000 shares of common stock were
reserved for issuance to current and future employees. Options under the plan
vest ratably over a four year period beginning at the grant date and expire ten
years from the date of grant. As of June 30, 2001, 86,400 shares had been
granted under the terms of the plan.
(b) On January 31, 2001, the Board of Directors approved the 2001 Employee
Stock Purchase Plan which made available for issuance 200,000 shares of common
stock. The 2001 Employee Stock Purchase Plan provides for employees to make
payroll contributions to an account. At the end of the offering period,
initially the calendar year, the employee will be able to purchase stock at a
15% discount to the market price of AirGate PCS stock at the beginning or end
of the offering period, whichever is lower. As of June 30, 2001, employees had
contributed $171,000 to the plan.
The shares issuable pursuant to the 2001 Employee Stock Purchase Plan and
the 2001 Non-Executive Stock Option Plan were registered under Form S-8 dated
February 28, 2001.
(11) Acquisition of Assets
On February 28, 2001, certain operating assets and intangibles were acquired
to convert one of the Company's resellers into Company owned retail outlets.
The Company paid a total purchase price of approximately $0.5 million,
representing $0.3 million of operating equipment and leasehold improvements for
eight retail stores and two mall kiosks and $0.2 million assigned to a two year
non-compete agreement. The amount relating to the non-compete agreement will be
amortized over the contractual period of two years.
(12) Capital Expenditures
Capital expenditures include equipment purchased for the build-out of the
digital PCS network (cell site base stations and switches), leasehold
improvements and computer equipment used in the Company's Sprint PCS retail
stores, and capitalized interest on capital expenditures not yet placed in
service. For the nine months ended June 30, 2001, cash outlays of $55.9 million
for capital expenditures represented cash payments of $15.2 million made for
equipment purchases made through accounts payable and accrued expenses at
September 30, 2000, in addition to $40.7 million of capital expenditures paid
in cash during the nine months ended June 30, 2001. For the nine months ended
June 30, 2000 cash outlays of $133.5 million for capital expenditures
represented cash payments used in building the PCS network to three switches
and 519 cell sites.
(13) Condensed Consolidated Financial Information
AGW Leasing Company, Inc. ("AGW") and AirGate Network Services LLC ("ANS")
are wholly-owned subsidiaries of AirGate PCS, Inc. Both AGW and ANS have
jointly, fully and unconditionally guaranteed the Company's senior subordinated
discount notes and Senior Credit Facility. AGW was formed to hold the real
estate interests for the Company's PCS network. ANS was formed to provide
construction management services for the Company's PCS network.
F-33
AIRGATE PCS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The unaudited condensed consolidating financial information of AGW and ANS
as of and for the nine months ended June 30, 2001 is as follows (dollars in
thousands):
AGW AirGate
Leasing Network
AirGate Company, Services,
PCS, Inc. Inc. LLC Eliminations Consolidated
--------- -------- --------- ------------ ------------
Cash and cash
equivalents............ $ 7,846 $ -- $ -- $ -- $ 7,846
Trade receivables and
other current assets... 37,664 -- 131 -- 37,795
Property and equipment,
net.................... 155,124 -- 48,033 -- 203,157
Other assets............ 80,798 -- -- (71,780) 9,018
--------- -------- ------- -------- ---------
Total assets........... $ 281,432 $ -- $48,164 $(71,780) $ 257,816
========= ======== ======= ======== =========
Current liabilities..... 40,020 $ 22,076 $54,370 $(71,780) $ 44,686
Long-term deferred
revenue................ 273 -- -- -- 273
Long-term debt.......... 242,122 -- -- -- 242,122
--------- -------- ------- -------- ---------
Total liabilities...... 282,415 22,076 54,370 (71,780) 287,081
Common stock............ 133 -- -- -- 133
Additional paid-in
capital................ 167,103 -- -- -- 167,103
Accumulated deficit..... (166,273) (22,076) (6,206) -- (194,555)
Unearned stock option
compensation........... (1,946) -- -- -- (1,946)
--------- -------- ------- -------- ---------
Total liabilities and
stockholders' equity
(deficit)............. $ 281,432 $ -- $48,164 $(71,780) $ 257,816
========= ======== ======= ======== =========
Total revenues.......... $ 104,798 $ -- $ -- $ -- $ 104,798
Total expenses.......... (175,888) (10,943) (3,945) -- (190,776)
--------- -------- ------- -------- ---------
Net loss............... $ (71,090) $(10,943) $(3,945) $ -- $ (85,978)
========= ======== ======= ======== =========
Operating activities,
net.................... (50,511) -- 8,781 -- (41,730)
Investing activities,
net.................... (47,893) -- (8,529) -- (56,422)
Financing activities,
net.................... 47,614 -- -- -- 47,614
--------- -------- ------- -------- ---------
(Decrease) increase in
cash and cash
equivalents............ (50,790) -- 252 -- (50,538)
Cash and cash
equivalents at
beginning of period.... 58,636 -- (252) -- 58,384
--------- -------- ------- -------- ---------
Cash and cash
equivalents at end of
period................. $ 7,846 $ -- $ -- $ -- $ 7,846
========= ======== ======= ======== =========
(14) Subsequent Events
(a) On July 23, 2001, the Company borrowed an additional $10 million under
the Senior Credit Facility. As a result, as of July 23, 2001, availability
under the Senior Credit Facility totaled $88 million.
(b) On August 28, 2001, the Company signed an agreement and plan of merger
under which AirGate PCS, Inc. and iPCS, Inc. will combine in a tax-free, stock
for stock transaction for up to 13.5 million shares of AirGate PCS, Inc. common
stock, which includes 1.1 million shares reserved for issuance upon the
exercise of outstanding iPCS, Inc. options and warrants. At the effective date
of the merger, each issued and outstanding share of iPCS, Inc. common stock
will be converted in the right to receive approximately 0.1594 of a share of
the common stock of AirGate PCS, Inc. Assuming the full conversion of each
company's outstanding options and warrants, shareholders of AirGate PCS, Inc.
will own 52.5 percent of the combined company, and iPCS' shareholders will own
47.5 percent of the combined Company immediately following the merger. The
combination will be accounted for using the purchase method of accounting. The
transaction is subject to the customary regulatory review, approvals by the
stockholders of AirGate PCS, Inc., both companies' senior secured lenders, and
Sprint PCS, and is expected to close on or before March 1, 2002.
F-34
INDEPENDENT AUDITORS' REPORT
iPCS, Inc.
Schaumburg, Illinois
We have audited the accompanying consolidated balance sheets of iPCS, Inc.
and Subsidiaries and Predecessor (the "Company") as of December 31, 2000 and
1999, and the related consolidated statements of operations, redeemable
preferred stock and equity, and cash flows for the year ended December 31, 2000
and for the period from January 22, 1999 (date of inception) through December
31, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 31,
2000 and 1999, and the results of its operations and its cash flows for the
year ended December 31, 2000 and for the period from January 22, 1999 (date of
inception) through December 31, 1999 in conformity with accounting principles
generally accepted in the United States of America.
/s/ DELOITTE & TOUCHE, LLP
Davenport, Iowa
February 7, 2001, except for Notes 9 and 20,
as to which the dates are February 23, 2001 and August 28, 2001, respectively
F-35
iPCS, INC. AND SUBSIDIARIES AND PREDECESSOR
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
December 31, December 31,
2000 1999
------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents......................... $165,958 $ 2,733
Accounts receivable, less allowance: 2000--$328;
1999--$1......................................... 5,350 92
Other receivables................................. 231 39
Inventories....................................... 3,314 927
Prepaid expenses and other assets................. 1,839 432
-------- -------
Total current assets............................ 176,692 4,223
Property and equipment including construction in
progress, net...................................... 126,803 39,106
Financing costs, less accumulated
amortization: 2000--$445; 1999--$66................ 10,045 1,514
Intangible assets, net.............................. 14,643
Other assets........................................ 392
-------- -------
Total assets.................................... $328,575 $44,843
======== =======
LIABILITIES, REDEEMABLE PREFERRED
STOCK AND EQUITY
Current Liabilities:
Accounts payable.................................. $ 27,294 $ 3,839
Accrued expenses.................................. 2,686 393
Accrued interest.................................. 22 265
Deferred revenue.................................. 1,346
Capital lease obligations--current portion........ 12
Advance on tower sales............................ 2,000
-------- -------
Total current liabilities....................... 31,360 6,497
Deferred gain on tower sales........................ 6,000 1,655
Capital lease obligations--long-term................ 225
Deferred revenue.................................... 392
Accrued interest.................................... 6,219
Long-term debt...................................... 157,581 27,571
-------- -------
Total liabilities............................... 201,777 35,723
-------- -------
Redeemable preferred stock, $0.01 par value;
75,000,000 shares authorized; 23,090,909 shares
issued and outstanding............................. 114,080
-------- -------
Commitments and Contingencies
Equity:
Common stock, $0.01 par value; 300,000,000 shares
authorized; 44,869,643 shares issued and
outstanding...................................... 449
Additional paid in capital........................ 78,321
Contributed capital--Predecessor Company.......... 13,500
Unearned compensation............................. (5,515)
Accumulated deficit............................... (60,537) (4,380)
-------- -------
Total equity.................................... 12,718 9,120
======== =======
Total liabilities, redeemable preferred stock
and equity..................................... $328,575 $44,843
======== =======
See notes to consolidated financial statements.
F-36
iPCS, INC. AND SUBSIDIARIES AND PREDECESSOR
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)
For the Period from
For the January 22, 1999
Year Ended (date of inception)
December 31, through
2000 December 31, 1999
------------ -------------------
Revenues:
Service................................... $ 20,623 $ 71
Equipment and other....................... 3,355 144
----------- -----------
Total revenues.......................... 23,978 215
----------- -----------
Operating Expenses:
Cost of service (excluding non-cash
compensation of $157 in 2000)............ 17,026 1,695
Cost of equipment......................... 10,462 484
Selling (excluding non-cash compensation
of $97 in 2000).......................... 12,883 778
General and administrative:
Non-cash compensation................... 11,212
Taxes on non-cash compensation.......... 1,567
Other general and administrative........ 9,319 1,520
Depreciation and amortization............. 8,609 381
----------- -----------
Total operating expenses................ 71,078 4,858
----------- -----------
Loss from operations........................ (47,100) (4,643)
Other Income (Expense):
Interest income........................... 3,443 89
Interest expense.......................... (11,741)
Other income.............................. 726 174
----------- -----------
Loss Before Extraordinary Item.............. (54,672) (4,380)
Extraordinary item--loss on early
extinguishment of debt..................... (1,485)
----------- -----------
Net Loss.................................... $ (56,157) $ (4,380)
=========== ===========
Loss before extraordinary item.............. $ (54,672) $ (4,380)
Beneficial conversion feature related to
redeemable preferred stock................. (46,387)
Dividends and accretion on redeemable
preferred stock............................ (1,963)
----------- -----------
Loss available to common stockholders....... (103,022) (4,380)
Extraordinary item.......................... (1,485)
----------- -----------
Net loss available to common stockholders... $ (104,507) $ (4,380)
=========== ===========
Pro forma basic and diluted loss per share
of common stock (unaudited):
Loss available to common stockholders
before extraordinary item................ $ (2.30) $ (0.10)
Extraordinary item........................ $ (0.03)
Net loss available to common
stockholders............................. $ (2.33) $ (0.10)
Pro forma weighted average common shares
outstanding (unaudited).................... 44,869,643 44,869,643
=========== ===========
See notes to consolidated financial statements.
F-37
iPCS, INC. AND SUBSIDIARIES AND PREDECESSOR
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK AND EQUITY
(In thousands, except share data)
Redeemable Contributed
Preferred Stock Common Stock Additional Capital--
------------------- ----------------- Paid in Predecessor Unearned
Shares Amount Shares Amount Capital Company Compensation
---------- -------- ---------- ------ ---------- ----------- ------------
BALANCE AT JANUARY 22, 1999
(DATE OF INCEPTION)
Members' contributions............ $ 13,500
Net loss..........................
---------- -------- ---------- ----- -------- -------- -------
BALANCE AT DECEMBER 31, 1999....... 13,500
Members' contributions from
January 1, 2000 to July 11,
2000............................. 16,500
Issuance of 1.5%
interest in Predecessor Company
to Mr. Yager..................... 8,480
Reorganization of Predecessor
Company to C Corporation......... 44,869,643 $ 449 $ 38,031 (38,480)
Sale of Series A-1 redeemable
preferred stock.................. 9,090,909 $ 46,387
Beneficial conversion feature
related to Series A-1 redeemable
preferred stock.................. 46,387
Accretion of Series A-1
redeemable preferred stock
beneficial conversion feature.... (46,387)
Accrued dividends on Series A-1
redeemable preferred stock....... 1,750 (1,750)
Accretion to redemption amount of
Series A-1 redeemable preferred
stock............................ 150 (150)
Grant of stock options............ 8,247 $(8,247)
Amortization of unearned
compensation..................... 2,732
Issuance of warrants in
connection with the senior
discount notes................... 24,859
Issuance of warrants to Sprint
PCS.............................. 9,147
Sale of Series A-2 redeemable
preferred stock.................. 14,000,000 65,730
Accrued dividends on Series A-2
redeemable preferred stock....... 58 (58)
Accretion to redemption amount of
Series A-2 redeemable preferred
stock............................ 5 (5)
Net loss..........................
---------- -------- ---------- ----- -------- -------- -------
BALANCE AT DECEMBER 31, 2000....... 23,090,909 $114,080 44,869,643 $ 449 $ 78,321 $ -- $(5,515)
--------------------------------------------------
========== ======== ========== ===== ======== ======== =======
Accumulated
Deficit
-----------
BALANCE AT JANUARY 22, 1999
(DATE OF INCEPTION)
Members' contributions............
Net loss.......................... $ (4,380)
-----------
BALANCE AT DECEMBER 31, 1999....... (4,380)
Members' contributions from
January 1, 2000 to July 11,
2000.............................
Issuance of 1.5%
interest in Predecessor Company
to Mr. Yager.....................
Reorganization of Predecessor
Company to C Corporation.........
Sale of Series A-1 redeemable
preferred stock..................
Beneficial conversion feature
related to Series A-1 redeemable
preferred stock..................
Accretion of Series A-1
redeemable preferred stock
beneficial conversion feature....
Accrued dividends on Series A-1
redeemable preferred stock.......
Accretion to redemption amount of
Series A-1 redeemable preferred
stock............................
Grant of stock options............
Amortization of unearned
compensation.....................
Issuance of warrants in
connection with the senior
discount notes...................
Issuance of warrants to Sprint
PCS..............................
Sale of Series A-2 redeemable
preferred stock..................
Accrued dividends on Series A-2
redeemable preferred stock.......
Accretion to redemption amount of
Series A-2 redeemable preferred
stock............................
Net loss.......................... (56,157)
-----------
BALANCE AT DECEMBER 31, 2000....... $(60,537)
--------------------------------------------------
===========
See notes to consolidated financial statements
F-38
iPCS, INC. AND SUBSIDIARIES AND PREDECESSOR
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the Period
from January 22,
For the Year 1999 (date of
Ended inception)
December 31, through
2000 December 31, 1999
------------ -----------------
Cash Flows from Operating Activities:
Net loss....................................... $(56,157) $ (4,380)
Adjustments to reconcile net loss to net cash
flows from operating activities:
Depreciation and amortization................. 8,609 381
Loss on disposal of property and equipment.... 56
Gain on tower sales........................... (778) (174)
Amortization of deferred gain on tower sales.. (298) (22)
Amortization of financing costs............... 604
Non-cash interest............................. 5,109
Extraordinary loss on early extinguishment of
debt......................................... 1,485
Non-cash compensation......................... 11,212
Changes in assets and liabilities:
Accounts receivable.......................... (5,258) (92)
Other receivables............................ (192) (39)
Inventories.................................. (2,387) (927)
Prepaid expenses and other assets............ (1,799) (432)
Accounts payable, accrued expenses and
accrued interest............................ 16,020 1,758
Deferred revenue............................. 1,738
-------- --------
Net cash flows from operating activities.... (22,036) (3,927)
-------- --------
Cash Flows from Investing Activities:
Capital expenditures........................... (90,489) (39,331)
Microwave relocation costs..................... (504)
Intangible acquired in purchase of network
assets........................................ (3,526)
Proceeds from tower sales...................... 12,036 4,500
Advance on tower sales......................... 2,000
-------- --------
Net cash flows from investing activities.... (82,483) (32,831)
-------- --------
Cash Flows from Financing Activities:
Proceeds from long-term debt................... 190,106 27,571
Repayment of Nortel debt....................... (40,346)
Payments on capital lease obligations.......... (13)
Debt financing costs........................... (10,620) (1,580)
Proceeds from sale of Series A-1 redeemable
preferred stock, net of offering costs of
$3,613........................................ 46,387
Proceeds from sale of Series A-2 redeemable
preferred stock, net of offering costs of
$4,270........................................ 65,730
Members' contributions......................... 16,500 13,500
-------- --------
Net cash flows from financing activities.... 267,744 39,491
-------- --------
Increase in cash and cash equivalents........... 163,225 2,733
Cash and cash equivalents at beginning of
period......................................... 2,733
-------- --------
Cash and cash equivalents at end of period...... $165,958 $ 2,733
======== ========
See notes to consolidated financial statements.
F-39
iPCS, INC. AND SUBSIDIARIES AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS OPERATIONS
Illinois PCS, LLC was formed in January 1999 as an Illinois limited
liability company for the purpose of becoming a provider of wireless personal
communication services ("PCS"). On July 12, 2000, Illinois PCS, LLC (the
"Predecessor Company") reorganized its business into a C Corporation in which
members of the Predecessor Company received 44,869,643 shares of common stock
of iPCS, Inc. in exchange for their ownership interests in the Predecessor
Company. The ownership percentages among the members following the
reorganization remained consistent with the ownership percentages at December
31, 1999 as adjusted for the effects of the agreement described in Note 14. As
of July 12, 2000, the Predecessor Company merged with and into iPCS Wireless,
Inc., a wholly owned subsidiary of iPCS, Inc., and iPCS Equipment, Inc. was
also formed and is a wholly owned subsidiary of iPCS Wireless, Inc. iPCS
Wireless, Inc. will continue the activities of the Predecessor Company and, for
accounting purposes, this transaction was accounted for as a reorganization of
the Predecessor Company into a C Corporation. iPCS, Inc. and its subsidiaries,
including the Predecessor Company, are collectively referred to as the
"Company."
In January 1999, the Company entered into affiliation agreements (the
"Sprint PCS Agreements") with Sprint Communications Company, L.P. ("Sprint")
and Sprint Spectrum L.P. and SprintCom, Inc., entities controlled by the PCS
Group of Sprint ("Sprint PCS"). The Sprint PCS Agreements, as amended, provide
the Company with the exclusive right to build, own and manage a wireless voice
and data services network in 35 basic trading areas ("BTAs") located in
Illinois, Iowa, Michigan and Nebraska under the Sprint PCS brand.
The PCS market is characterized by significant risks as a result of rapid
changes in technology, increasing competition and the cost associated with the
build-out of a PCS network. The Company's continuing operations are dependent
upon Sprint PCS' ability to perform its obligations under the Sprint PCS
Agreements and the ability of the Company to raise sufficient capital to fund
operating losses, to meet debt service requirements, and to complete the build-
out of its PCS network. Additionally, the Company's ability to attract and
maintain a sufficient customer base is critical to achieving breakeven
operating cash flow. Changes in technology, increased competition, or the
inability to obtain required financing or achieve breakeven operating cash
flow, among other factors, could have an adverse effect on the Company's
financial position and results of operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation:
The consolidated financial statements of the Company include its
subsidiaries, iPCS Wireless, Inc. and iPCS Equipment, Inc., and the Predecessor
Company. All significant intercompany accounts or balances have been eliminated
in consolidation.
Use of Estimates:
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amount of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
F-40
iPCS, INC. AND SUBSIDIARIES AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Concentration of Risk:
The Company's operations as currently conducted rely heavily on critical
functions performed by Sprint PCS. The termination of the Company's strategic
relationship with Sprint PCS or Sprint PCS' failure to perform its obligations
under the Sprint PCS Agreements (see Note 3) would severely restrict the
Company's ability to conduct its business.
The Company maintains cash and cash equivalents in accounts with a financial
institution in excess of the amount insured by the Federal Deposit Insurance
Corporation. The Company monitors the financial stability of this institution
regularly and management does not believe there is significant credit risk
associated with deposits in excess of federally insured amounts.
Cash and Cash Equivalents:
For purposes of reporting cash flows, the Company considers all highly
liquid investments, with an original maturity of three months or less at the
time of purchase, to be a cash equivalent.
Inventories:
Inventories consist of handsets and related accessories. Inventories
purchased for resale will be carried at the lower of cost, determined using
weighted average cost, or market, determined using replacement cost.
Property, Equipment and Construction in Progress:
Property and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation is provided using the straight-line method over the
estimated useful lives of the assets. Asset lives used by the Company are as
follows:
Useful life:
-------------
Network assets............................................... 3 to 15 years
Computer equipment........................................... 3 to 5 years
Furniture, fixtures, office equipment and leasehold
improvements................................................ 5 to 21 years
Construction in progress includes expenditures for the purchase of capital
equipment, design services, and construction services of the Company's network.
The Company capitalizes interest on its construction in progress activities.
Interest capitalized for the year ended December 31, 2000 and the period ended
December 31, 1999 totaled approximately $2,967,000 and $471,000, respectively.
When the network assets are placed in service, the Company transfers the assets
from construction in progress to network assets and depreciates those assets
over their estimated useful life.
Financing Costs:
Deferred financing costs are amortized as interest expense over the term of
the respective financing using the effective interest method.
Intangible Assets--Microwave Clearing Costs:
Microwave clearing costs represent costs incurred to relocate incumbent
carriers from Sprint PCS' spectrum. In accordance with the Sprint PCS
agreement, the Company reimburses Sprint PCS 50% of these microwave clearing
costs. The Company amortizes the microwave relocation costs over the remaining
term of the Sprint PCS agreement. The amortization of microwave relocation
costs was approximately $51,000 for the year ended December 31, 2000.
F-41
iPCS, INC. AND SUBSIDIARIES AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Income Taxes:
Prior to July 12, 2000, the Predecessor Company operated as a limited
liability company ("LLC") and, as a result, its losses were included in the
income tax returns of its members. Therefore, the accompanying consolidated
financial statements do not include any income tax amounts prior to July 12,
2000. Subsequent to July 12, 2000, the date of reorganization as discussed in
Note 1, the Company became a C Corporation and began accounting for income
taxes in accordance with Statement of Financial Accounting Standards ("SFAS")
No. 109, "Accounting for Income Taxes." Deferred income taxes are provided for
the tax consequences in future years of temporary differences between the tax
basis of assets and liabilities and their financial reporting amounts, based on
enacted tax laws and tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts
expected to be realized. Income tax expense is the tax payable for the year and
the change during the period in deferred tax assets and liabilities. The
Company has not provided any pro forma income tax information because any net
deferred tax asset would have been offset by a full valuation allowance due to
the Company's losses since inception.
Revenue Recognition:
The Company began offering service to customers in December 1999.
The Company recognizes revenue as services are performed. Sprint PCS
collects all revenues from the Company's customers and remits the net amount to
the Company. An affiliation fee of 8% of collected service revenues from Sprint
PCS subscribers based in the Company's territory, excluding outbound roaming,
and from non-Sprint PCS subscribers who roam onto the Company's network is
retained by Sprint PCS and recorded as a cost of service. Revenues generated
from the sale of handsets and accessories, inbound and outbound Sprint PCS
roaming fees, and from roaming services provided to Sprint PCS customers who
are not based in the Company's territory are not subject to the 8% affiliation
fee.
Sprint PCS pays the Company a Sprint PCS roaming fee for each minute that a
Sprint PCS subscriber based outside of the Company's territory roams onto the
Company's network. Revenues from these services are recognized as the services
are performed. Similarly, the Company pays roaming fees to Sprint PCS when a
Sprint PCS subscriber based in the Company's territory roams on the Sprint PCS
network outside of the Company's territory. These costs are included as cost of
services when incurred.
Equipment revenues consisting of proceeds from sales of handsets and
accessories are recorded net of an allowance for sales returns. The allowance
is estimated based on Sprint PCS' handset return policy, which allowed
customers to return handsets for a full refund within 14 days of purchase at
December 31, 2000 and within 30 days of purchase at December 31, 1999. When
handsets are returned to the Company, the Company may be able to reissue the
handsets in the future to other customers at little additional cost. However,
when handsets are returned to Sprint PCS for refurbishing, the Company receives
a credit from Sprint PCS, which is less than the amount the Company originally
paid for the handset.
The Company recognizes activation fee revenue over the periods such revenue
is earned in accordance with the current interpretations of SEC Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 was adopted by the Company in the fourth quarter of 2000.
Accordingly, activation fee revenue and direct customer activation expense has
been deferred and is being recognized over the average life for customers
assessed an activation fee (30 months). During the year ended December 31,
2000, the Company recognized approximately $42,000 of activation fee revenue
and direct customer activation expense and has deferred approximately $681,000
of activation fee revenue and direct customer activation expense to future
periods.
F-42
iPCS, INC. AND SUBSIDIARIES AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of:
The Company accounts for long-lived assets in accordance with the provisions
of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-
Lived Assets to be Disposed Of." SFAS No. 121 requires that long-lived assets
and certain identifiable intangibles be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is measured by
a comparison of the carrying amount of an asset to future undiscounted 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. The
Company has identified no such impairment losses.
Advertising Costs:
The Company expenses advertising costs when the advertisement occurs. Total
advertising expense was approximately $6,139,000 and $171,000 for the year
ended December 31, 2000 and the period ended December 31, 1999, respectively.
Start-Up Activities:
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position No. 98-5, "Reporting on the Costs of Start-Up
Activities." This statement became effective January 1, 1999 and requires that
costs of start-up activities and organization costs be expensed as incurred.
The Company has expensed all costs of start-up activities and organization
costs.
Stock Compensation:
As allowed by SFAS No. 123, "Accounting for Stock Based Compensation" ("SFAS
No. 123"), the Company has chosen to account for compensation expense
associated with its stock option plan in accordance with Accounting Principles
Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" and
related interpretations. The Company will disclose pro forma net loss as if
compensation expense had been determined consistent with SFAS No. 123.
Comprehensive Income:
A statement of comprehensive income has not been included in the
accompanying consolidated financial statements since the Company does not have
any "Other Comprehensive Income" to report.
Accretion on Redeemable Preferred Stock:
Up to the date of redemption, the Company accretes the carrying value of the
redeemable preferred stock to the redemption amount using the effective
interest method.
Cumulative Dividends on Redeemable Preferred Stock:
Cumulative dividends on the redeemable preferred stock are recorded as a
charge to additional paid-in-capital and an increase to the carrying value of
the redeemable preferred stock as the dividends are earned by the holders.
F-43
iPCS, INC. AND SUBSIDIARIES AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Pro Forma Loss Per Share (Unaudited):
Pro forma basic and diluted loss per share are calculated by dividing the
net loss available to common stockholders by the pro forma weighted average
number of shares of common stock of iPCS, Inc. as if the shares of common stock
of iPCS, Inc. into which the Predecessor Company's members' interests were
converted had been outstanding for all of the periods presented. The
calculation was made in accordance with SFAS No. 128, "Earnings Per Share." The
pro forma basic and diluted loss per share are the same because the inclusion
of the incremental potential common shares from any assumed conversion of
redeemable preferred stock or exercise of options and warrants is antidilutive.
Potential common shares excluded from the pro forma loss per share
computations because they were antidilutive are as follows:
Convertible preferred stock....................................... 23,090,909
Options........................................................... 1,590,000
Warrants.......................................................... 4,134,637
----------
Total........................................................... 28,815,546
==========
Recently Issued Accounting Pronouncements:
In June 2000, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities," an amendment of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is effective for all fiscal years
beginning after June 15, 2000. The adoption by the Company on January 1, 2001
did not have an effect on the Company's results of operations, financial
position, or cash flows. However, as discussed in Note 18, the Company did
enter into an interest rate cap agreement subsequent to December 31, 2000.
In March 2000, the FASB issued Interpretation No. 44, ("FIN 44"),
"Accounting for Certain Transactions Involving Stock Compensation--an
Interpretation of Accounting Principles Board Opinion 25" ("Opinion 25"). FIN
44 clarifies (a) the definition of employee for purposes of applying Opinion
25, (b) the criteria for determining whether a plan qualifies as a
noncompensatory plan, (c) the accounting consequences of various modifications
to the terms of a previously fixed stock option or award, and (d) the
accounting for an exchange of stock compensation awards in a business
combination. FIN 44 is effective July 1, 2000; however, certain conclusions in
FIN 44 cover specific events that occur after either December 15, 1998, or
January 12, 2000. The adoption of FIN 44 did not have an effect on the
Company's results of operations, financial position, or cash flows.
3. SPRINT PCS AGREEMENTS
In January 1999, the Company signed the following four agreements with
Sprint and Sprint PCS: management agreement, services agreement, trademark and
service license agreement with Sprint PCS, and the trademark and service
license agreement with Sprint. These agreements allow the Company to
exclusively offer Sprint PCS services in the Company's territory.
F-44
iPCS, INC. AND SUBSIDIARIES AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The management agreement has an initial term of 20 years with three 10-year
automatic renewals. The management agreement can be terminated as a result of a
number of events including an uncured breach of the management agreement or
bankruptcy of either party to the agreement. In the event that the management
agreement is terminated or not renewed, certain formulas apply to the valuation
and disposition of the Company's assets. The key clauses of the management
agreement are summarized as follows:
(a) Exclusivity: The Company is designated as the only person or entity
that can manage or operate a PCS network for Sprint PCS in the Company's
territory. Sprint PCS is prohibited from owning, operating, building or
managing another wireless mobility communications network in the Company's
territory while the management agreement is in place.
(b) Network build-out: The Company has agreed to build out the service
area network in accordance with build-out plans developed jointly by Sprint
PCS and the Company. Sprint PCS and the Company intend to expand network
coverage to cover population areas of at least ten thousand residents and
all interstate and major highways.
(c) Products and services offered for sale: The management agreement
identifies the products and services that can be offered for sale in the
Company's territory. The Company cannot offer wireless local loop services
specifically designed for the competitive local market in areas where
Sprint owns the local exchange carrier unless the Sprint-owned local
exchange carrier is named as the exclusive distributor or Sprint PCS
approves the terms and conditions.
(d) Service pricing: The Company must offer Sprint PCS subscriber
pricing plans designated for regional or national offerings. With prior
approval from Sprint PCS, the Company is permitted to establish local price
plans for Sprint PCS products and services offered only in the Company's
territory. Sprint PCS will pay to the Company 92% of the Company's
collected service revenues and of its roaming revenues from non-Sprint PCS
subscribers but will remit 100% of revenues derived from roaming of other
Sprint PCS customers and sales of handsets and accessories and proceeds
from sales not in the ordinary course of business.
(e) Roaming: When a Sprint PCS customer from outside of the Company's
territory roams onto the Company's network, the Company will earn roaming
revenues based on established rates. Similarly, the Company will pay Sprint
PCS when the Company's own subscribers use the Sprint PCS nationwide
network outside the Company's territory.
(f) Advertising and promotion: Sprint PCS is responsible for all
national advertising and promotion of Sprint PCS products and services. The
Company is responsible for advertising and promotion in the Company's
territory.
(g) Program requirements including technical and customer care
standards: The Company will comply with Sprint PCS' program requirements
for technical standards, customer service standards, national and regional
distribution and national accounts programs.
(h) Non-competition: The Company may not offer Sprint PCS products and
services outside the Company's territory.
(i) Inability to use non-Sprint PCS brands: The Company may not market,
promote, advertise, distribute, lease or sell any of the Sprint PCS
products on a non-branded, "private label" basis or under any brand,
trademark or trade name other than the Sprint PCS brand, except for sales
to resellers.
(j) Rights of first refusal: Sprint PCS has certain rights of first
refusal to buy the Company's assets upon a proposed sale.
F-45
iPCS, INC. AND SUBSIDIARIES AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The services agreement outlines various support services such as activation,
billing, collections and customer care that will be provided to the Company by
Sprint PCS. These services are available to the Company at established rates.
Sprint PCS can change any or all of the service rates one time in each twelve
month period. The Company may discontinue the use of any service upon three
months written notice. Sprint PCS may discontinue a service provided that
Sprint PCS provides the Company with nine months prior written notice. The
services agreement automatically terminates upon termination of the management
agreement.
The trademark and service mark license agreements with Sprint and Sprint PCS
provide the Company with non-transferable, royalty free licenses to use the
Sprint and Sprint PCS brand names, the "diamond" symbol and several other
trademarks and service marks. The Company's use of the licensed marks is
subject to adherence to quality standards determined by Sprint and Sprint PCS.
Sprint and Sprint PCS can terminate the trademark and service mark license
agreements if the Company files for bankruptcy, materially breaches the
agreement or if the management agreement is terminated.
Amounts related to the Sprint PCS Agreements for the year ended December 31,
2000 and for the period ended December 31, 1999 are as follows (in thousands):
Year Ended Period Ended
December 31, December 31,
2000 1999
------------ ------------
Amounts included in the Consolidated Statements
of Operations:
Cost of service............................... $ 8,527 $115
Cost of equipment............................. 10,255 222
Selling expense............................... 1,184 81
General and administrative expense............ 36 7
Amount included in the Consolidated Balance
Sheets:
Inventory..................................... 3,236 918
Amounts due from and due to Sprint PCS, included in accounts receivable and
accounts payable, respectively, are as follows (in thousands):
December 31, December 31,
2000 1999
------------ ------------
Due from Sprint PCS................................ $5,499 $ 92
Due to Sprint PCS.................................. 6,610 663
4. PROPERTY AND EQUIPMENT INCLUDING CONSTRUCTION IN PROGRESS
Property and equipment including construction in progress consists of the
following (in thousands):
December 31, December 31,
2000 1999
------------ ------------
Network assets................................... $ 74,443 $22,737
Computer equipment............................... 1,816 675
Furniture, fixtures, office equipment and
leasehold improvements.......................... 8,012 626
-------- -------
Total property and equipment..................... 84,271 24,038
Less accumulated depreciation and amortization... (8,285) (315)
-------- -------
Property and equipment, net...................... 75,986 23,723
Construction in progress (network build-out)..... 50,817 15,383
-------- -------
Property and equipment including construction in
progress, net................................... $126,803 $39,106
======== =======
F-46
iPCS, INC. AND SUBSIDIARIES AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. INTANGIBLE ASSETS
Intangible assets consist of the following (in thousands):
December 31,
2000
------------
Exclusive provider rights which arose with the issuance of
warrants to Sprint PCS (see Note 6)......................... $ 9,147
Exclusive provider rights which arose with the purchase of
assets from Sprint PCS (see Note 6)......................... 3,526
Microwave clearing costs..................................... 2,337
--------
Total intangible assets...................................... 15,010
Less accumulated amortization................................ (367)
--------
Intangible assets, net....................................... $ 14,643
========
6. AMENDMENT TO SPRINT PCS AGREEMENT
On March 8, 2000, the Company entered into an amendment to the Sprint PCS
agreements to expand its service area to include 20 BTAs located in Michigan,
Iowa and Nebraska (the "Expansion"). In connection with the Expansion, the
Company agreed to purchase certain network assets under construction in four
BTAs in Michigan, for a purchase price to be determined on the closing date
based upon the assets to be purchased and the stage of completion of those
assets as of the closing date. In addition, in connection with the Expansion,
the Company was granted an option, exercisable by the Company at any time prior
to January 31, 2001, to add the Iowa City and Cedar Rapids, Iowa BTAs to its
service area, for an initial purchase price of $25.2 million escalating monthly
to a purchase price of $28.8 million if the option is exercised during January
2001. The purchase price is subject to an upward adjustment based upon the
number of subscribers in the two additional markets at the option exercise
date. See Note 18 for the exercise of the option by the Company subsequent to
December 31, 2000. As consideration to be the exclusive provider of Sprint PCS
services in the Expansion territory, the Company committed to grant to Sprint
PCS a warrant to acquire 2% of the equity of the Company at the earliest of
July 15, 2000, the closing of an initial public offering, or the consummation
of a private placement of equity in an amount equal to at least $70.0 million.
In connection with the closing of the sale of the convertible preferred stock
discussed in Note 13, the Company issued Sprint PCS a warrant to acquire
1,151,938 shares of common stock of the Company on July 12, 2000 at an exercise
price of $4.95 per share. The warrants are exercisable by Sprint PCS beginning
on or after July 15, 2001 and expiring on July 15, 2007. The fair value of the
warrants, as determined using the Black-Scholes model, was approximately $9.1
million and was recorded as an increase to paid in capital with a corresponding
amount recorded as an intangible asset representing the right to be the
exclusive provider of Sprint PCS services in the Expansion territory. Such
intangible asset is being amortized over a life of 18.5 years, which is the
remaining term of the Sprint PCS agreement at the date the warrants were
issued. The fair value of the warrants was calculated using the following
assumptions:
(1) risk free interest rate of 6.35%;
(2) stock price based on a planned initial public offering;
(3) dividend yield of 0%;
(4) life of 7 years; and
(5) volatility of 40%.
Also, on July 12, 2000 the Company purchased the assets under construction
in Michigan from Sprint PCS for approximately $12.7 million. The Company
allocated approximately $9.2 million of the purchase price to
F-47
iPCS, INC. AND SUBSIDIARIES AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
property based on the fair value of the assets acquired, with the excess amount
of $3.5 million allocated to the intangible asset representing the right to be
the exclusive provider of Sprint PCS services in Michigan. The intangible asset
is being amortized over a life of 18.5 years, which is the remaining term of
the Sprint PCS agreement at the date the assets were acquired.
7. DEFERRED GAIN ON TOWER SALES
On May 28, 1999 the Company signed a tower sale and leaseback agreement with
American Tower Corporation ("American Tower"). Under the agreement, the Company
will locate sites for, develop and construct between sixty and eighty wireless
communication towers and then sell the towers to American Tower. The term of
this agreement will expire at the earliest of the final tower sale or December
31, 2000. In November 2000 the agreement was amended to extend the agreement
until February 28, 2001 for the sale of the first eighty towers and increase
the sales price of each tower from $250,000 to $272,000 for any tower that has
an extendable height of 249 feet. At December 31, 2000, a total of seventy-
three towers have been sold to American Tower.
In 1999, American Tower advanced $2.0 million to the Company for the
purchases of the fifty-third through sixtieth towers. If the Company did not
construct and sell the required number of towers to American Tower by December
31, 2000, the Company was required to repay the advance plus accrued interest
at 5%. The advance on tower sales of $2.0 million at December 31, 1999 was
reduced to zero because the fifty-third through sixtieth towers were sold by
the Company by November 21, 2000.
During the year ended December 31, 2000, fifty-five towers were sold to
American Tower for approximately $14.0 million, of which approximately $12.0
million was received in cash and $2.0 million represented a reduction in the
advance on tower sales. These tower sales resulted in a gain of approximately
$5.4 million, of which approximately $0.8 million was recognized at the time of
the sale and the remainder was deferred and is being amortized as a reduction
to rental expense over the initial lease term of ten years. For the period
ended December 31, 1999, eighteen towers were sold to American Tower for $4.5
million in cash, resulting in a gain of $1.9 million, of which $174,000 was
recognized at the time of the sale and the remainder was deferred and is being
amortized as a reduction to rental expense over the initial lease term of ten
years.
Upon the sale of a tower, the Company leases a portion, generally one-third,
of the tower to collocate antennas and other network communication equipment.
The leases are operating leases. The monthly rent to be paid by the Company for
tower space on each tower is $1,100 plus an annual 3 percent escalator for a
ten-year initial term with three five-year renewal option periods, subject to
the terms of the underlying ground leases.
8. INCOME TAXES
Because the Predecessor Company was a nontaxable entity, the results
presented below relate solely to the period from July 12, 2000 to December 31,
2000.
F-48
iPCS, INC. AND SUBSIDIARIES AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The income tax expense (benefit) for the period differed from the amounts
computed by applying the statutory U.S. Federal income tax rate of 35% as set
forth below:
Year Ended
December 31,
2000
------------
U.S. Federal statutory rate.................................... 35.00 %
State income taxes, net of federal tax benefit................. 5.00
Nondeductible interest associated with senior discount notes... (2.90)
Change in valuation allowance for deferred tax assets.......... (37.10)%
------
Effective tax rate............................................. 0.00 %
======
The tax effects of significant temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax liabilities
are as follows (in thousands):
December 31,
2000
------------
Deferred tax assets:
Accrued liabilities........................................... $ 72
Deferred transaction costs.................................... 1,068
Compensation expense.......................................... 1,093
Interest expense.............................................. 2,720
Deferred gain on tower sales.................................. 2,400
Net operating loss carryforward............................... 9,299
Other......................................................... 134
--------
Total gross deferred tax assets................................. 16,786
Less valuation allowance........................................ (12,647)
--------
Net deferred tax assets......................................... 4,139
--------
Deferred tax liabilities:
Intangible assets............................................. (43)
Capitalized interest.......................................... (649)
Property and equipment........................................ (3,235)
Other......................................................... (212)
--------
Total gross deferred tax liabilities............................ (4,139)
--------
Net deferred tax liabilities.................................... $ --
========
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. No benefit for federal
income taxes has been recorded for the period ended December 31, 2000 as the
net deferred tax asset generated, primarily from temporary differences related
to the net operating loss, was offset by a full valuation allowance because it
is not considered more likely than not that these benefits will be realized due
to the Company's losses since inception. At December 31, 2000, the Company has
net operating loss carryforwards for federal income tax purposes of
approximately $23.2 million which are available to offset future taxable income
through 2020.
F-49
iPCS, INC. AND SUBSIDIARIES AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. DEBT
Senior Discount Notes and Warrants
On July 12, 2000, the Company issued 300,000 units consisting of $300.0
million 14% senior discount notes due July 15, 2010 (the "Notes") and warrants
to purchase 2,982,699 shares of common stock. The warrants become exercisable
at any time after July 15, 2001 for a period of ten years from the date of
issuance. The Notes were issued at a substantial discount such that the Company
received gross proceeds from the issuance of the units of approximately $152.3
million. On July 15, 2005 the Company will begin accruing cash interest on the
principal amount of the Notes at the rate of 14% per annum, compounded semi-
annually, payable beginning January 15, 2006, and on each January 15 and July
15 thereafter. The Company is amortizing the discount on the Notes as interest
expense over the period from date of issuance to the maturity date utilizing
the effective interest method. For the year ended December 31, 2000, the
Company recorded approximately $4.4 million as interest expense related to the
amortization of the discount and recorded accrued interest of approximately
$6.2 million utilizing the effective interest method.
The Notes are a general unsecured obligation, subordinated in right of
payment to all senior debt, including all obligations under the credit
facility. The Notes contain covenants which restrict the Company's ability to
incur additional indebtedness, pay dividends, merge, dispose of its assets, and
certain other matters as defined in the Indenture. During the first 36 months,
the Company may redeem up to 35% of the Accreted Value of Notes (as defined in
the Notes agreement) at a redemption price of 114% with the net cash proceeds
of one or more equity offerings excluding the first $70.0 million of equity
offerings. After July 15, 2005, the Notes may be redeemed at a price of 107%
beginning in 2005, 105% beginning in 2006, 102% beginning in 2007 and 100%
thereafter. Upon a change in control as defined in the Notes agreement, the
Company will be required to make an offer to purchase the Notes at a price
equal to 101% of the Accreted Value of Notes (as defined in the Notes
agreement) on any purchase date prior to July 15, 2005 or 101% of the aggregate
principal amount therefor, plus accrued and unpaid interest and Liquidated
Damages (as defined in the Notes agreement), if any, to the date of purchase if
on or after July 15, 2005.
The Company allocated approximately $24.9 million to the fair value of the
warrants, as determined by using the Black-Scholes model, and recorded a
discount on the Notes, which is being recognized as interest expense over the
period from date of issuance to the maturity date. For the year ended December
31, 2000, the Company recorded approximately $0.7 million as interest expense
related to the amortization of the value of the warrants.
The fair value of the warrants was calculated using the following
assumptions:
(1) risk free interest rate of 6.35%;
(2) stock price based on a planned initial public offering;
(3) dividend yield of 0%;
(4) life of 10 years; and
(5) volatility of 40%.
The Company incurred approximately $6.3 million of costs associated with the
issuance of the Notes. Those costs consisted of investment banker fees, legal
fees and other issuance costs that have been capitalized and are being
amortized to interest expense using the effective interest method over the term
of the Notes.
F-50
iPCS, INC. AND SUBSIDIARIES AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Nortel Credit Facility
Effective May 14, 1999, the Company entered into a credit facility agreement
(the "Nortel Credit Facility") with Nortel Networks Inc. ("Nortel"). The
proceeds were used to purchase equipment and to fund the construction of the
Company's portion of the Sprint PCS network. The financing terms permitted the
Company to borrow $48.0 million through three commitment tranches (Tranche A--
$32.0 million, Tranche B--$11.0 million and Tranche C--$5.0 million) through
May 14, 2002, and required minimum equipment purchases of $32.0 million (see
Note 11).
The Company could borrow money at the lesser of either: (1) a base rate loan
with an interest rate equal to 3 percent plus the higher of (A) the prime rate
of Citibank, N.A. (New York) or (B) the federal funds effective rate plus one
half of a percent; or (2) a London interbank offered rate (Libor), as adjusted
for reserve requirements, plus 4 percent. All borrowings were based on the
Libor rate plus 4 percent (10% at December 31, 1999). Accrued interest was
generally payable quarterly. Interest incurred and capitalized for the period
ended December 31, 1999 totaled $471,000. The Company had outstanding
borrowings under the Nortel Credit Facility of approximately $27.6 million at
December 31, 1999.
On July 12, 2000, the Nortel Credit Facility was repaid in full with the
proceeds from the issuance of the Notes. In connection with the early
extinguishment of the Nortel Credit Facility, the Company recorded an
extraordinary loss of approximately $1.5 million related to the write-off of
the unamortized deferred financing costs at July 12, 2000.
An unused facility commitment fee ranging from 0.75% to 1.5% on the daily
average unused portion of the Nortel Credit Facility was due on a quarterly
basis. The commitment fee expense for each of the year ended December 31, 2000
and the period ended December 31, 1999 was approximately $81,000.
For the period ended December 31, 1999, the Company incurred expenses of
approximately $1.6 million for a loan origination fee and for debt issuance
costs associated with obtaining the Nortel Credit Facility which were
capitalized.
Senior Secured Credit Facility
On July 12, 2000, the Company entered into an amended and restated credit
facility with Toronto Dominion (Texas), Inc. and GE Capital Corporation for a
$140.0 million senior secured credit facility ("credit facility") to replace
the Nortel Credit Facility. The credit facility permits the Company to borrow
up to $140.0 million through two tranches (Tranche A--$90.0 million and Tranche
B--$50.0 million) subject to a borrowing base limitation which is an amount
equal to 100% of the gross book value of all the property and equipment owned
by the Company. The credit facility contains certain financial ratios and other
financial conditions similar to the Nortel Credit Facility and is
collateralized by all of the Company's assets and assignment of the Sprint PCS
Agreements. The Company has borrowed $25.0 million under this credit facility
as of December 31, 2000 and such borrowings bear interest at 10.44% as of
December 31, 2000.
Commencing March 31, 2004, and on the last day of each calendar quarter
ending during the periods set forth below, the Tranche A commitment as of March
30, 2004 shall be automatically and permanently reduced by the percentage
amount set forth below for the quarters indicated:
. for the four quarters commencing with the fiscal quarter ending March 31,
2004, 2.50% per quarter;
. for quarters five through eight, 3.75% per quarter;
. for quarters nine through sixteen, 6.25% per quarter; and
. for the last two quarters, 12.50% per quarter.
F-51
iPCS, INC. AND SUBSIDIARIES AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Tranche B commitment shall be automatically and permanently reduced by
the amount of any available Tranche B commitment as of and on June 30, 2001.
Commencing March 31, 2004, the Company must begin to repay, in quarterly
installments, the principal on all borrowings outstanding as of March 30, 2004
made under the Tranche B commitment. A fixed percentage on all Tranche B
borrowings will be due each quarter as follows:
. for the first four quarters commencing with the fiscal quarter ending
March 31, 2004, 2.50% of the principal balance of the loan is due per
quarter;
. for quarters five through eight, 3.75% per quarter;
. for quarters nine through sixteen, 6.25% per quarter; and
. for the last two quarters, 12.50% per quarter.
If the Company borrows the maximum amount under Tranche B, the aggregate
amount required to be repaid for each of the four periods above will be $5.0
million, $7.5 million, $25.0 million, and $12.5 million, respectively.
Any principal that has not been paid by the maturity date, June 30, 2008, is
due at that time.
The Company may voluntarily prepay any of the loans at any time. Tranche A
permits reborrowings on a revolving basis but amounts repaid under Tranche B
may not be reborrowed.
The Company will have to make mandatory prepayments under certain
circumstances, including among others:
. 50% of the Company's excess annual cash flow as computed under the senior
secured credit agreement, commencing April 30, 2004 with respect to the
fiscal year ending December 31, 2003;
. Any amount in excess of $1.0 million per calendar year received as net
proceeds of asset sales outside the ordinary course of business or
insurance proceeds subject to certain exceptions, to the extent not
reinvested in property or assets within a stated period of time;
. 50% of the net proceeds of any equity issuance excluding the committed
issuance of the convertible preferred stock, an initial public offering
and any offering to a borrower or guarantor party to the senior secured
financing; and
. 100% of the net proceeds of a debt issuance excluding permitted
indebtedness.
All prepayments described above are applied to the outstanding loan balances
pro rata between Tranche A and Tranche B and pro rata across the maturities.
From the date of the senior secured credit agreement through and including
the date on which earnings before interest, taxes and depreciation and
amortization ("EBITDA") is greater than zero for two consecutive fiscal
quarters, the Company may borrow money at the lesser of either:
. A base rate loan with an interest rate equal to 2.75% plus the higher of:
. The prime rate of the Toronto-Dominion Bank, New York Branch or
. The federal funds effective rate plus 0.5%; or
F-52
iPCS, INC. AND SUBSIDIARIES AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
. A Eurodollar loan with an interest rate equal to the London interbank
offered rate ("LIBOR"), plus 3.75%.
After the date of which EBITDA is greater than zero for two consecutive
fiscal quarters, the base rate margin will range from 2.75% to 2.25% and the
Eurodollar loan margin will range from 3.75% to 3.25%, depending upon the
leverage ratio as of the most recently ended fiscal quarter.
The Company is required within six months from the effective date of the
credit agreement to maintain in full force and effect through the maturity date
one or more interest rate protection agreements (i.e. swap, cap, collar or
similar agreement) for a period of three years or the date ending on the
earlier to occur of the maturity date or the date upon which all of the loans
have been paid in full or have terminated or expired, to fix or place a limit
upon a rate of interest with respect to not less than an aggregate notional
amount equal to fifty percent of the aggregate principal amount of debt that
does not have a fixed interest rate. On January 12, 2001, the Company entered
into an interest rate cap agreement (see Note 18).
The Company incurred approximately $4.1 million of costs associated with
obtaining the credit facility. Those costs consisted of loan origination fees,
legal fees and other debt issuance costs that have been capitalized and are
being amortized to interest expense using the effective interest method over
the term of the credit facility.
An unused facility commitment fee ranging from 1.0% to 1.5% on the daily
average unused portion of the credit facility is due on a quarterly basis. The
commitment fee expense for the year ended December 31, 2000 was approximately
$1,009,000.
As a condition of the credit facility, Sprint PCS has entered into a consent
and agreement with the lenders that modifies Sprint PCS' rights and remedies
under its management agreement with the Company. Among other things, Sprint PCS
consented to the pledge of substantially all of the Company's assets, including
the management agreement, to the lenders. In addition, Sprint PCS may not
terminate the management agreement with the Company and must maintain 10 MHz of
PCS spectrum in the Company's markets until the credit facility is satisfied or
the Company's assets are sold pursuant to the terms of the consent and
assignment with the lenders.
The Company is required to maintain certain financial ratios and other
financial conditions including debt coverage ratios, minimum levels of revenue
and wireless subscribers, and limitations on capital expenditures.
Additionally, the Company has agreed not to merge, dispose of its assets, make
restricted payments, including dividends, and certain other matters as defined
in the credit facility. On February 23, 2001, the Company entered into an
amendment to the credit facility which included a consent to the purchase from
Sprint PCS of the Iowa City and Cedar Rapids, Iowa BTAs discussed in Note 18
and which amended certain covenant definitions and requirements. At December
31, 2000, the Company was in compliance with these covenants in accordance with
the amended credit facility.
F-53
iPCS, INC. AND SUBSIDIARIES AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Annual maturities of the long-term debt are as follows as of December 31,
2000:
December 31,
2001........................................................ $ --
2002........................................................ --
2003........................................................ --
2004........................................................ 2,500,000
2005........................................................ 3,750,000
Thereafter.................................................. 318,750,000
-------------
Total....................................................... 325,000,000
Less: Unamortized discount.................................. (167,419,000)
-------------
Total long-term debt...................................... $ 157,581,000
=============
10. LEASE COMMITMENTS
The Company is obligated under non-cancelable operating lease agreements for
offices, stores, network equipment space and cell sites. At December 31, 2000,
the future minimum annual lease payments under these non-cancelable operating
lease agreements are as follows (in thousands):
December 31,
2001............................................................... $ 5,555
2002............................................................... 5,509
2003............................................................... 5,238
2004............................................................... 4,609
2005............................................................... 3,176
Thereafter......................................................... 11,153
-------
Total............................................................ $35,240
=======
Rental expense was approximately $3,045,000 and $446,000 for the year ended
December 31, 2000 and the period ended December 31, 1999, respectively, of
which approximately $53,000 and $31,000, respectively, was paid to one of the
Company's stockholders/members. Included in minimum lease commitments is
approximately $474,000 and $527,000 for the year ended December 31, 2000 and
the period ended December 31, 1999, respectively, payable to one of the
Company's stockholders/members.
F-54
iPCS, INC. AND SUBSIDIARIES AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company leases a tower site and several phone systems under capital
leases. At December 31, 2000, the future payments under the capital lease
obligations, less imputed interest, are as follows (in thousands):
December 31,
2001................................................................ $ 37
2002................................................................ 27
2003................................................................ 26
2004................................................................ 27
2005................................................................ 28
Thereafter.......................................................... 344
-----
Total minimum lease payments........................................ 489
Less amount representing interest................................... (252)
-----
Present value of net minimum lease payments......................... 237
Less current obligations under a capital lease...................... (12)
-----
Long-term obligations under a capital lease......................... $ 225
=====
The following is a summary of property and equipment under capital leases
included in the accompanying consolidated balance sheet at December 31, 2000
(in thousands):
Network assets......................................................... $224
Office equipment....................................................... 26
----
250
Less accumulated depreciation.......................................... (5)
----
$245
====
11. PURCHASE COMMITMENTS
On May 24, 1999 the Company entered into a three-year $32.0 million
agreement with Nortel for the purchase of network equipment and infrastructure,
including switches and base station controllers. On July 11, 2000 the amount
was increased from $32.0 million to $60.0 million. Nortel did provide financing
to the Company until July 12, 2000 for these purchases pursuant to the Nortel
Credit Facility discussed in Note 9. Under the agreement, the Company receives
a discount on the network equipment and services because of the Sprint PCS
affiliation, but pays a slight premium to the discounted price on any equipment
and services financed by Nortel. If the Company's affiliation with Sprint PCS
ends, Nortel has the right to either terminate the agreement or, with the
Company's consent, modify the agreement to establish new prices, terms and
conditions. As of December 31, 2000, the Company has a remaining commitment to
purchase approximately $18.7 million of equipment and services from Nortel.
In July 2000 the Company entered into an equipment purchase agreement with
Lucent Technologies Inc. ("Lucent") for the purchase of network equipment and
infrastructure which includes one switch and 100 base station controllers for
the Michigan markets within the first year of the agreement and an additional
32 base station controllers during the second year. In addition, the Company
has agreed to use Lucent's equipment exclusively in the construction of the
Company's network located within the state of Michigan. As of December 31,
2000, the Company has purchased approximately $10.5 million of equipment and
has a remaining commitment to purchase approximately $6.7 million of equipment.
The Company has entered into this agreement with Lucent as an additional
affiliate of Sprint PCS and is subject to the terms and conditions of a
procurement and services contract between Lucent and an affiliate of Sprint PCS
which will expire on January 31, 2006.
F-55
iPCS, INC. AND SUBSIDIARIES AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
12. EMPLOYEE BENEFITS
The Company has established a 401(k) plan (the "Plan") in which
substantially all employees may participate. The Plan allows eligible employees
to contribute up to 15% of their compensation and provides that the Company
will make matching contributions of 50% up to the first eight percent of an
employee's contribution. In addition, the Company may make discretionary
contributions to the Plan. Company contributions to the Plan were approximately
$38,000 and $14,000 for the year ended December 31, 2000 and the period ended
December 31, 1999, respectively.
13. REDEEMABLE PREFERRED STOCK
Contemporaneously with the issuance of the 300,000 units discussed in Note
9, the Company issued to an investor group 9,090,909 shares of Series A-1
convertible participating preferred stock ("Series A-1 preferred stock") at a
purchase price of $5.50 per share, yielding gross proceeds of $50.0 million;
net proceeds were approximately $46.4 million. On December 28, 2000, the
Company issued to the same investor group 14,000,000 shares of Series A-2
convertible participating preferred stock ("Series A-2 preferred stock") at a
purchase price of $5.00 per share, yielding gross proceeds of $70.0 million;
net proceeds were approximately $65.8 million.
The holders of Series A-1 preferred stock and Series A-2 preferred stock
may, at their option, convert all or any such shares into shares of common
stock. Each share of Series A-1 preferred stock and Series A-2 preferred stock
shall automatically convert into common stock under certain conditions
including a public offering of securities with gross proceeds of $50 million or
a change of control. The holders of Series A-1 preferred stock and Series A-2
preferred stock have the same voting rights as common stockholders. The Series
A-1 preferred stock ranks senior to common stock and on parity with the Series
A-2 preferred stock. In the event that the Company has not completed an initial
public offering of common stock or consummated a business transaction meeting
certain criteria by the fifth anniversary of the investment, the investor group
has the right to request the Company to repurchase the Series A-1 preferred
stock and Series A-2 preferred stock at fair market value, unless the Company's
Board of Directors determines, in its sole discretion, that it is not in the
Company's best interests to do so, whereupon the investor group would have the
right to force a sale of the Company subject to the rights of Sprint and Sprint
PCS under the Sprint PCS Agreements. The Series A-1 preferred stock and Series
A-2 preferred stock have a mandatory redemption for cash at an amount equal to
the stated value plus accrued dividends on July 12, 2011. The Company accretes
the carrying value of the Series A-1 preferred stock and Series A-2 preferred
stock (net of offering costs incurred) to the redemption amount by the
effective interest method. During the year ended December 31, 2000, the Company
recorded approximately $150,000 and approximately $4,000 of accretion on the
Series A-1 preferred stock and Series A-2 preferred stock, respectively.
The Company allocated the entire net proceeds received from the issuance of
Series A-1 preferred stock of approximately $46.4 million to the beneficial
conversion feature on the issuance of Series A-1 preferred stock in accordance
with EITF Issue No. 98-5, "Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Conversion Ratios to
Certain Convertible Instruments." The beneficial conversion feature was
calculated at the issuance date of the Series A-1 preferred stock based on the
difference between the conversion price of $5.50 per share and estimated fair
value of the common stock at that date. This amount, however, was limited to
the proceeds received from issuing the beneficial convertible security. As the
Series A-1 preferred stock was immediately convertible, the Company also
recorded accretion of approximately $46.4 million to additional paid-in
capital.
The Company allocated the entire net proceeds received from the issuance of
the Series A-2 preferred stock of approximately $65.8 million to the Series A-2
preferred stock in accordance with EITF Issue
F-56
iPCS, INC. AND SUBSIDIARIES AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
No. 00-27 "Application of EITF Issue No. 98-5, "Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios to Certain Convertible Instruments." No beneficial conversion
feature was considered to exist due to the conversion price of the Series A-2
preferred stock at time of issuance exceeding the estimated fair value of the
common stock at that date.
The Series A-1 preferred stock and Series A-2 preferred stock bear
cumulative dividends, whether or not declared, at the rate of 7.5% of the
preferred liquidation preference per year and, when paid, shall be paid only in
additional shares of preferred stock. Dividends shall accumulate and compound
semi-annually. The preferred liquidation preference is equal to $5.50 (Series
A-1) and $5.00 (Series A-2) per share plus any accrued but unpaid dividends on
such share of preferred stock. Dividends on each share shall accrue on a daily
basis and be cumulative from the date of original issue. During the year ended
December 31, 2000, the Company recorded approximately $1.8 million and
approximately $58,000 for accrued dividends on Series A-1 preferred stock and
Series A-2 preferred stock, respectively, as a charge to additional paid in
capital.
In addition to the 7.5% dividend, when and if the Board of Directors
declares a dividend payable with respect to the then outstanding shares of
common stock, the holders of the Series A-1 preferred stock and Series A-2
preferred stock shall be entitled to the amount of dividends per share as would
be payable on the number of shares of common stock into which such shares of
Series A-1 preferred stock and Series A-2 preferred stock could then be
converted. Upon the occurrence of a change of control prior to July 12, 2005,
the Company will be obligated to pay a special dividend to each holder of
Series A-1 preferred stock and Series A-2 preferred stock (except as to any
changes of control in connection with a business combination with a private
company as to which the investor group waives its right to receive such
dividend) in an amount equal to the amount of all unpaid dividends that would
have been payable through July 12, 2005.
14. EQUITY
The Predecessor Company was organized as a LLC and, as such, had no
outstanding stock. Owners (members) actually held a membership interest in the
LLC. As a result, the investment of those members in the Predecessor Company is
reflected as Contributed Capital--Predecessor Company in the accompanying
consolidated balance sheet and consolidated statement of redeemable preferred
stock and equity as of December 31, 1999.
On March 12, 1999, the Company entered into a management agreement (the
"Management Agreement") with Mr. Yager to act as the Manager of the Predecessor
Company. The Management Agreement entitled Mr. Yager to a cash bonus equal to
2.5% of the fair market value of the Company in the event of a Transfer (as
defined in the Management Agreement) of all or substantially all of the assets
of the Company, or 2.5% of the fair market value of any transferred interests
in the Company, in excess of the applicable member's cumulative contributions.
Effective as of February 29, 2000, Mr. Yager and the Company agreed to
terminate the Management Agreement, and in exchange therefor Mr. Yager received
a 1.5% ownership interest in the Predecessor Company. In addition, the Company
paid the withholding tax obligation arising by reason of the issuance of the
1.5% ownership interest to Mr. Yager, and the federal and state taxes on the
issuance of the ownership interest and payment of the withholding tax
obligation. Based upon the expected offering price of the initial public
offering as determined on April 24, 2000, the Company recorded non-cash
compensation expense of approximately $8.5 million related to the ownership
interest granted and recorded general and administrative expense of
approximately $1.6 million related to taxes paid by the Company on behalf of
Mr. Yager for the year ended December 31, 2000.
On July 11, 2000, the Board of Directors approved the amended and restated
2000 Long Term Incentive Stock Plan. Under the plan, the Company may grant
stock options, stock appreciation rights, shares of common
F-57
iPCS, INC. AND SUBSIDIARIES AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
stock and performance units to employees, consultants and directors. The total
number of shares of common stock that can be awarded under the plan is
6,500,000 shares, which will be increased on December 31 of each year beginning
on December 31, 2000 by a number of shares equal to 1% of the number of shares
then outstanding, up to maximum of 8,000,000. On July 12, 2000, the Board of
Directors granted options to members of management, employees and directors to
acquire 1,558,750 shares of common stock with an exercise price of $5.50 per
share.
At December 31, 2000, the following is a summary of options outstanding and
exercisable:
Weighted
Average
Exercise
Shares Price
--------- --------
Outstanding at beginning of period
Granted................................................ 1,558,750 $5.50
Granted................................................ 34,000 6.25
Exercised..............................................
Forfeited.............................................. (2,750) 5.50
--------- -----
Outstanding at end of period............................. 1,590,000 $5.52
========= =====
Options exercisable...................................... 490,106
Weighted-average remaining contractual life.............. 9.5 years
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations to account for its employee and
director stock options. Compensation expense is determined as the excess of the
fair value of the Company's common stock at date of grant over the exercise
price. Based upon the then expected offering price of a planned initial public
offering, the Company recognized total unearned compensation expense of
approximately $8.3 million related to these grants on July 12, 2000. This
amount is being amortized as compensation expense over the vesting period of
the options; such vesting period begins on the employee's date of hire and
extends for four years. For directors and all future grants to employees, the
vesting period begins on the date of grant and extends for four years. Total
non-cash compensation expense related to such options was approximately $2.7
million for the year ended December 31, 2000.
If compensation expense for the stock option grants had been determined
based on fair value at the grant date consistent with the requirements of SFAS
No. 123, "Accounting for Stock Based Compensation," the Company's net loss
applicable to common stockholders and net loss per share would have been the
pro forma amounts indicated below for the year ended December 31, 2000:
Net loss applicable to common stockholders (in thousands):
As reported.................................................... $(104,507)
Pro forma...................................................... $(105,290)
Basic and diluted loss per common share:
As reported.................................................... $ (2.33)
Pro forma...................................................... $ (2.35)
The Company's calculation of fair value of the options was made using the
Black-Scholes model with the following assumptions:
(1) risk free interest rate of 6.35%;
(2) stock price based on a planned initial public offering;
F-58
iPCS, INC. AND SUBSIDIARIES AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(3) dividend yield of 0%;
(4) life of 4 years; and
(5) volatility of 40%.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made pursuant to SFAS No. 107, "Disclosures About Fair Value of
Financial Instruments." Fair value estimates are subject to inherent
limitations. Estimates of fair value are made at a specific point in time,
based on relevant market information and information about the financial
instrument. The estimated fair values of financial instruments are not
necessarily indicative of amounts the Company might realize in actual market
transactions. Estimates of fair value are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be
determined with precision. Changes in assumptions could significantly affect
the estimates. The carrying amounts at December 31, 2000 and December 31, 1999
for cash and cash equivalents, accounts receivable, other receivables, accounts
payable, accrued liabilities, and variable rate long-term debt are reasonable
estimates of their fair values. The carrying amount of fixed-rate long-term
debt at December 31, 2000 is believed to approximate fair value because such
debt was discounted to reflect a market interest rate at inception and such
discount continues to result in an interest rate commensurate with the nature
of this debt.
16. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Year Ended Period Ended
December 31, December 31,
2000 1999
------------ ------------
(in thousands)
Supplemental disclosure of cash flow information--
cash paid for interest........................... $ 1,971 $ 206
Supplemental schedule of noncash investing and
financial activities:
Accounts payable incurred for the acquisition of
property, equipment and construction in
progress....................................... 16,610 $2,739
Accounts payable incurred for the acquisition of
microwave relocation costs..................... 1,833 --
Capital lease obligations incurred for the
acquisition of property and equipment.......... 250
Accrued dividends on redeemable preferred
stock.......................................... 1,808 --
Accretion to the redemption amount of redeemable
preferred stock................................ 155 --
Grant of stock options.......................... 8,247 --
Issuance of warrants in connection with the
senior discount notes.......................... 24,859 --
Issuance of warrants to Sprint PCS.............. 9,147 --
17. VALUATION AND QUALIFYING ACCOUNTS (in thousands)
Balance
Beginning Costs and at end of
of Period Expenses Write-Offs Period
--------- --------- ---------- ---------
Period ended December 31, 1999
allowance for doubtful accounts..... $ -- $ 1 $ -- $ 1
===== ==== ====== ====
Year ended December 31, 2000
allowance for doubtful accounts..... $ 1 $614 $ (287) $328
===== ==== ====== ====
F-59
iPCS, INC. AND SUBSIDIARIES AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
18. SUBSEQUENT EVENTS
On January 10, 2001 the Company exercised its option to add the Iowa City
and Cedar Rapids, Iowa BTAs to its service area as discussed in Note 6. The
purchase price is expected to be approximately $30.5 million, subject to
adjustments for net accounts receivable and unbilled amounts, and the closing
is scheduled for February 28, 2001. The Company and Sprint PCS will agree upon
a purchase price allocation based on the fair value of the assets and
liabilities acquired with any excess amount over fair value being allocated to
the intangible asset representing the right to be the exclusive provider of
Sprint PCS services in Iowa City and Cedar Rapids.
On January 12, 2001 the Company entered into an interest rate cap agreement
with a counter party for a notional amount of $12.5 million. The agreement
expires in three years and caps the three-month floating LIBOR interest rate at
7.25%.
19. CONSOLIDATING FINANCIAL INFORMATION
The Notes are fully, unconditionally, and joint and severally guaranteed by
iPCS Wireless, Inc. and iPCS Equipment, Inc., which are wholly-owned
subsidiaries of iPCS, Inc. The following consolidating financial information as
of and for the year ended December 31, 2000 is presented for iPCS, Inc., iPCS
Wireless, Inc., and iPCS Equipment, Inc., (in thousands):
Consolidating Balance Sheet as of December 31, 2000
iPCS
Wireless, Inc. and iPCS
iPCS, Predecessor Equipment,
Inc. Company Inc. Eliminations Consolidated
-------- ------------------ ---------- ------------ ------------
ASSETS
Current Assets:
Cash and cash
equivalents.......... $ 302 $165,287 $ 369 $165,958
Accounts receivable,
less allowance....... 5,350 5,350
Other receivables..... 231 231
Intercompany
receivables.......... 307,110 15,930 $(323,040)
Inventories........... 3,314 3,314
Prepaid expenses and
other assets......... 150 1,689 1,839
-------- -------- ------- --------- --------
Total current
assets............. 307,562 191,801 369 (323,040) 176,692
Property and equipment
including construction
in progress, net....... 107,095 19,708 126,803
Financing costs, less
accumulated
amortization........... 6,156 3,889 10,045
Intangible assets, net.. 8,921 5,722 14,643
Other assets............ 392 392
-------- -------- ------- --------- --------
Total assets........ $322,639 $308,899 $20,077 $(323,040) $328,575
======== ======== ======= ========= ========
F-60
iPCS, INC. AND SUBSIDIARIES AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
iPCS
Wireless, Inc. and iPCS
iPCS, Predecessor Equipment,
Inc. Company Inc. Eliminations Consolidated
-------- ------------------ ---------- ------------ ------------
LIABILITIES, REDEEMABLE
PREFERRED STOCK AND
EQUITY
Current Liabilities:
Accounts payable...... $ 729 $ 21,785 $ 4,780 $ 27,294
Accrued expenses...... 72 2,614 2,686
Accrued interest...... 22 22
Intercompany
payables............. 307,110 15,930 $(323,040)
Deferred revenue...... 1,346 1,346
Capital lease
obligations--current
portion.............. 12 12
-------- -------- ------- --------- --------
Total current
liabilities........ 801 332,889 20,710 (323,040) 31,360
Deferred gain on tower
sales.................. 6,000 6,000
Capital lease
obligations--long-
term................... 225 225
Deferred revenue........ 392 392
Accrued interest........ 6,219 6,219
Long-term debt.......... 132,581 25,000 157,581
-------- -------- ------- --------- --------
Total liabilities... 139,601 364,506 20,710 (323,040) 201,777
-------- -------- ------- --------- --------
Redeemable preferred
stock.................. 114,080 114,080
-------- -------- ------- --------- --------
Equity:
Common stock.......... 449 449
Additional paid in
capital.............. 78,321 78,321
Unearned
compensation......... (5,515) (5,515)
Accumulated deficit... (4,297) (55,607) (633) (60,537)
-------- -------- ------- --------- --------
Total equity........ 68,958 (55,607) (633) 12,718
-------- -------- ------- --------- --------
Total liabilities,
redeemable
preferred stock and
equity............. $322,639 $308,899 $20,077 $(323,040) $328,575
======== ======== ======= ========= ========
F-61
iPCS, INC. AND SUBSIDIARIES AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Consolidating Statement of Operations for the Year Ended December 31, 2000
iPCS
Wireless, Inc. and iPCS
iPCS, Predecessor Equipment,
Inc. Company Inc. Eliminations Consolidated
------- ------------------ ---------- ------------ ------------
Revenues:
Service............... $ 20,623 $ 20,623
Equipment and other... 3,355 3,355
-------- --------
Total revenues.... 23,978 23,978
-------- --------
Operating Expenses:
Cost of service....... 17,026 17,026
Cost of equipment..... 10,462 10,462
Selling............... 12,883 12,883
General and
administrative:
Non-cash
compensation....... 11,212 11,212
Taxes on non-cash
compensation....... 1,567 1,567
Other general and
administrative..... $3,925 5,278 $ 116 9,319
Depreciation and
amortization......... 227 8,382 8,609
------- -------- ----- ------- --------
Total operating
expenses......... 4,152 66,810 116 71,078
------- -------- ----- ------- --------
Loss from operations.... (4,152) (42,832) (116) (47,100)
Other Income (Expense):
Interest income....... 9,403 3,780 $(9,740) 3,443
Interest expense...... (9,548) (11,416) (517) 9,740 (11,741)
Other income.......... 726 726
------- -------- ----- ------- --------
Loss Before
Extraordinary Item..... (4,297) (49,742) (633) (54,672)
Extraordinary item--loss
on early extinguishment
of debt................ (1,485) (1,485)
------- -------- ----- ------- --------
Net Loss................ $(4,297) $(51,227) $(633) $ $(56,157)
------- -------- ----- ------- --------
F-62
iPCS, INC. AND SUBSIDIARIES AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Consolidating Statement of Cash Flows for the Year Ended December 31, 2000
iPCS
Wireless, Inc. and iPCS
iPCS, Predecessor Equipment,
Inc. Company Inc. Eliminations Consolidated
--------- ------------------ ---------- ------------ ------------
Cash Flows from
Operating Activities
Net loss............... $ (4,297) $(51,227) $ (633) $(56,157)
Adjustment to reconcile
net loss to net cash
flows from operating
activities:
Depreciation and
amortization.......... 227 8,382 8,609
Loss on disposal of
property and
equipment............. 56 56
Gain on tower sales.... (778) (778)
Amortization of
deferred gain on
tower sales........... (298) (298)
Amortization of
financing costs....... 185 419 604
Non-cash interest...... 5,109 5,109
Extraordinary loss on
early extinguishment
of debt............... 1,485 1,485
Non-cash
compensation.......... 11,212 11,212
Changes in assets and
liabilities:
Accounts receivable... (5,258) (5,258)
Other receivables..... (192) (192)
Inventories........... (2,387) (2,387)
Prepaid expenses and
other assets......... (150) (1,649) (1,799)
Accounts payable,
accrued expenses and
accrued interest..... 7,020 8,972 28 16,020
Deferred revenue...... 1,738 1,738
--------- -------- -------- ---- --------
Net cash flows from
operating
activities.......... 8,094 (29,525) (605) (22,036)
--------- -------- -------- ---- --------
Cash Flows from
Investing Activities:
Capital expenditures... (75,533) (14,956) (90,489)
Microwave relocation
costs................. (504) (504)
Intangible acquired in
purchase of network
assets................ (3,526) (3,526)
Proceeds from tower
sales................. 12,036 12,036
--------- -------- -------- ---- --------
Net cash flows from
investing
activities.......... (67,527) (14,956) (82,483)
--------- -------- -------- ---- --------
Cash Flows from
Financing Activities:
Proceeds from long-term
debt.................. 152,331 37,775 190,106
Repayment of Nortel
debt.................. (40,346) (40,346)
Payments on capital
lease obligations..... (13) (13)
Debt financing costs... (6,341) (4,279) (10,620)
Proceeds from sale of
Series A-1 redeemable
preferred stock, net
of offering costs..... 46,387 46,387
Proceeds from sale of
Series A-2 redeemable
preferred stock, net
of offering costs..... 65,730 65,730
Members'
contributions......... 16,500 16,500
Intercompany
receivables/payables.. (265,899) 249,969 15,930
--------- -------- -------- ---- --------
Net cash flows from
financing
activities.......... (7,792) 259,606 15,930 267,744
--------- -------- -------- ---- --------
Increase in cash and
cash equivalents....... 302 162,554 369 163,225
Cash and cash
equivalents at
beginning of period.... 2,733 2,733
--------- -------- -------- ---- --------
Cash and cash
equivalents at end of
period................. $ 302 $165,287 $ 369 $ $165,958
========= ======== ======== ==== ========
The consolidating financial information for 1999 has not been provided since
iPCS, Inc. and its two wholly-owned subsidiaries did not acquire the business
of the Predecessor Company until July 12, 2000 as discussed in Note 1 and only
the Predecessor Company had activities in 1999. Therefore, the 1999
consolidating financial information is identical to the Consolidated Financial
Statements.
F-63
iPCS, INC. AND SUBSIDIARIES AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
20. MERGER
On August 28, 2001, the Company signed an agreement and plan of merger with
AirGate PCS, Inc., a Sprint PCS affiliate, under which AirGate and the Company
will combine in a tax-free stock for stock transaction. At the effective time
of the merger, each issued and outstanding share of the Company's common stock
will be converted into the right to receive approximately 0.1594 of a share of
AirGate common stock, referred to as the exchange ratio. All shares of the
Company's preferred stock will be converted into the Company's common stock
immediately prior to the effective time of the merger. At the effective time of
the merger, AirGate will assume each unexpired and unexercised option and
warrant to purchase shares of the Company's common stock and convert it into an
option or warrant to purchase AirGate common stock based on one share of the
Company's common stock equal to the exchange ratio of AirGate's common stock.
In addition, the exercise price per share of AirGate common stock issuable
under each converted option or converted warrant will be equal to the per share
exercise price of the Company option or warrant divided by the exchange ratio.
The options will be fully vested at the time of the merger and the warrants
will remain subject to the terms and conditions set forth in the applicable
warrant agreement. The total number of shares of AirGate common stock to be
issued by AirGate in connection with the merger will not exceed 13,500,000. The
transaction is subject to customary regulatory review, and approvals by the
stockholders of AirGate and the Company, both companies' senior secured
lenders, and Sprint PCS. The merger agreement will terminate if the merger is
not consummated on before March 1, 2002.
F-64
iPCS, INC. AND SUBSIDIARIES AND PREDECESSOR
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
June 30, December 31,
2001 2000
----------- ------------
(Unaudited)
ASSETS
------
Current Assets:
Cash and cash equivalents............................ $ 90,780 $165,958
Accounts receivable, less allowance: 2001--$1,070;
2000--$328.......................................... 11,390 5,350
Other receivables.................................... 2,633 231
Inventories.......................................... 1,345 3,314
Prepaid expenses and other assets.................... 3,218 1,839
-------- --------
Total current assets............................... 109,366 176,692
Property and equipment including construction in
progress, net........................................ 183,508 126,803
Financing costs, less accumulated amortization: 2001--
$930; 2000--$445..................................... 9,802 10,045
Intangible assets, net................................ 42,145 14,643
Other assets.......................................... 1,416 392
-------- --------
Total assets....................................... $346,237 $328,575
======== ========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND
EQUITY (DEFICIENCY)
Current Liabilities:
Accounts payable..................................... $ 31,363 $ 27,294
Accrued expenses..................................... 4,064 2,686
Accrued interest..................................... 456 22
Deferred revenue..................................... 3,700 1,346
Capital lease obligations--current portion........... 9 12
-------- --------
Total current liabilities.......................... 39,592 31,360
Deferred gain on tower sales.......................... 7,883 6,000
Deferred rent......................................... 1,496
Capital lease obligations--long-term portion.......... 222 225
Deferred revenue...................................... 1,385 392
Accrued interest...................................... 13,275 6,219
Long-term debt........................................ 188,378 157,581
-------- --------
Total liabilities.................................. 252,231 201,777
-------- --------
Redeemable preferred stock $0.01 par value; 75,000,000
shares authorized; 23,090,909 shares issued and
outstanding.......................................... 118,999 114,080
-------- --------
Commitments and contingencies
Equity (Deficiency):
Common stock, $0.01 par value; 300,000,000 shares
authorized; 44,869,643 shares issued and
outstanding......................................... 449 449
Additional paid in capital........................... 73,402 78,321
Unearned compensation................................ (4,495) (5,515)
Accumulated deficit.................................. (94,349) (60,537)
-------- --------
Total equity (deficiency).......................... (24,993) 12,718
-------- --------
Total liabilities, redeemable preferred stock and
equity (deficiency)............................... $346,237 $328,575
======== ========
See notes to consolidated financial statements.
F-65
iPCS, INC. AND SUBSIDIARIES AND PREDECESSOR
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except share data)
For the Six Months
Ended
------------------------
June 30, June 30,
2001 2000
----------- -----------
Revenues:
Service............................................. $ 38,674 $ 4,100
Equipment and other................................. 3,337 1,005
----------- -----------
Total revenues.................................. 42,011 5,105
----------- -----------
Operating Expenses:
Cost of service (excluding non-cash compensation of
$98 for the
six months ended June 30, 2001).................... 31,494 4,708
Cost of equipment................................... 10,852 2,583
Selling (excluding non-cash compensation of $38 for
the
six months ended June 30, 2001).................... 12,971 2,565
General and administrative:
Non-cash compensation............................. 1,020 8,480
Taxes on non-cash compensation.................... -- 1,567
Other general and administrative.................. 4,030 2,390
Depreciation and amortization....................... 8,559 2,927
----------- -----------
Total operating expenses........................ 68,926 25,220
----------- -----------
Loss from operations................................. (26,915) (20,115)
Other income (expense):
Interest income..................................... 2,898 95
Interest expense.................................... (10,682) (594)
Other income, net................................... 887 198
----------- -----------
Net loss............................................. $ (33,812) $ (20,416)
=========== ===========
Net loss............................................. $ (33,812) $ (20,416)
Dividends and accretion on redeemable preferred
stock............................................... (4,919) --
----------- -----------
Net loss available to common stockholders............ $ (38,731) $ (20,416)
=========== ===========
Basic and diluted net loss per share of common
stock............................................... $ (0.86) $ (0.46)
=========== ===========
Weighted average common shares outstanding........... 44,869,643 44,869,643
=========== ===========
See notes to consolidated financial statements
F-66
iPCS, INC. AND SUBSIDIARIES AND PREDECESSOR
CONSOLIDATED STATEMENT OF REDEEMABLE PREFERRED STOCK AND EQUITY (DEFICIENCY)
(Unaudited)
(In thousands, except share data)
Redeemable
Preferred Stock Common Stock Additional
------------------- ----------------- Paid in Unearned Accumulated
Shares Amount Shares Amount Capital Compensation Deficit
---------- -------- ---------- ------ ---------- ------------ -----------
BALANCE AT JANUARY 1, 2001...................... 23,090,909 $114,080 44,869,643 $449 $78,321 $(5,515) $(60,537)
Accrued dividends on redeemable preferred
stock......................................... 4,568 (4,568)
Accretion to redemption amount of redeemable
preferred stock............................... 351 (351)
Amortization of unearned compensation.......... 1,020
Net loss....................................... (33,812)
---------- -------- ---------- ---- ------- ------- --------
BALANCE AT JUNE 30, 2001........................ 23,090,909 $118,999 44,869,643 $449 $73,402 $(4,495) $(94,349)
--------------------------------------------------
========== ======== ========== ==== ======= ======= ========
See notes to consolidated financial statements.
F-67
iPCS, INC. AND SUBSIDIARIES AND PREDECESSOR
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
For the Six
Months Ended
------------------
June 30, June 30,
2001 2000
-------- --------
Cash Flows from Operating Activities:
Net loss................................................... $(33,812) $(20,416)
Adjustments to reconcile net loss to net cash flows from
operating activities:
Depreciation and amortization............................ 8,559 2,927
Loss on disposal of property and equipment............... 649 57
Gain on tower sales...................................... (1,535) (257)
Amortization of deferred gain on tower sales............. (327) (87)
Amortization of deferred rent............................ (54) --
Amortization of financing costs.......................... 485 143
Non-cash interest........................................ 5,811 --
Non-cash compensation.................................... 1,020 8,480
Changes in assets and liabilities:
Accounts receivable..................................... (6,040) (954)
Other receivables....................................... 251 (131)
Inventories............................................. 1,969 567
Prepaid expenses and other assets....................... (2,374) (1,055)
Accounts payable, accrued expenses and accrued
interest............................................... 14,947 3,247
Deferred revenue........................................ 3,347 --
-------- --------
Net cash flows from operating activities............... (7,104) (7,479)
-------- --------
Cash Flows from Investing Activities:
Capital expenditures...................................... (70,349) (21,727)
Microwave relocation costs................................ (66) --
Acquisition of the Iowa City/Cedar Rapids, Iowa markets... (31,840) --
Proceeds from disposition of fixed assets................. 33 --
Proceeds from build-to-suit agreement..................... 1,239 --
Proceeds from tower sales................................. 8,204 5,500
-------- --------
Net cash flows from investing activities............... (92,779) (16,227)
-------- --------
Cash Flows from Financing Activities:
Proceeds from long-term debt............................. 25,000 6,364
Payments on capital lease obligations.................... (6) --
Debt financing costs..................................... (243) (82)
Interest rate protection costs........................... (46) --
Members' contributions................................... -- 16,500
-------- --------
Net cash flows from financing activities............... 24,705 22,782
-------- --------
Decrease in cash and cash equivalents...................... (75,178) (924)
Cash and cash equivalents at beginning of period........... 165,958 2,733
-------- --------
Cash and cash equivalents at end of period................. $ 90,780 $ 1,809
======== ========
See notes to consolidated financial statements.
F-68
iPCS, INC. AND SUBSIDIARIES AND PREDECESSOR
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001 and 2000
(Unaudited)
1. BASIS OF PRESENTATION OF UNAUDITED INTERIM FINANCIAL INFORMATION
The accompanying unaudited interim consolidated financial statements have
been prepared in accordance with rules issued by the Securities and Exchange
Commission for preparing interim financial information and, therefore, do not
include all information and footnotes necessary for a presentation of financial
position, results of operations, and cash flows in conformity with generally
accepted accounting principles. All adjustments, consisting of normal recurring
accruals, which, in the opinion of management, are necessary for a fair
presentation of financial position and results of operations have been
included. Operating results for the six months ended June 30, 2001 are not
necessarily indicative of results that may be expected for the year ending
December 31, 2001. These unaudited interim consolidated financial statements
should be read in conjunction with the audited financial statements and
footnotes thereto for the year ended December 31, 2000, included in the
Company's Form 10-K as filed with the Securities and Exchange Commission on
March 29, 2001.
All significant intercompany accounts or balances have been eliminated in
consolidation. Certain amounts in the 2000 financial statements have been
reclassified to conform to the current period's presentation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition:
Prior to January 1, 2001, the Company recorded promotional cash credits and
rebates granted to customers as expenses. Effective January 1, 2001, the
Company adopted the Emerging Issues Task Force ("EITF") 00-14, "Accounting for
Certain Sales Incentives." The EITF requires that, when recognized, the
reduction in or refund of the selling price of the product or service resulting
from any cash incentive should be classified as a reduction in revenue and not
as an operating expense. The Company adopted EITF 00-14 in the first quarter of
2001. For the six months ended June 30, 2001, a reduction in revenue of
approximately $6.4 million, and an offsetting reduction in operating expenses
for these same six months was recorded. In accordance with the provisions of
EITF 00-14, approximately $0.4 million of operating expenses for the six months
ended June 30, 2000 have been reclassified as a reduction in revenue.
Loss Per Share:
Basic and diluted loss per share are calculated by dividing the net loss by
the pro forma weighted average number of shares of common stock of iPCS, Inc.
outstanding. For the six months ended June 30, 2000, the calculation is based
on the number of shares that would have been outstanding as if the shares of
common stock of iPCS, Inc. into which the Predecessor Company's members'
interests were converted had been outstanding for the period presented. The
calculation was made in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share." The basic and diluted loss
per share are the same because the inclusion of the incremental potential
common shares from any assumed conversion of redeemable preferred stock or
exercise of options and warrants is antidilutive.
Recently Issued Accounting Pronouncements:
In July 2001 the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 141 requires business combinations initiated after
June 30, 2001 to be accounted for using the purchase method of accounting, and
F-69
iPCS, INC. AND SUBSIDIARIES AND PREDECESSOR
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
broadens the criteria for recording intangible assets separate from goodwill.
Recorded goodwill and intangibles will be evaluated against this new criteria
and may result in certain intangibles being subsumed into goodwill, or
alternatively, amounts initially recorded as goodwill may be separately
identified and recognized apart from goodwill. SFAS No. 142 requires the use of
a non-amortization approach to account for purchased goodwill and certain
intangibles. Under a non-amortization approach, goodwill and certain
intangibles will not be amortized into results of operations, but instead will
be reviewed for impairment and written down and charged to results of
operations only in the periods in which the recorded value of goodwill and
certain intangibles is more than its fair value. The provisions of each
statement, which apply to goodwill and intangible assets acquired prior to June
30, 2001, will be adopted by the Company on January 1, 2002. The Company is
currently assessing but has not yet determined the impact of these
pronouncements on its financial position and results of operations.
In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities," an amendment of SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," which
is effective for all fiscal years beginning after June 15, 2000. The adoption
by the Company on January 1, 2001 did not have an effect on the Company's
results of operations, financial position, or cash flows. However, as discussed
in Note 10, the Company did enter into an interest rate cap agreement on
January 12, 2001.
3. REORGANIZATION
On July 12, 2000, Illinois PCS, LLC (the "Predecessor Company") reorganized
its business into a C Corporation in which members of the Predecessor Company
received 44,869,643 shares of common stock of iPCS, Inc. in exchange for their
ownership interests in the Predecessor Company. As of July 12, 2000, the
Predecessor Company merged with and into iPCS Wireless, Inc., a wholly-owned
subsidiary of iPCS, Inc. iPCS Equipment, Inc. was also formed and is a wholly-
owned subsidiary of iPCS Wireless, Inc. iPCS Wireless, Inc. will continue the
activities of the Predecessor Company and, for accounting purposes, this
transaction was accounted for as a reorganization of the Predecessor Company
into a C Corporation. iPCS, Inc. and its subsidiaries, including the
Predecessor Company, are collectively referred to as the "Company."
4. SPRINT PCS AGREEMENTS
On January 10, 2001, the Company exercised its option to purchase from
Sprint PCS certain telecommunications equipment and retail store assets and
inventory located in the Iowa City and Cedar Rapids, Iowa markets. Concurrently
with the closing, the Sprint PCS Management Agreement, which sets forth the
terms of the Company's long-term affiliation with Sprint PCS, was amended to
reflect the expansion of the Company's territory to include these two
additional Iowa markets, which included over 14,000 customers. The Company
closed on this transaction on February 28, 2001 and paid approximately $31.6
million to Sprint PCS. The Company has accounted for this business combination
using the purchase method. The Company made a preliminary allocation of the
purchase price based on the fair values of the assets and liabilities acquired
and allocated any excess amount over fair value to the intangible asset
representing the right to be the exclusive provider of Sprint PCS services in
the Iowa City and Cedar Rapids, Iowa markets.
F-70
iPCS, INC. AND SUBSIDIARIES AND PREDECESSOR
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Amounts related to the Sprint PCS agreements for the six months ended June
30, 2001 and June 30, 2000 are as follows (in thousands):
Six Months Ended
----------------------
June 30, June 30,
2001 2000
-------- ------------
Amounts included in the Consolidated Statement of
Operations:
Cost of service...................................... $ 21,336 $ 1,937
Cost of equipment.................................... 10,851 2,486
Selling.............................................. 1,361 345
General and administrative........................... 29 10
June 30, December 31,
2001 2000
-------- ------------
Amount included in the Consolidated Balance Sheets:
Inventory............................................ 1,345 3,236
Amounts due from and due to Sprint PCS, included in accounts receivable and
accounts payable, respectively, are as follows (in thousands):
June 30, December 31,
2001 2000
-------- ------------
Due from Sprint PCS.................................... $ 12,607 $ 5,499
Due to Sprint PCS...................................... 10,454 6,610
5. PROPERTY AND EQUIPMENT INCLUDING CONSTRUCTION IN PROGRESS
Property and equipment including construction in progress consists of the
following (in thousands):
June 30, December 31,
2001 2000
-------- ------------
Network assets......................................... $123,924 $ 79,757
Computer equipment..................................... 2,426 1,816
Furniture, fixtures, office equipment and leasehold
improvements.......................................... 3,710 2,698
-------- --------
Total property and equipment........................... 130,060 84,271
Less accumulated depreciation and amortization......... (15,743) (8,285)
-------- --------
Property and equipment, net............................ 114,317 75,986
Construction in progress (network build-out)........... 69,191 50,817
-------- --------
Property and equipment including construction in
progress, net......................................... $183,508 $126,803
======== ========
F-71
iPCS, INC. AND SUBSIDIARIES AND PREDECESSOR
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. INTANGIBLE ASSETS, NET
Intangible assets consists of the following (in thousands):
June
30, December 31,
2001 2000
------- ------------
Exclusive provider rights which arose with the issuance
of warrants to Sprint PCS.............................. $ 9,147 $ 9,147
Exclusive provider rights which arose with the purchase
of assets in Michigan from Sprint PCS.................. 3,526 3,526
Exclusive provider rights which arose with the
acquisition of the Iowa markets from Sprint PCS (see
Note 4)................................................ 28,390 --
Microwave clearing costs................................ 2,337 2,337
------- -------
Total intangible assets................................. 43,400 15,010
Less accumulated amortization........................... (1,255) (367)
------- -------
Intangible assets, net.................................. $42,145 $14,643
======= =======
7. DEFERRED GAIN ON TOWER SALES
On May 28, 1999, the Company signed a tower sale and leaseback agreement
with American Tower Corporation ("American Tower"). Under this agreement, the
Company was to locate sites for, develop and construct between sixty and eighty
wireless communication towers and then sell the towers to American Tower. The
term of this agreement, which was set to expire at the earlier date of the
final tower sale or December 31, 2000, was amended in November 2000 to extend
the expiration date to February 28, 2001.
On January 2, 2001, twelve towers were sold to American Tower for
approximately $3.4 million, resulting in a gain of approximately $1.6 million
of which approximately $0.5 million was recognized at the time of the sale and
the remainder was deferred and is being amortized as a reduction to rental
expense over the initial lease term of ten years. The sale of the first seven
towers in this transaction satisfied the terms of the agreement signed in 1999.
The remaining five towers were sold as individual tower sales to American
Tower.
On June 29, 2001, the Company signed a tower sale and leaseback agreement
with Trinity Wireless Towers, Inc. ("Trinity"). The Company has constructed
wireless communication towers, which it agreed to sell and lease back a portion
of these towers from Trinity. The agreement expires on December 31, 2001.
On June 29, 2001, the Company sold sixteen towers to Trinity for
approximately $4.8 million, resulting in a gain of approximately $2.1 million
of which approximately $1.0 million was recognized at the time of the sale and
the remainder was deferred and is being amortized as a reduction to rental
expense over the initial tower lease term of five years.
8. DEFERRED RENT
On December 29, 2000, the Company signed a build-to-suit agreement with
Trinity whereby the Company agreed to locate and obtain ground leases for tower
sites and deliver assignments of these leases to Trinity for at least seventy-
five towers located in Iowa and Nebraska. Trinity agreed to reimburse the
Company for site acquisition and development costs, build a tower at these
sites, and to purchase the site at the time of the commencement of the tower
lease with Trinity.
For the six months ended June 30, 2001, the Company recorded approximately
$1.6 million as deferred tower rent that will be amortized as a reduction to
rental expense over the life of the initial tower lease term of five years. As
of June 30, 2001, the Company has entered into leases for thirty-one build-to-
suit towers.
F-72
iPCS, INC. AND SUBSIDIARIES AND PREDECESSOR
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. INCOME TAXES
Prior to July 12, 2000, the Predecessor Company operated as a limited
liability company ("LLC") and, as a result, its losses were included in the
income tax returns of its members. Therefore, the accompanying consolidated
financial statements do not include any income tax amounts prior to July 12,
2000. Subsequent to July 12, 2000, the date of reorganization as discussed in
Note 3, the Company became a C Corporation and began accounting for income
taxes in accordance with SFAS No. 109, "Accounting for Income Taxes." No
benefit for federal income taxes has been recorded for the six months ended
June 30, 2001, as the net deferred tax asset generated, primarily from
temporary differences related to the net operating loss carry forwards, would
have been offset by a full valuation allowance because it is not considered
more likely than not that these benefits will be realized due to the Company's
limited operating history. For the year ending December 31, 2001, management
currently estimates that a valuation allowance will be provided for the
expected loss to be incurred.
10. SENIOR SECURED CREDIT FACILITY
On January 12, 2001, as required under the terms of the senior secured
credit facility, the Company entered into an interest rate cap agreement with a
counter party for a notional amount of $12.5 million to manage the interest
rate risk on the Company's variable rate debt. The agreement expires in three
years and caps the three-month LIBOR interest rate at 7.25%. A loss of
approximately $14,000 was recorded for this derivative for the six months ended
June 30, 2001.
On February 23, 2001, the Company entered into an amendment to the senior
secured credit facility which included a consent to the expansion of its
territory to include the Iowa City and Cedar Rapids, Iowa BTA's as discussed in
Note 4 and which amended certain covenant definitions and requirements.
On June 29, 2001, the Company borrowed an additional $25.0 million under
Tranche B bringing the total borrowings to date to $50.0 million, the entire
Tranche B commitment. At June 30, 2001, the weighted average interest rate on
these borrowings was 8.03%.
11. STOCK OPTIONS
On February 28, 2001, the Board of Directors approved options for members of
management, employees and directors, with a grant date of January 1, 2001. The
vesting period for these employee stock options begins on the later of the
employee's hire date or January 1, 2001, and extends for four years. For
directors, the vesting period begins on January 1, 2001, and extends for four
years. During the six months ended June 30, 2001, 1,416,750 options were
granted at an exercise price of $4.65.
At June 30, 2001, the following is a summary of options granted and
outstanding:
Weighted Average
Shares Exercise Price
--------- ----------------
Outstanding at December 31, 2000................. 1,590,000 $5.52
Granted.......................................... 1,416,750 4.65
Exercised........................................ -- --
Forfeited........................................ (6,750) 5.50
--------- -----
Outstanding at June 30, 2001..................... 3,000,000 $5.11
========= =====
F-73
iPCS, INC. AND SUBSIDIARIES AND PREDECESSOR
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations to account for its
employee and director stock options. Compensation expense is determined as the
excess of the fair value of the Company's common stock at date of grant over
the exercise price. Based upon the then expected offering price of a planned
initial public offering in 2000, the Company recognized total unearned
compensation expense of approximately $8.3 million related to the grants made
in July 2000. This amount is being amortized as compensation expense over the
vesting period of the options; such vesting period begins on the employee's
date of hire and extends for four years. For directors and all employee grants
subsequent to February 28, 2001, the vesting period begins on the date of grant
and extends for four years. Total non-cash compensation expense related to such
options for the six months ended June 30, 2001 was approximately $1.0 million.
There was no compensation expense recorded for the grants made during the six
months ended June 30, 2001 since the exercise price was equal to the estimated
fair value of the Company's common stock.
12. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
For the Six
Months Ended
-----------------
June 30, June 30,
2001 2000
-------- --------
(in thousands)
Supplemental disclosure of cash flow information--Cash
paid for interest....................................... $ 749 $1,710
Supplemental schedule of noncash investing and financing
activities:
Accounts payable incurred for the acquisition of
property, equipment and construction in process......... 14,666 7,732
Accrued dividends on redeemable preferred stock.......... 4,568 --
Accretion to the redemption amount of preferred stock.... 351 --
F-74
iPCS, INC. AND SUBSIDIARIES AND PREDECESSOR
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The senior discount notes are fully, unconditionally, and joint and
severally guaranteed by iPCS Wireless, Inc. and iPCS Equipment, Inc., which are
wholly-owned subsidiaries of iPCS, Inc. The following unaudited condensed
consolidating financial information as of and for the six months ended June 30,
2001 is presented for iPCS, Inc., iPCS Wireless, Inc., and iPCS Equipment, Inc.
(in thousands):
iPCS iPCS
iPCS, Wireless, Equipment,
Inc. Inc. Inc. Eliminations Consolidated
-------- --------- ---------- ------------ ------------
Condensed Consolidated Balance Sheet
ASSETS
------
Current Assets:
Cash and cash
equivalents........... $ 303 $ 90,170 $ 307 $ 90,780
Accounts and other
receivable, net....... -- 14,023 -- 14,023
Intercompany
receivables........... 100,761 -- 7 $(100,768) --
Other current assets... 11 4,552 -- -- 4,563
-------- -------- ------- --------- --------
Total current assets... 101,075 108,745 314 (100,768) 109,366
Property and equipment,
net................... -- 145,853 37,667 (12) 183,508
Intangibles, net....... 8,673 33,472 -- -- 42,145
Intercompany
receivables--long
term.................. 225,060 38,365 2,918 (266,343) --
Other non-current
assets................ 6,173 5,045 -- -- 11,218
-------- -------- ------- --------- --------
Total assets........... $340,981 $331,480 $40,899 $(367,123) $346,237
======== ======== ======= ========= ========
LIABILITIES, REDEEMABLE
PREFERRED STOCK AND
EQUITY/(DEFICIENCY)
-----------------------
Current Liabilities:
Accounts payable....... $ 3 $ 26,604 $ 4,756 $ 31,363
Intercompany payables.. 100,768 -- $(100,768) --
Other current
liabilities........... 12 8,208 9 -- 8,229
-------- -------- ------- --------- --------
Total current
liabilities........... 15 135,580 4,765 (100,768) 39,592
Accrued interest....... 13,275 -- -- -- 13,275
Intercompany payables--
long term............. 227,977 38,366 (266,343) --
Long-term debt......... 138,378 50,000 -- -- 188,378
Other non-current
liabilities........... -- 10,986 -- -- 10,986
-------- -------- ------- --------- --------
Total liabilities...... 151,668 424,543 43,131 (367,111) 252,231
-------- -------- ------- --------- --------
Redeemable preferred
stock.................. 118,999 -- -- -- 118,999
-------- -------- ------- --------- --------
Common stock............ 449 -- -- -- 449
Additional paid in
capital................ 73,402 -- -- -- 73,402
Unearned compensation... (4,495) -- -- -- (4,495)
Accumulated
equity/(deficiency).... 958 (93,063) (2,232) (12) (94,349)
-------- -------- ------- --------- --------
Total
equity/(deficiency)... 70,314 (93,063) (2,232) (12) (24,993)
-------- -------- ------- --------- --------
Total liabilities,
redeemable preferred
stock and
equity/(deficiency)... $340,981 $331,480 $40,899 $(367,123) $346,237
======== ======== ======= ========= ========
Total revenues.......... $ 42,011 $ 3,151 $ (3,151) $ 42,011
-------- -------- ------- --------- --------
Operating expenses...... $ 520 68,370 3,175 (3,139) 68,926
-------- -------- ------- --------- --------
Loss from operations.... (520) (26,359) (24) (12) (26,915)
-------- -------- ------- --------- --------
Other income/(expense).. 5,775 (11,098) (1,574) -- (6,897)
-------- -------- ------- --------- --------
Net income/(loss)....... $ 5,255 $(37,457) $(1,598) $ (12) $(33,812)
======== ======== ======= ========= ========
Condensed Consolidated Statement of Operations
F-75
iPCS, INC. AND SUBSIDIARIES AND PREDECESSOR
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
iPCS iPCS
iPCS, Wireless, Equipment,
Inc. Inc. Inc. Eliminations Consolidated
------- --------- ---------- ------------ ------------
Condensed Consolidated Statement of Cash Flows
Operating activities,
net.................... $17,934 $(23,696) $ (1,330) $(12) $(7,104)
Financing activities:
Capital expenditures... -- (52,120) (18,241) 12 (70,349)
Acquisition of Iowa
City/Cedar Rapids,
Iowa markets.......... -- (31,840) -- -- (31,840)
Other financing
activities............ -- 9,410 -- -- 9,410
------- -------- -------- ---- -------
Financing activities,
net.................... -- (74,550) (18,241) 12 (92,779)
------- -------- -------- ---- -------
Investing activities,
net.................... (17,933) 23,129 19,509 -- 24,705
------- -------- -------- ---- -------
Increase/(decrease) in
cash and cash
equivalents............ 1 (75,117) (62) -- (75,178)
Cash and cash
equivalents at
beginning of period.... 302 165,287 369 -- 165,958
------- -------- -------- ---- -------
Cash and cash
equivalents at end of
period................. $ 303 $ 90,170 $ 307 $-- $90,780
======= ======== ======== ==== =======
14. SUBSEQUENT EVENT
On August 28, 2001, the Company signed an agreement and plan of merger with
AirGate PCS, Inc., a Sprint PCS affiliate, under which AirGate and the Company
will combine in a tax-free stock for stock transaction. At the effective time
of the merger, each issued and outstanding share of the Company's common stock
will be converted into the right to receive approximately 0.1594 of a share of
AirGate common stock, referred to as the exchange ratio. All shares of the
Company's preferred stock will be converted into the Company's common stock
immediately prior to the effective time of the merger. At the effective time of
the merger, AirGate will assume each unexpired and unexercised option and
warrant to purchase shares of the Company's common stock and convert it into an
option or warrant to purchase AirGate common stock based on one share of the
Company's common stock equal to the exchange ratio of AirGate's common stock.
In addition, the exercise price per share of AirGate common stock issuable
under each converted option or converted warrant will be equal to the per share
exercise price of the Company option or warrant divided by the exchange ratio.
The options will be fully vested at the time of the merger and the warrants
will remain subject to the terms and conditions set forth in the applicable
warrant agreement. The total number of shares of AirGate common stock to be
issued by AirGate in connection with the merger will not exceed 13,500,000. The
transaction is subject to customary regulatory review, and approvals by the
stockholders of AirGate and the Company, both companies' senior secured
lenders, and Sprint PCS. The merger agreement will terminate if the merger is
not consummated on before March 1, 2002.
F-76
ANNEX A
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
by and between
AIRGATE PCS, INC.
and
iPCS, INC.
dated as of August 28, 2001
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
----
ARTICLE I THE MERGER..................................................... 1
1.1 The Merger......................................................... 1
1.2 Effective Time..................................................... 2
1.3 Effects of the Merger.............................................. 2
1.4 Conversion of Company Common Stock................................. 2
1.5 Stock Options...................................................... 3
1.6 Assumption of Warrants............................................. 3
1.7 Public Common Stock; Merger Sub Common Stock....................... 4
1.8 Shares of Dissenting Stockholders.................................. 4
1.9 Certificate of Incorporation and By-Laws........................... 4
1.10 Directors and Officers............................................. 4
1.11 Tax Consequences................................................... 4
ARTICLE II EXCHANGE OF SHARES............................................ 4
2.1 Exchange of Shares, Distributions; Voting Rights................... 4
ARTICLE III DISCLOSURE SCHEDULES......................................... 6
3.1 Disclosure Schedules............................................... 6
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY................. 6
4.1 Corporate Organization............................................. 7
4.2 Capitalization..................................................... 7
4.3 Authority; No Violation............................................ 8
4.4 Consents and Approvals............................................. 9
4.5 Financial Statements............................................... 9
4.6 No Undisclosed Liabilities......................................... 10
4.7 Absence of Certain Changes or Events............................... 10
4.8 SEC Reports........................................................ 10
4.9 Property........................................................... 11
4.10 Leases............................................................. 11
4.11 Environmental Matters.............................................. 11
4.12 Certain Contracts.................................................. 12
4.13 Distributors and Suppliers......................................... 14
4.14 Insurance.......................................................... 14
4.15 Legal Proceedings.................................................. 14
4.16 Compliance with Applicable Law..................................... 15
4.17 Benefit Plans...................................................... 15
4.18 Taxes.............................................................. 16
4.19 Sprint Agreement Compliance........................................ 17
4.20 Intellectual Property.............................................. 17
4.21 Labor Matters...................................................... 18
4.22 Reorganization..................................................... 19
4.23 Broker's Fees...................................................... 19
4.24 Related Party Transactions......................................... 19
4.25 Company Information................................................ 19
4.26 Required Vote of the Company....................................... 20
4.27 Takeover Statutes.................................................. 20
4.28 Amount of Indebtedness............................................. 20
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ARTICLE V REPRESENTATIONS AND WARRANTIES OF PUBLIC ....................... 20
5.1 Corporate Organization.............................................. 20
5.2 Capitalization...................................................... 21
5.3 Authority; No Violation............................................. 22
5.4 Consents and Approvals.............................................. 22
5.5 Financial Statements................................................ 23
5.6 No Undisclosed Liabilities.......................................... 23
5.7 Absence of Certain Changes or Events................................ 23
5.8 SEC Reports......................................................... 24
5.9 Property............................................................ 24
5.10 Leases.............................................................. 24
5.11 Environmental Matters............................................... 24
5.12 Certain Contracts................................................... 25
5.13 Distributors and Suppliers.......................................... 27
5.14 Insurance........................................................... 27
5.15 Legal Proceedings................................................... 27
5.16 Compliance with Applicable Law...................................... 27
5.17 Benefit Plans....................................................... 28
5.18 Taxes............................................................... 29
5.19 Sprint Agreement Compliance......................................... 29
5.20 Intellectual Property............................................... 30
5.21 Labor Matters....................................................... 30
5.22 Reorganization...................................................... 31
5.23 Broker's Fees....................................................... 31
5.24 Related Party Transactions.......................................... 31
5.25 Public Information.................................................. 32
5.26 Required Vote of Public............................................. 32
5.27 Amount of Indebtedness.............................................. 32
ARTICLE VI COVENANTS RELATING TO CONDUCT OF BUSINESS...................... 32
6.1 Covenants of the Company............................................ 32
6.2 Covenants of Public................................................. 35
ARTICLE VII ADDITIONAL AGREEMENTS......................................... 37
7.1 Regulatory Matters.................................................. 37
7.2 Access to Information............................................... 39
7.3 Stockholder Meeting................................................. 40
7.4 Legal Conditions to Merger.......................................... 41
7.5 Affiliates.......................................................... 41
7.6 Nasdaq Listing...................................................... 41
7.7 Employee Benefit Plans; Existing Agreements......................... 41
7.8 Additional Agreements............................................... 42
7.9 Advice of Changes................................................... 42
7.10 Current Information................................................. 42
7.11 Accountants' Letter................................................. 42
7.12 Additional Reports and Information.................................. 42
7.13 Section 16(b) Matters............................................... 42
7.14 Nomination of Directors............................................. 42
7.15 Supplemental Warrant Agreement; Warrant Notices..................... 43
7.16 Expenses............................................................ 43
7.17 Indemnification..................................................... 43
7.18 Takeover Statute.................................................... 44
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7.19 Registration Rights Agreement.................................... 44
7.20 Plan of Reorganization........................................... 44
7.21 Lock-Up Agreements............................................... 44
7.22 Transfer of Company Records...................................... 45
Formation of Merger Sub and Execution and Delivery of Sub Joinder
7.23 Agreement........................................................ 45
ARTICLE VIII CONDITIONS PRECEDENT....................................... 46
8.1 Conditions to Each Party's Obligation To Effect the Merger....... 46
8.2 Conditions to Obligations of Public and Merger Sub............... 47
8.3 Conditions to Obligations of the Company......................... 48
8.4 Standards........................................................ 49
ARTICLE IX TERMINATION AND AMENDMENT.................................... 49
9.1 Termination...................................................... 49
9.2 Effect of Termination............................................ 50
9.3 Amendment........................................................ 50
9.4 Extension; Waiver................................................ 51
ARTICLE X GENERAL PROVISIONS............................................ 51
10.1 No Survival of Representations and Warranties.................... 51
10.2 Closing.......................................................... 51
10.3 Notices.......................................................... 51
10.4 Interpretation, Certain Definitions.............................. 52
10.5 Counterparts..................................................... 53
10.6 Entire Agreement................................................. 53
10.7 Governing Law and Venue.......................................... 53
10.8 Enforcement of Agreement......................................... 53
10.9 Severability..................................................... 53
10.10 Publicity, etc................................................... 53
10.11 Assignment....................................................... 53
10.12 No Third Party Beneficiaries..................................... 54
Exhibit A--Form of Company Support Agreement.............................
Exhibit B--Form of Registration Rights Agreement.........................
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Affiliate................................................................... 68
Agreement................................................................... 2
Associate................................................................... 68
Balance Sheets.............................................................. 13
Blackstone.................................................................. 59
Blackstone Director......................................................... 56
Business Day................................................................ 68
Certificate................................................................. 3
Certificate of Designations................................................. 3
Certificate of Merger....................................................... 3
ChaseMellon................................................................. 5
Closing..................................................................... 67
Closing Date................................................................ 67
Code........................................................................ 2
Company..................................................................... 2
Company Audited Financial Documents......................................... 13
Company Balance Sheet....................................................... 13
Company Benefit Plans....................................................... 21
Company Common Stock........................................................ 3
Company Contract............................................................ 19
Company Credit Facility..................................................... 45
Company Director............................................................ 56
Company Disclosure Schedule................................................. 9
Company Employees........................................................... 54
Company ERISA Affiliate..................................................... 21
Company Financial Statements................................................ 13
Company Indenture........................................................... 45
Company Lease............................................................... 15
Company Material Intellectual Property...................................... 24
Company Nominated Directors................................................. 56
Company Option.............................................................. 4
Company Option Plan......................................................... 4
Company Permitted Liens..................................................... 15
Company Preferred Stock..................................................... 3
Company Reports............................................................. 14
Company Sprint Agreements................................................... 23
Company Stockholders........................................................ 57
Company Support Agreement................................................... 2
Company Tower Leases........................................................ 15
Company Unaudited Financial Statements...................................... 13
Company Warrants............................................................ 5
Converted Company Option.................................................... 4
Coverage Period............................................................. 58
Delaware Courts............................................................. 69
Dissenting Shares........................................................... 6
Effective Time.............................................................. 3
ERISA....................................................................... 21
Exchange Act................................................................ 13
Exchange Ratio.............................................................. 3
FCC......................................................................... 20
GAAP........................................................................ 14
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Governmental Entity......................................................... 13
holders of Series A-1 Preferred Stock....................................... 62
HSR Act..................................................................... 50
Indemnified Parties......................................................... 57
Independent Director........................................................ 56
Injunction.................................................................. 60
Lease Agreement............................................................. 15
LLC......................................................................... 9
LLC Balance Sheet........................................................... 13
Merger...................................................................... 2
Merger Consideration........................................................ 7
Merger Sub.................................................................. 2
Merger Sub Common Stock..................................................... 6
Nasdaq...................................................................... 8
Permit...................................................................... 20
Person...................................................................... 69
Prospectus/Proxy Statement.................................................. 26
Public...................................................................... 2
Public Audited Financial Statements......................................... 31
Public Benefit Plans........................................................ 38
Public Certificates......................................................... 7
Public Common Stock......................................................... 2
Public Credit Facility...................................................... 49
Public Disclosure Schedule.................................................. 9
Public ERISA Affiliate...................................................... 37
Public Financial Statements................................................. 31
Public Indenture............................................................ 49
Public Lease................................................................ 32
Public Leased Premise....................................................... 32
Public Material Intellectual Property....................................... 40
Public Permit............................................................... 37
Public Permitted Liens...................................................... 32
Public Plans................................................................ 54
Public Preferred Stock...................................................... 28
Public Reports.............................................................. 32
Public Sprint Agreements.................................................... 39
Public Tower Lease.......................................................... 32
Public Unaudited Financial Statements....................................... 31
Resale Restriction.......................................................... 59
Restraints.................................................................. 60
S-3 Registration Statement.................................................. 50
S-4 Registration Statement.................................................. 26
Secretary................................................................... 3
Securities Act.............................................................. 5
Series A-1 Preferred Stock.................................................. 3
Series A-2 Preferred Stock.................................................. 3
Sprint Licenses............................................................. 20
Sprint Spectrum............................................................. 5
Sprint Warrant.............................................................. 5
Sub Joinder Agreement....................................................... 2
Subsidiary.................................................................. 69
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Surviving Corporation...................................................... 3
TCW........................................................................ 59
Termination Fee Shares..................................................... 66
Transfer................................................................... 59
Warrant Agreement.......................................................... 5
Warrants................................................................... 5
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of August 28, 2001 (this
"Agreement"), by and between AirGate PCS, Inc., a Delaware corporation
("Public"), and iPCS, Inc., a Delaware corporation (the "Company"). It is
contemplated that upon its formation as contemplated herein, a newly formed
Delaware corporation and wholly owned subsidiary of Public, or another wholly
owned subsidiary of Public as the parties may agree ("Merger Sub"), shall enter
into a joinder agreement (the "Sub Joinder Agreement") pursuant to which it
will become a party to this Agreement.
WHEREAS, the respective Boards of Directors of Public and the Company have
approved and declared advisable this Agreement, the merger of Merger Sub with
and into the Company (the "Merger") and the other transactions contemplated
hereby (including all approvals necessary under Section 203 of the General
Corporation Law of the State of Delaware (the "DGCL") upon the terms and
subject to the conditions set forth herein;
WHEREAS, the Board of Directors of Public has agreed to recommend that the
holders of common stock, par value $.01 per share, of Public (the "Public
Common Stock") approve the issuance of shares of Public Common Stock pursuant
to the Merger and the other matters contemplated to be submitted to its
stockholders in connection with this Agreement;
WHEREAS, Public and the Company acknowledge and agree that as of the date
hereof, Merger Sub has not been formed and has not executed this Agreement. The
Company acknowledges that Public has agreed in this Agreement to form Merger
Sub upon obtaining the requisite Public Bank Consent (as hereinafter defined)
and to cause Merger Sub (or another wholly owned subsidiary of Public as the
parties may agree) to execute the Sub Joinder Agreement upon its formation;
WHEREAS, as an inducement to and a condition to Public entering into this
Agreement, certain stockholders of the Company are simultaneously herewith
entering into a Support Agreement, in the form of Exhibit A hereto (the
"Company Support Agreement"), relating to the agreement of such stockholders to
vote to approve and adopt this Agreement, the Merger and the transactions
contemplated hereby;
WHEREAS, the parties hereto intend that the Merger shall constitute a
reorganization within the meaning of Section 368(a) of the United States
Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, the parties desire to make certain representations, warranties and
agreements in connection with the Merger and also to prescribe certain
conditions to the Merger.
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and agreements contained herein, and intending to be legally bound
hereby, the parties agree as follows:
ARTICLE I
The Merger
Section 1.1. The Merger. Subject to the terms and conditions of this
Agreement, in accordance with the DGCL, at the Effective Time (as defined in
Section 1.2 hereof), Merger Sub shall merge with and into the Company. The
Company shall be the surviving corporation (hereinafter sometimes called the
"Surviving Corporation") in the Merger, and shall continue its corporate
existence under the laws of the State of Delaware. The name of the Surviving
Corporation shall continue to be iPCS, Inc. Upon consummation of the Merger,
the separate corporate existence of Merger Sub shall terminate.
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Section 1.2. Effective Time. No later than three Business Days after the
satisfaction or, if permissible, waiver of the conditions set forth in Article
VIII, the parties hereto shall cause the Merger to be consummated by filing a
certificate of merger (the "Certificate of Merger") with the Secretary of State
of the State of Delaware (the "Secretary"), in such form as required by and
executed in accordance with, the relevant provisions of the DGCL (the date and
time of such filing, or, if another date and time is specified in such filing,
such specified date and time, being the "Effective Time").
Section 1.3. Effects of the Merger. At and after the Effective Time, the
Merger shall have the effects set forth in Sections 259 and 261 of the DGCL.
Section 1.4. Conversion of Company Common Stock.
(a) At the Effective Time, subject to Section 1.8 and Section 2.1(e) hereof,
each share of common stock, par value $0.01 per share, of the Company (the
"Company Common Stock") issued and outstanding immediately prior to the
Effective Time (other than shares of Company Common Stock held (x) in the
Company's treasury or (y) directly or indirectly by Public or the Company or
any of their respective Subsidiaries (as defined below)) (including all shares
of Series A-1 Convertible Participating Preferred Stock, par value $.01 per
share, of the Company ("Series A-1 Preferred Stock") and Series A-2 Convertible
Participating Preferred Stock, par value $.01 per share, of the Company
("Series A-2 Preferred Stock" and together with the Series A-1 Preferred Stock,
the "Company Preferred Stock") which shall have been converted into Company
Common Stock immediately prior to the Effective Time in accordance with
Section 5(b)(ii) of the respective Certificates of Designations (each, a
"Certificate of Designations") with respect thereto) shall, by virtue of this
Agreement and without any action on the part of the holder thereof, be
converted into 0.1594 shares (the "Exchange Ratio") of Public Common Stock. All
shares of Company Common Stock converted into Public Common Stock pursuant to
this Article I shall no longer be outstanding and shall automatically be
cancelled and shall cease to exist, and each certificate (each, a
"Certificate") previously representing any such shares of Company Common Stock
shall thereafter only represent the right to receive (i) certificates
evidencing the number of whole shares of Public Common Stock and (ii) the cash
in lieu of fractional shares into which the shares of Company Common Stock
represented by such Certificate have been converted pursuant to this Section
1.4(a) and Section 2.1(e). Certificates previously representing shares of
Company Common Stock shall be exchanged for certificates representing whole
shares of Public Common Stock and cash in lieu of fractional shares issued in
consideration therefore upon the surrender of such Certificates in accordance
with Section 2.1 hereof, without any interest thereon. The parties understand
and agree that the Exchange Ratio has been calculated based upon the accuracy
of the representations and warranties set forth in Section 4.2 and that, in the
event the number of outstanding shares of Company Common Stock, Company
Preferred Stock, Company Options, Company Warrants or other stock equivalents
of the Company is greater than or less than the amounts specifically set forth
in Section 4.2 (including, without limitation, as a result of (i) any
inaccuracy in the representations and warranties set forth in Section 4.2, (ii)
the issuance or expiration after the date of this Agreement of options,
warrants or other rights to purchase Company Common Stock or (iii) any stock
split, reverse stock split, stock dividend, including any dividend or
distribution of securities convertible into stock or any stock equivalent of
the Company, recapitalization, reclassification or other like change occurring
after the date of this Agreement), the Exchange Ratio shall be appropriately
adjusted. Notwithstanding anything to the contrary, in no event shall the
aggregate number of shares of Public Common Stock issued (i) at the Effective
Time pursuant to this Section 1.4(a) and (ii) upon the exercise of all options,
warrants or other rights to purchase Company Common Stock assumed by Public
pursuant to this Agreement, exceed 13,500,000.
(b) At the Effective Time, all shares of Company Common Stock that are owned
by the Company as treasury stock and all shares of Company Common Stock that
are owned directly or indirectly by Public or the Company or any of their
respective Subsidiaries shall, by virtue of this Agreement and without any
action on the part of the holder thereof, be cancelled and shall cease to exist
and no stock of Public or other consideration shall be delivered in exchange
therefore. All shares of Public Common Stock that are owned by the Company or
any of its Subsidiaries shall become treasury stock of Public.
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Section 1.5. Stock Options. (a) At the Effective Time, each option granted
by the Company to purchase shares of Company Common Stock (a "Company Option")
which is outstanding and unexercised immediately prior thereto shall cease to
represent a right to acquire shares of Company Common Stock and shall be
converted automatically into a fully vested option (a "Converted Company
Option") to purchase shares of Public Common Stock in an amount and at any
exercise price determined as provided below (and otherwise subject to the terms
of the Company's Amended and Restated 2000 Long Term Incentive Plan, as amended
(the "Company Option Plan"), the agreements evidencing grants thereunder, and
any other agreements between the Company and an optionee regarding Company
Options):
(i) the number of shares of Public Common Stock to be subject to the
Converted Company Option shall be equal to the product of the number of
shares of Company Common Stock subject to the Company Option and the
Exchange Ratio, provided that any fractional share of Public Common Stock
resulting from such multiplication shall be rounded down to the nearest
whole share; and
(ii) the exercise price per share of Public Common Stock under the
Converted Company Option shall be equal to the exercise price per share of
Company Common Stock under the Company Option divided by the Exchange
Ratio, provided that such exercise price shall be rounded up to the nearest
whole cent.
(b) The adjustment provided herein with respect to any options which are
"incentive stock options" (as defined in Section 422 of the Code) shall be and
is intended to be effected in a manner which is consistent with Section 424(a)
of the Code, and to the extent it is not so consistent, such Section 424(a)
shall override anything to the contrary contained herein. The duration and
other terms of the Converted Company Options shall be the same as the original
Company Options, except that all references to the Company shall be deemed to
be references to Public. As soon as practicable after the Effective Time (but
in no event later than ten Business Days), Public shall use its reasonable best
efforts to register under the Securities Act of 1933, as amended (the
"Securities Act"), on Form S-8 or other appropriate form (and use its
reasonable best efforts to maintain the effectiveness thereof) shares of Public
Common Stock issuable pursuant to all Company Options converted pursuant to
this Section 1.5.
Section 1.6. Assumption of Warrants. (a) At the Effective Time, Public shall
assume and cause to be performed all obligations of the Company under:
(1) the warrants (the "Warrants") issued pursuant to the Warrant
Agreement, dated as of July 12, 2000, between the Company and ChaseMellon
Shareholder Services, L.L.C. ("ChaseMellon"), as Warrant Agent (the
"Warrant Agreement") to purchase 2,982,699 shares of Company Common Stock;
and
(2) the warrant (the "Sprint Warrant" and together with the Warrants,
the "Company Warrants") issued to Sprint Spectrum L.P. ("Sprint Spectrum")
to purchase 1,151,938 shares of Company Common Stock.
(b) Each Company Warrant so assumed by Public under this Agreement will
continue to have, and be subject to, the same terms and conditions set forth in
the applicable warrant agreement immediately prior to the Effective Time,
except that (i) each outstanding Company Warrant will be exercisable (or will
become exercisable in accordance with its terms), for that number of whole
shares of Public Common Stock equal to the product of the number of shares of
Company Common Stock that were issuable upon exercise of such Company Warrant
immediately prior to the Effective Time multiplied by the Exchange Ratio,
rounded to the nearest whole number of shares of Public Common Stock and (ii)
the per share exercise price for the Public Common Stock issuable upon exercise
of such Company Warrant shall be equal to the exercise price per share of
Company Common Stock of such Company Warrant divided by the Exchange Ratio,
rounded to the nearest whole cent.
(c) At the Effective Time, Public shall cause a shelf registration statement
on Form S-3 under the Securities Act covering Public Common Stock issuable upon
exercise of the Warrants to become effective and shall maintain the
effectiveness thereof until the earlier of the expiration of the Warrants or
the date on which all of the Warrants have been exercised by the holders
thereof.
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Section 1.7. Public Common Stock; Merger Sub Common Stock. (a) Except for
any shares of Public Common Stock owned by the Company or any of its
Subsidiaries, which shall be converted into treasury stock of Public as
contemplated by Section 1.4 hereof, the shares of Public Common Stock issued
and outstanding immediately prior to the Effective Time shall be unaffected by
the Merger and such shares shall remain issued and outstanding.
(b) At the Effective Time, each share of common stock, par value $.01 per
share, of Merger Sub (the "Merger Sub Common Stock") issued and outstanding
immediately prior to the Effective Time shall, by virtue of this Agreement and
without any action on the part of the holder thereof, be converted into one
share of common stock of the Surviving Corporation, and the Surviving
Corporation shall thereby become a wholly owned subsidiary of Public.
Section 1.8. Shares of Dissenting Stockholders. Notwithstanding anything in
this Agreement to the contrary, any shares of Company Common Stock and Company
Preferred Stock that are issued and outstanding immediately prior to the
Effective Time and that are held by a stockholder who did not vote in favor of
the Merger or consent to the Merger in writing and has properly exercised
appraisal rights (the "Dissenting Shares") under the DGCL shall not be
converted into the right to receive the Merger Consideration (as defined below)
unless and until the holder shall have failed to perfect, or shall have
effectively withdrawn or lost, such holder's right to appraisal under the DGCL.
If any such holder shall have failed to perfect or shall have effectively
withdrawn or lost the right to appraisal, then as of the occurrence of such
event, each share of Company Common Stock and Company Preferred Stock held by
such holder shall thereupon be deemed to have been converted into and to have
become, as of the Effective Time, the right to receive, without any interest
thereon, the Merger Consideration. The Company shall give Public (i) prompt
notice of any notice or demand for appraisal or payment for shares of Company
Common Stock or attempted withdrawals of such demands received by the Company
and (ii) the right to participate in all negotiations and proceedings with
respect to any such demands or notices. The Company shall not, without the
prior written consent of Public, make any payment with respect to, or settle,
offer to settle or otherwise negotiate, any such demands.
Section 1.9. Certificate of Incorporation and By-Laws. At the Effective
Time, the Certificate of Incorporation and the By-Laws of the Surviving
Corporation shall be amended in their entirety to contain the provisions set
forth in the Certificate of Incorporation and By-Laws of Merger Sub, as in
effect immediately prior to the Effective Time.
Section 1.10. Directors and Officers. The directors of Merger Sub
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Certificate
of Incorporation and By-Laws of the Surviving Corporation. The officers of
Merger Sub immediately prior to the Effective Time shall be the initial
officers of the Surviving Corporation, each to hold office in accordance with
the Certificate of Incorporation and By-Laws of the Surviving Corporation.
Section 1.11. Tax Consequences. It is intended that the Merger shall
constitute a reorganization within the meaning of Section 368(a) of the Code
and that this Agreement shall constitute a "plan of reorganization" for the
purposes of Section 368 of the Code and the Treasury Regulations promulgated
thereunder.
ARTICLE II
Exchange of Shares
Section 2.1. Exchange of Shares, Distributions; Voting Rights. Subject to
the terms and conditions of this Agreement, the parties hereto shall take, or
cause to be taken, the following actions:
(a) At the Effective Time, each record holder of shares of Company
Common Stock whose shares were converted into the Merger Consideration
shall receive from Public in exchange therefor, upon surrender of such
holder's Certificates and delivery to Public of a property completed letter
of transmittal (which letter of transmittal shall be executed and delivered
to Public prior to the Closing and shall specify
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that, by surrendering such Certificates, subject only to such holder's
receipt of the Merger Consideration and any dividends or other
distributions to which such holder is entitled to receive pursuant to
Section 2.1(b), the holder shall be deemed to have waived all rights and
claims and to have released and discharged Public, Merger Sub, the Company
and their affiliates from any and all claims and liabilities whatsoever,
whether known or unknown, both at law and in equity, arising out of any
matter, cause or event occurring contemporaneously with or prior to the
Effective Time, that such holder would otherwise be entitled to assert
against such Persons solely by virtue of being or having been a stockholder
of the Company ), (x) certificates ("Public Certificates") representing the
number of whole shares of Public Common Stock which such record holder has
the right to receive pursuant to the provisions of Article I hereof and (y)
a check representing the amount of cash in lieu of fractional shares of
Public Common Stock, if any, which such holder has the right to receive
pursuant to Section 2.1(e) (together with the Public Common Stock
represented by the Public Certificates, the "Merger Consideration"), and
the Certificates so surrendered shall forthwith be cancelled. No interest
will be paid or accrued on any cash in lieu of fractional shares or on any
unpaid dividends and distributions payable to holders of Certificates. In
the event of a transfer of ownership of shares of Company Common Stock
which is not registered in the transfer records of the Company, a
certificate representing the proper number of shares of Public Common Stock
may be issued to a transferee if the Certificate representing such shares
of Company Common Stock is presented to Public, accompanied by all
documents required to evidence and effect such transfer and to evidence
that any applicable stock transfer taxes have been paid. Until surrendered
as contemplated by this Section 2.1, each Certificate shall be deemed at
any time after the Effective Time to represent only the right to receive
upon such surrender the Merger Consideration and any dividends or other
distributions to which such holder is entitled pursuant to Section 2.1(b).
(b) No dividends or other distributions declared or made after the
Effective Time with respect to Public Common Stock with a record date after
the Effective Time shall be paid to the holder of record of any
unsurrendered Certificate until the holder thereof shall surrender such
Certificate in accordance with this Article II. At the time of the
surrender of a Certificate in accordance with this Article II, the record
holder thereof shall be issued or paid any such dividends or other
distributions, without any interest thereon, which theretofore had become
payable with respect to shares of Public Common Stock represented by such
Certificate. For purposes of dividends or other distributions in respect of
shares of Public Common Stock, all shares of Public Common Stock to be
issued pursuant to the Merger shall be deemed issued and outstanding as of
the Effective Time. Registered holders of unsurrendered Certificates shall
be entitled to vote after the Effective Time at any meeting of Public
stockholders with a record date at or after the Effective Time the number
of whole shares of Public Common Stock represented by such Certificates,
regardless of whether such holders have exchanged their Certificates.
(c) If any certificate representing shares of Public Common Stock is to
be issued in a name other than that in which the Certificate surrendered in
exchange therefor is registered, it shall be a condition of the issuance
thereof that the Certificate so surrendered shall be properly endorsed (or
accompanied by an appropriate instrument of transfer) and otherwise in
proper form for transfer, and that the Person requesting such exchange
shall pay to Public in advance any transfer or other taxes required by
reason of the issuance of a certificate representing shares of Public
Common Stock in any name other than that of the registered holder of the
Certificate surrendered, or required for any other reason, or shall
establish to the reasonable satisfaction of Public that such tax has been
paid or is not payable.
(d) Immediately upon and after the Effective Time, there shall be no
transfers on the stock transfer books of the Company of the shares of
Company Common Stock or Company Preferred Stock which were issued and
outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates representing such shares are presented for
transfer to Public, they shall be cancelled and converted into the Merger
Consideration and any dividends or other distributions to which the holders
thereof are entitled to receive pursuant to Section 2.2(b) in the manner
provided in this Article II.
(e) Notwithstanding anything to the contrary contained herein, no
certificates or scrip representing fractional shares of Public Common Stock
shall be issued upon the surrender for exchange of Certificates,
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no dividend or distribution with respect to Public Common Stock or
Surviving Corporation Common Stock shall be payable on or with respect to
any fractional share, and such fractional share interests shall not entitle
the owner thereof to vote or to any other rights of a shareholder of
Public. In lieu of the issuance of any such fractional share, Public shall
pay to each former stockholder of the Company who otherwise would be
entitled to receive a fractional share of Public Common Stock an amount in
cash determined by multiplying (i) the average of the closing sale prices
per share of Public Common Stock on The Nasdaq Stock Market ("Nasdaq") as
reported by The Wall Street Journal, New York City edition, for the five
trading days immediately preceding the date on which the Effective Time
shall occur by (ii) the fraction of a share of Public Common Stock to which
such holder would otherwise be entitled to receive pursuant to Section 1.4
hereof.
(f) If any Certificate shall have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the Person claiming such
Certificate to be lost, stolen or destroyed and, unless otherwise agreed,
the posting by such Person of a bond, in such reasonable amount as Public
may direct and in a form reasonably satisfactory to Public, as indemnity
against any such claim that may be made against it with respect to such
Certificate, Public will issue, in exchange for such lost, stolen or
destroyed Certificate, the Merger Consideration and any dividends or other
distributions to which the holders thereof are entitled to receive pursuant
to Section 2.1(b) in the manner provided in this Article II.
(g) Public shall be entitled to deduct and withhold from the
consideration otherwise payable pursuant to this Agreement to any holder of
Company Common Stock such amounts as Public is required to deduct and
withhold under the Code, or any provision of state, local or foreign tax
law, with respect to the making of such payment. To the extent that amounts
are so withheld by Public, such withheld amounts shall be treated for all
purposes of this Agreement as having been paid to the holder of Company
Common Stock in respect of whom such deduction and withholding was made by
Public. With respect to any stockholder who is not a foreign person, Public
shall receive a certificate of nonforeign status in a form reasonably
acceptable to it at or prior to the time such stockholder surrenders its
Certificates for exchange in accordance with this Article II. The Company
shall deliver to Public on or prior to the Effective Time a certificate
from the Company in a form reasonably acceptable to Public that the Company
is not a "United States Real Property Holding Company" within the meaning
of section 897(c)(2) of the Code.
ARTICLE III
Disclosure Schedules
Section 3.1. Disclosure Schedules. Prior to the execution and delivery of
this Agreement, the Company has delivered to Public, and Public has delivered
to the Company, a schedule (in the case of the Company, the "Company Disclosure
Schedule," and in the case of Public, the "Public Disclosure Schedule") setting
forth, among other things, items the disclosure of which is necessary or
appropriate either in response to an express disclosure requirement contained
in a provision hereof or as an exception to one or more of such party's
representations or warranties contained in Article IV, in the case of the
Company, or Article V, in the case of Public, or to one or more of such party's
covenants contained in Article VI; provided, however, that notwithstanding
anything in this Agreement to the contrary the mere inclusion of an item in a
Disclosure Schedule as an exception to a representation or warranty shall not
be deemed an admission by a party that such item represents a material
exception or material fact, event or circumstance or that such item has had or
is reasonably likely to have a Material Adverse Effect (as defined herein) with
respect to either the Company or Public, respectively.
ARTICLE IV
Representations and Warranties of the Company
Except as set forth in the Company Disclosure Schedule (each reference
contained herein to such Company Disclosure Schedule qualifies the referenced
representation and warranty to the extent specified in the Company Disclosure
Schedule), the Company hereby represents and warrants to Public and Merger Sub
as
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follows (for purposes of this Article IV, references to the Company, where
appropriate, shall also include Illinois PCS, L.L.C. ("LLC"), the Company's
predecessor):
Section 4.1. Corporate Organization. (a) The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware.
(b) The Company has the corporate power and authority to own or lease all of
its properties and assets and to carry on its business as it is now being
conducted, and is duly licensed or qualified to do business and in good
standing in each jurisdiction in which the nature of the business conducted by
it or the character or location of the properties and assets owned or leased by
it makes such licensing or qualification necessary, except where the failure to
be so qualified or in good standing could not reasonably be expected to have a
Material Adverse Effect on the Company.
(c) Each of the Company's Subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation. Each of the Company's Subsidiaries has the corporate power and
authority to own or lease all of its properties and assets and to carry on its
business as it is now being conducted, and is duly licensed or qualified to do
business in each jurisdiction in which the nature of the business conducted by
it or the character or the location of the properties and assets owned or
leased by it makes such licensing or qualification necessary, except where the
failure to be so qualified or licensed could not reasonably be expected to have
a Material Adverse Effect on the Company. The articles of incorporation, by-
laws and similar governing documents of each Subsidiary of the Company, copies
of which have previously been made available to Public, are true, complete and
correct copies of such documents as in effect as of the date of this Agreement.
(d) Each of the Company and its Subsidiaries is qualified, authorized,
registered and licensed to do business as a foreign corporation in the
jurisdictions identified in Section 4.1(d) of the Company Disclosure Schedule.
Each of the Company and its Subsidiaries are in good standing as a foreign
corporation in each of the jurisdictions identified in Section 4.1(d) of the
Company Disclosure Schedule.
(e) The certificate of incorporation and by-laws of the Company and each of
its Subsidiaries, copies of which have previously been made available to
Public, are true, complete and correct copies of such documents as in effect as
of the date of this Agreement. Neither the Company nor any of its Subsidiaries
is in violation of any provision of its respective certificate of incorporation
or by-laws.
Section 4.2. Capitalization. (a) The authorized capital stock of the Company
consists of 300,000,000 shares of Company Common Stock and 75,000,000 shares of
Company Preferred Stock. As of the date of this Agreement, (i) 44,869,643
shares of Company Common Stock are issued and outstanding and no shares of
Company Common Stock are held in the Company's treasury, (ii) no shares of
Company Common Stock are reserved for issuance upon exercise of outstanding
stock options or otherwise, other than (A) 8,000,000 shares of Company Common
Stock reserved for issuance pursuant to Company Options granted pursuant to the
Company Option Plan and identified in Section 4.2(a) of the Company Disclosure
Schedule, (B) 4,134,637 shares of Company Common Stock reserved for issuance
upon exercise of the Company Warrants and (C) 25,000,000 shares of Company
Common Stock, plus such additional shares of Company Common Stock as may be
required by the terms of the Company Preferred Stock, reserved for issuance
upon conversion of the shares of Company Preferred Stock, (iii) 35,000,000
shares of Company Preferred Stock are designated Series A-1 Preferred Stock,
9,090,909 of which shares are issued and outstanding (not including 4,046,963
additional shares required to be issued in respect of accrued but unpaid
dividends, including as a result of the Merger) and (iv) 40,000,000 shares of
Company Preferred Stock are designated Series A-2 Preferred Stock, 14,000,000
of which shares are issued and outstanding (not including 5,564,426 additional
shares required to be issued in respect of accrued but unpaid dividends,
including as a result of the Merger). Each share of Series A-1 Preferred Stock
and Series A-2 Preferred Stock is convertible into one share of Company Common
Stock as of the date hereof, and such conversion rate shall be the conversion
rate as of the Effective Time. Each Warrant represents the right to purchase
9.94233 shares of Company Common Stock. Each Sprint Warrant represents the
right to purchase one share of Company Common Stock. Immediately prior to the
Effective Time, all issued
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and outstanding shares of Company Preferred Stock (including, without
limitation, all of the shares of Company Preferred Stock issuable as a special
dividend pursuant to Section 2(h) of the applicable Certificate of Designations
and all of the shares of Company Preferred Stock to be issued in respect of
accrued but unpaid dividends) will automatically convert into Company Common
Stock pursuant to Section 5(b)(ii) of the applicable Certificate of
Designations so that immediately prior to the Effective Time there will be no
shares of Company Preferred Stock outstanding and all shares of Company Common
Stock issued upon such automatic conversion shall be converted in the Merger
pursuant to Section 1.4 of this Agreement. All of the issued and outstanding
shares of Company Common Stock are, and all shares reserved for issuance will
be, upon issuance in accordance with the terms specified in the instruments or
agreements pursuant to which they are isssuable, duly authorized, validly
issued, fully paid and nonassessable and, except as set forth in Section 4.2(a)
of the Company Disclosure Schedule, free of preemptive rights, with no personal
liability attaching to the ownership thereof. Except as referred to above or
reflected in Section 4.2(a) of the Company Disclosure Schedule, the Company
does not have and is not bound by any outstanding subscriptions, options,
warrants, calls, commitments or agreements of any character calling for the
purchase or issuance of any shares of Company Common Stock or Company Preferred
Stock or any other equity security of the Company or any securities
representing the right to purchase or otherwise receive any shares of Company
Common Stock, Company Preferred Stock or any other equity security of the
Company. Section 4.2(a) of the Company Disclosure Schedule sets forth, as of
the date hereof (i) the name of each holder of Company Common Stock, Company
Preferred Stock and Company Options and the number of shares of Company Common
Stock, Company Preferred Stock and Company Options held by each such holder,
respectively; (ii) the date of each Company Option granted, the number of
shares subject to each Company Option, the expiration date of each Company
Option, and the price at which each Company Option may be exercised under the
Company Option Plan and (iii) the number of shares subject to Company Warrants
and the price at which such Company Warrants may be exercised. All shares of
Company Common Stock subject to issuance upon exercise of the Company Options
and the Company Warrants, upon issuance prior to the Effective Time on the
terms and conditions specified in the instruments pursuant to which they are
issuable, will be duly authorized, validly issued, fully paid, nonassessable
and free of preemptive rights.
(b) Section 4.2(b) of the Company Disclosure Schedule sets forth a true and
correct list of all of the Subsidiaries of the Company. Except as set forth in
Section 4.2(b) of the Company Disclosure Schedule, the Company owns, directly
or indirectly, all of the issued and outstanding shares of the capital stock
(or all of the other equity ownership interests) of each of such Subsidiaries,
free and clear of all liens, charges, encumbrances and security interests
whatsoever, and all of such shares (or other equity or ownership interests) are
duly authorized and validly issued and are fully paid, nonassessable and free
of preemptive rights, with no personal liability attaching to the ownership
thereof. No Subsidiary of the Company has or is bound by any outstanding
subscriptions, options, warrants, calls, commitments or agreements of any
character calling for the purchase or issuance of any shares of capital stock
or any other equity security of such Subsidiary or any securities representing
the right to purchase or otherwise receive any shares of capital stock or any
other equity security of such Subsidiary. Assuming compliance by Public with
Section 1.5 and Section 1.6 hereof, at the Effective Time, there will not be
any outstanding subscriptions, options, warrants, calls, commitments or
agreements of any character by which the Company or any of its Subsidiaries
will be bound calling for the purchase or issuance of any shares of the capital
stock of the Company or any of its Subsidiaries. Except as described in Section
4.2 of the Company Disclosure Schedule, neither the Company nor any of its
Subsidiaries owns, directly or indirectly, any interest, or has made any
investment in, any partnership, joint venture, corporation, trust or other
entity.
Section 4.3. Authority; No Violation. (a) The Company has full corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the Merger and the other transactions contemplated by
this Agreement have been duly and validly approved by the Board of Directors of
the Company and, subject only to the approval and adoption of this Agreement
and the Merger by the stockholders of the Company in accordance with the DGCL
and the Amended and Restated Certificate of Incorporation and the Amended and
Restated By-Laws of the Company, no other corporate proceedings on the part of
the Company or its
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stockholders are necessary to approve this Agreement and to consummate the
Merger and the other transactions contemplated hereby. This Agreement has been
duly and validly executed and delivered by the Company, and (assuming due
authorization, execution and delivery by Public and Merger Sub) this Agreement
constitutes a valid and binding obligation of the Company, enforceable against
the Company in accordance with its terms, except as enforcement may be limited
by general principles of equity whether applied in a court of law or a court of
equity and by bankruptcy, insolvency and similar laws affecting creditors'
rights and remedies generally.
(b) Except as set forth in Section 4.3(b) of the Company Disclosure
Schedule, neither the execution and delivery of this Agreement by the Company,
nor the consummation by the Company of the Merger or of any of the other
transactions contemplated by this Agreement, nor compliance by the Company with
any of the terms or provisions hereof, will (i) violate any provision of the
Amended and Restated Certificate of Incorporation or Amended and Restated By-
Laws of the Company or the certificate of incorporation, by-laws or similar
governing documents of any of its Subsidiaries, or (ii) assuming that the
consents and approvals referred to in Section 4.4 are duly obtained, (x)
violate any statute, code, ordinance, rule, regulation, judgment, order, writ,
decree or injunction applicable to the Company or any of its Subsidiaries, or
any of their respective properties or assets, or (y) violate, conflict with,
result in a breach of any provision of or the loss of any benefit under,
constitute a default (or an event which, with or without notice or lapse of
time, or both, would constitute a default) under, result in the termination of
or a right of termination or cancellation under, accelerate the performance
required by, or result in the creation of any lien, pledge, security interest,
charge or other encumbrance upon any of the respective properties or assets of
the Company or any of its Subsidiaries under, any of the terms, conditions or
provisions of any loan, guarantee of indebtedness, note, bond, mortgage,
indenture, deed of trust, license, permit, concession, franchise, lease,
agreement or other instrument or obligation to which the Company or any of its
Subsidiaries is a party, or by which they or any of their respective properties
or assets may be bound or affected.
Section 4.4. Consents and Approvals. Except for (a) the filing of a
notification under the HSR Act (as defined in Section 7.1(b)), (b) the approval
and adoption of this Agreement and the Merger by the stockholders of the
Company in accordance with the DGCL, the Amended and Restated Certificate of
Incorporation and the Amended and Restated By-Laws of the Company, (c) the
filing of the Certificate of Merger with the Secretary pursuant to the DGCL,
(d) the consent of Sprint Communications Company, L.P., Sprint Spectrum L.P.
and WirelessCo, L.P. (collectively, "Sprint PCS") required pursuant to the
terms of the Company Sprint Agreements and (e) such filings, authorizations or
approvals as may be set forth in Section 4.4 of the Company Disclosure
Schedule, no consents or approvals of, or filings or registrations with, any
court, administrative agency or commission or other governmental authority or
instrumentality (each a "Governmental Entity") or with any third party are
necessary in connection with the execution and delivery by the Company of this
Agreement or the consummation by the Company of the Merger and the other
transactions contemplated hereby.
Section 4.5. Financial Statements. (a) The Company has previously made
available to Public copies of the financial statements of LLC and the Company,
consisting of (i) an audited consolidated statement of financial condition of
LLC as of December 31, 1999 (the "LLC Balance Sheet") and the related
statements of operations, members' equity, and cash flows for the period from
January 22, 1999 (date of inception) through December 31, 1999 and an audited
consolidated balance sheet of the Company and its Subsidiaries as of December
31, 2000 (the "Company Balance Sheet" and together with the LLC Balance Sheet,
the "Balance Sheets") and the related consolidated statements of operations,
cash flows and redeemable preferred stock and equity for the year ended
December 31, 2000 as reported in the Annual Report on Form 10-K of the Company
for the fiscal year ended December 31, 2000 filed with the SEC under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (collectively,
and including the notes thereto, the "Company Audited Financial Statements"),
in each case accompanied by the audit report of Deloitte & Touche LLP,
independent public accountants with respect to the Company, and (ii) the
unaudited consolidated balance sheets of the Company and its Subsidiaries and
LLC as of June 30, 2000 and 2001 and the related unaudited consolidated
statements of operations, cash flows and redeemable preferred stock and equity
for the six-month periods ended
A-9
June 30, 2000 and 2001 as reported in the Company's Quarterly Report on Form
10-Q for the period ended June 30, 2001 filed with the SEC under the Exchange
Act (the "Company Unaudited Financial Statements" and, together with the
Company Audited Financial Statements, the "Company Financial Statements"). The
Company Financial Statements (including the related notes, where applicable)
fairly present, and the financial statements to be delivered by the Company to
Public after the date of this Agreement pursuant to Section 7.12 hereof and to
be filed by the Company with the SEC after the date of this Agreement will
fairly present, the consolidated financial position of the Company and its
Subsidiaries, as the case may be, as of the respective dates thereof, and the
results of the consolidated operations and consolidated financial position of
the parties to which they relate for the respective fiscal periods or as of the
respective dates therein set forth (subject, in the case of the unaudited
statements, to recurring audit adjustments normal in amount and nature and to
any other adjustments described therein) in conformity with GAAP (except in the
case of the unaudited statements for the lack of complete notes thereto)
applied on a consistent basis during the periods involved (except as may be
indicated therein or in the notes thereto).
(b) Each of the Company Financial Statements (including the related notes)
complies in all material respects with the applicable accounting requirements
and with the published rules and regulations of the SEC with respect thereto at
the date of their filing. Each of the Company Financial Statements (including,
in each case, any notes thereto) has been prepared in accordance with generally
accepted accounting principles ("GAAP") consistently applied during the periods
involved (except (i) as may be indicated in the notes thereto, (ii) with
respect to any unaudited financial statements, for normal period-end
adjustments, and (iii) with respect to any monthly financial statements, for
the absence of notes thereto). The books and records of the Company and its
Subsidiaries have been, and are being, maintained in accordance with GAAP and
reflect only actual transactions.
Section 4.6. No Undisclosed Liabilities. Except (a) as disclosed in the
Company Financial Statements, (b) for liabilities and obligations incurred in
the ordinary course of business and consistent with past practice of the
Company since the date of the Company Balance Sheet and (c) liabilities that
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on the Company, neither the Company nor any of its
Subsidiaries has any liability or obligation of any nature, whether or not
absolute, accrued, contingent or otherwise.
Section 4.7. Absence of Certain Changes or Events. Except as may be set
forth in Section 4.7 of the Company Disclosure Schedule or as disclosed in any
Company Report (as defined in Section 4.8) filed with the SEC prior to the date
of this Agreement or in the Company Financial Statements, since December 31,
2000, (i) neither the Company nor any of its Subsidiaries has incurred any
liability, except in the ordinary course of their business and consistent with
their past practices, (ii) there has been no change or development or
combination of changes or developments which has had, or could reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect
on the Company; (iii) other than with respect to the accrual of in-kind
dividends on the Company Preferred Stock, there has been no declaration,
setting aside or payment of any dividend or distribution of any kind by the
Company on any class of its equity securities; (iv) there has been no material
increase in the compensation payable or to become payable by the Company or any
Subsidiary to its directors, officers or employees and no material increase in
any bonus, insurance, pension or other employee benefit plan, payment or
arrangement made to, for or with such directors, officers or employees and (v)
there has been no material change in tax accounting or other accounting
methods, principles or practices by the Company or any Subsidiary.
Section 4.8. SEC Reports. The Company has previously made available to
Public a true and correct copy of each (a) final registration statement,
prospectus, report, schedule and definitive proxy statement filed by the
Company with the SEC pursuant to the Securities Act or the Exchange Act (the
"Company Reports"), (b) material written communication between the Company and
the SEC, and (c) communication mailed by the Company to its stockholders and no
such registration statement, prospectus, report, schedule, proxy statement or
communication as of its date of filing contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances in which they were made, not misleading. The Company has timely
filed all Company
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Reports and other documents required to be filed by it under the Securities Act
and the Exchange Act, and, as of their respective dates, all Company Reports
complied with the published rules and regulations of the SEC with respect
thereto, including rules and regulations relating to the filing of exhibits
thereto.
Section 4.9. Property. (a) Each of the Company and its Subsidiaries has good
and marketable title, free and clear of all liens, encumbrances, mortgages,
pledges, charges, defaults or equitable interests, to all of the properties and
assets, real and personal, tangible or intangible, which are reflected on the
Company Balance Sheet or acquired after the date of the Company Balance Sheet,
except (i) liens under the Company Credit Facility, (ii) liens for taxes not
yet due and payable or contested in good faith by appropriate proceedings,
(iii) pledges to secure deposits and other liens incurred in the ordinary
course of business, (iv) such imperfections of title, easements and
encumbrances, if any, as do not interfere with the use of the property as such
property is used on the date of this Agreement, (v) for dispositions of and
encumbrances on such properties or assets in the ordinary course of business or
(vi) mechanics', materialmen's, workmen's, repairmen's, warehousemen's,
carrier's and other similar liens and encumbrances arising in the ordinary
course of business (the items in clauses (i) (ii), (iii) (iv) and (vi)
collectively, the "Company Permitted Liens").
(b) Section 4.9(b) of the Company Disclosure Schedule sets forth an accurate
and complete list and description of all real property owned by the Company or
any of its Subsidiaries and all buildings and improvements thereon.
Section 4.10. Leases. (a) Section 4.10(a) of the Company Disclosure Schedule
contains an accurate and complete list of each lease pursuant to which the
Company or any of its Subsidiaries leases any real property (excluding leases
or licenses of tower space to which the Company or any of its Subsidiaries is a
party ("Company Tower Leases") and leases of land containing towers) (each a
"Company Lease")). A true and complete copy of each Company Lease has
heretofore been made available to Public. As of June 30, 2001, the Company was
making rental payments on 522 Company Tower Leases to which the Company or any
of its Subsidiaries is a party.
(b) To the knowledge of the Company, each Company Lease is valid, binding
and enforceable in accordance with its terms and is in full force and effect.
The leasehold estate created by each Company Lease of real property (a "Leased
Premise")Lease Agreement is free and clear of all encumbrances other than
Company Permitted Liens. There are no existing defaults by the Company or any
of its Subsidiaries under any of the Company Leases, and to the knowledge of
the Company no event has occurred that (whether with or without notice, lapse
of time or the happening or occurrence of any other event) would constitute a
default under any Company Lease. The Company has received no notice, and has no
other reason to believe, that any lessor under any Company Lease will not
consent (where such consent is necessary) to the consummation of the Merger
without requiring any material modification of the rights or obligations of the
lessee thereunder.
Section 4.11. Environmental Matters. Except as set forth in Section 4.11 of
the Company Disclosure Schedule:
(a) The Company and each of its Subsidiaries (1) are in compliance in
all material respects with all, and, to the knowledge of the Company, are
not subject to any liability with respect to any, applicable Environmental
Laws, (2) hold or have applied for all Environmental Permits necessary to
conduct their current operations and (3) are in compliance with their
respective Environmental Permits and such Environmental Permits are in full
force and effect.
(b) Neither the Company nor any of its Subsidiaries has received any
written notice, demand, letter, claim or request for information alleging
that the Company or any of its Subsidiaries is in violation of any
Environmental Law or liable for remediation, cost recovery or contribution
under CERCLA.
(c) Neither the Company nor any of its Subsidiaries (1) has entered into
or agreed to any consent decree or order or is subject to any judgment,
decree or judicial order relating to compliance with Environmental Laws,
Environmental Permits or the investigation, sampling, monitoring,
treatment, remediation, removal or cleanup of Hazardous Materials and, to
the knowledge of the Company, no
A-11
investigation, litigation or other proceeding is pending or threatened in
writing with respect thereto, or (2) is an indemnitor in connection with
any claim threatened or asserted in writing by any third-party indemnitee
for any liability under any Environmental Law or relating to any Hazardous
Materials.
(d) None of the real property owned or leased by the Company or any
Company Subsidiary is listed or, to the knowledge of the Company, proposed
for listing on the "National Priorities List" under CERCLA, as updated
through the date hereof, or any similar state or foreign list of sites
requiring investigation or cleanup.
(e) To the knowledge of the Company, there are no underground storage
tanks or above-ground storage tanks located on any Real Property which are
now, or in the past were, used to store Hazardous Materials. "Real
Property" shall mean all real property that is owned or used by the Company
or any of its Subsidiaries or that is reflected as an asset of the Company
or any of its Subsidiaries on the Company Balance Sheet.
(f) For purposes of this Agreement:
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended as of the date hereof.
"Environmental Laws" means any federal, state, local or foreign statute,
law, ordinance, regulation, rule, code, treaty, writ or order and any
enforceable judicial or administrative interpretation thereof, including any
judicial or administrative order, consent, decree, judgment, stipulation,
injunction, authorization, policy, opinion, or agency requirement, in each
case having the force and effect of law, relating to the pollution,
protection, investigation or restoration of the environment, historic
preservation, or health and safety as affected by the environment or natural
resources, including, without limitation, the National Environmental Policy
Act of 1969, as amended as of the date hereof, the National Historic
Preservation Act, and those relating to the use, handling, presence,
transportation, treatment, storage, disposal, release, threatened release or
discharge of Hazardous Materials or noise, odor, wetlands, pollution or
contamination.
"Environmental Permits" means any permit, approval, identification number,
license and other authorization required under any applicable Environmental
Law.
"Hazardous Materials" means (a) any petroleum, petroleum products,
byproducts or breakdown products, radioactive materials, asbestos-containing
materials or polychlorinated biphenyls or (b) any chemical, material or other
substance defined or regulated as toxic or hazardous or as a pollutant or
contaminant or waste under any applicable Environmental Law.
Section 4.12. Certain Contracts. (a) Except for Contracts described in
clauses (i), (iii), (iv), (v), (vii), (viii), (xiii), (xiv), (xvi), (xvii),
(xx), (xxi) and (xxii) that provide for aggregate payments to any Person in
any calendar year of less than $100,000, Section 4.12(a) of the Company
Disclosure Schedule contains a complete and accurate list of each of the
following Contracts:
(i) Contracts of the Company or any of its Subsidiaries relating to
indebtedness, liability for borrowed money or the deferred purchase price
of property (excluding trade payables in the ordinary course of business)
or any guarantee or other contingent liability in respect of any
indebtedness or obligation of any Person (other than the endorsement of
negotiable instruments for collection in the ordinary course of business);
(ii) Contracts that contain restrictions with respect to payment of
dividends or any other distribution in respect of the equity of the Company
or any of its Subsidiaries;
(iii) any letters of credit or similar arrangements relating to the
Company or any of its Subsidiaries;
(iv) any employment agreements with any employee of the Company or any
of its Subsidiaries or other Person on a consulting basis;
(v) any management, consulting or advisory agreements, or severance
plans or arrangements for any present or former employee of the Company or
any of its Subsidiaries;
A-12
(vi) any non-disclosure agreements and non-compete agreements binding
present and former employees of the Company or any of its Subsidiaries;
(vii) any agreement under which the Company or any of its Subsidiaries
is lessee of or holds or operates any property, real or personal;
(viii) any agreement under which the Company or any of its Subsidiaries
is lessor of or permits any third party to hold or operate any property,
real or personal;
(ix) any agreement relating to the acquisition or divestiture of the
capital stock or other equity securities, assets or business of any Person
involving the Company or any of its Subsidiaries or pursuant to which or
the Company or any of its Subsidiaries has any liability, contingent or
otherwise;
(x) any powers of attorney granted by or on behalf of the Company or any
of its Subsidiaries;
(xi) any agreement, other than agreements entered into in the ordinary
course of the Company's or any of its Subsidiaries' business consistent
with past practice, which prevents the Company or any of its Subsidiaries
from disclosing confidential information;
(xii) any agreement which in any way purports to prohibit the Company or
any of its Subsidiaries from freely engaging in business anywhere in the
world or competing with any other Person;
(xiii) any sales distribution agreements, franchise agreements and
advertising agreements relating to the Company or any of its Subsidiaries;
(xiv) any warranty, guaranty or other similar undertaking with respect
to a contractual performance extended by the Company or any of its
Subsidiaries;
(xv) any agreement pursuant to which the Company or any of its
Subsidiaries has agreed to defend, indemnify or hold harmless any other
Person, other than Company Tower Leases;
(xvi) any agreement pursuant to which the Company or any of its
Subsidiaries has agreed to settle any liability for Taxes;
(xvii) any agreement pursuant to which the Company has agreed to shift
or allocate the liability of the Company, any of its Subsidiaries or any
other Person for Taxes;
(xviii) any agreement pursuant to which the Company may be required to
file a registration statement under the Securities Act with respect to any
securities issued by the Company; and
(xix) any joint venture agreement or partnership agreement;
(xx) any requirements or output contracts;
(xxi) any vendor agreements;
(xxii) any construction contracts or construction management contracts;
(xxiii) any agreement between the Company or any of its Subsidiaries and
any of their respective stockholders; and
(xxiv) any other agreement to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries
is bound and which is material to the Company and its Subsidiaries taken as
a whole.
(b) Except as set forth in Section 4.12(b) of the Company Disclosure
Schedule, with respect to each Company Contract (as defined below): (i) the
Company Contract is in full force and effect and is valid and enforceable in
accordance with its terms; (ii) neither the Company nor any of its Subsidiaries
is in breach or default thereof, nor has the Company or any of its Subsidiaries
received notice that it is in breach of or default thereof; (iii) to the
knowledge of the Company, no event has occurred which, with notice, or lapse of
time or both, would constitute a breach or default thereof by the Company or
any of its Subsidiaries or by any other party thereto; (iv) to the knowledge of
the Company, no event has occurred that would permit termination,
A-13
modification, or acceleration thereof by any other party thereto; and (v)
neither the Company nor any of its Subsidiaries nor, to the knowledge of the
Company, any other party thereto has repudiated or acted in a manner
inconsistent with any provision thereof. Neither the Company nor any of its
Subsidiaries is a party to any verbal contract, agreement, or other arrangement
which, if reduced to written form, would be required to be listed on Section
4.12(a) of the Company Disclosure Schedule under the terms of this Section
4.12.
(c) Except as disclosed in the Company Reports filed with the SEC prior to
the date of this Agreement or as disclosed in Section 4.12(c) of the Company
Disclosure Schedule, no "Event of Default" (as defined in the Company Indenture
and the Company Credit Facility, respectively) has occurred and is continuing
under either of the Company Indenture or the Company Credit Facility and
neither the Company nor any of its Subsidiaries has previously received a
waiver of any Event of Default (as defined in the Company Indenture and the
Company Credit Facility, respectively) under the Company Indenture or the
Company Credit Facility.
(d) Each contract, arrangement, commitment or understanding of any type or
form required to be described in Section 4.12(a), whether or not set forth in
Section 4.12(a) of the Company Disclosure Schedule, is referred to herein as a
"Company Contract"
Section 4.13. Distributors and Suppliers. Except as set forth on Section
4.13 of the Company Disclosure Schedule, since December 31, 2000, there has not
been any material adverse change in the business relationship of the Company or
any of its Subsidiaries with any distributor who accounted for more than 2% of
the Company's sales (on a consolidated basis) during the period from December
31, 2000 to July 31, 2001, or with any supplier from whom the Company or any of
its Subsidiaries purchased more than 5% of the goods or services (on a
consolidated basis) which it purchased during the period from December 31, 2000
to July 31, 2001. Except as set forth in Section 4.13 of the Company Disclosure
Schedule, neither the Company nor any of its Subsidiaries has knowledge of any
termination or intended termination by any such 2% distributor or 5% supplier
of its business relationship with the Company or any modification or intended
modification of its business relationship with the Company in a manner which is
adverse in any material respect to the Company, and neither the Company nor any
of its Subsidiaries has knowledge of any facts which could reasonably be
expected to form an adequate basis for such termination or modification.
Section 4.14. Insurance. Except as set forth in Section 4.14 of the Company
Disclosure Schedule, each of the Company and its Subsidiaries is insured with
financially responsible insurers in such amounts and against such risks and
losses as are customary for companies conducting the business as conducted by
the Company and its Subsidiaries. Except as set forth in Section 4.14 of the
Company Disclosure Schedule, neither the Company nor any of its Subsidiaries
has received any notice of cancellation or termination with respect to any
material insurance policy of the Company or its Subsidiaries. The insurance
policies of the Company and of its Subsidiaries are valid and enforceable
policies in all material respects.
Section 4.15. Legal Proceedings. (a) Except as set forth in Section 4.15 of
the Company Disclosure Schedule, neither the Company nor any of its
Subsidiaries is a party to any, and there are no pending or, to the Company's
knowledge, threatened, legal, administrative, arbitral or other proceedings,
claims, actions or governmental or regulatory investigations of any nature
against the Company or any of its Subsidiaries or, to the knowledge of the
Company, any of the Company's or its Subsidiaries' current or former directors
or officers or any other person whom the Company to any of its Subsidiaries has
agreed to indemnify, as such, or challenging the validity or propriety of the
transactions contemplated by this Agreement and, to the knowledge of the
Company, no event has occurred, and no state of facts exists, that could
reasonably be expected to result in any such action, suit or proceeding.
(b) There is no injunction, order, judgment, decree or regulatory
restriction imposed upon the Company, any of its Subsidiaries or the assets of
the Company or any of its Subsidiaries or, to the knowledge of the Company, any
of the Company's or its Subsidiaries' current or former directors or officers
or any other person whom the Company or any of its Subsidiaries has agreed to
indemnify, as such.
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Section 4.16. Compliance with Applicable Law. (a) Except for the Sprint
Licenses (as defined below), the Company and each of its Subsidiaries hold, and
have at all times held, all licenses, franchises, permits and authorizations
(each a "Company Permit") necessary for the lawful conduct of their respective
businesses and the lawful ownership, use and operation of its assets under and
pursuant to all, and have complied with and are not in default in any material
respect under any, applicable law, statute, order, rule, regulation, policy
and/or guideline of any Governmental Entity relating to the Company or any of
its Subsidiaries, and neither the Company nor any of its Subsidiaries knows of,
or has received notice of, any violations of any of the above.
(b) To the actual knowledge of the Company, there has been no investigation,
notice of apparent liability, violation, forfeiture or other order or complaint
issued by or before the Federal Communications Commission (the "FCC") or any
other Governmental Entity or of any other proceedings of or before the FCC or
any other Governmental Entity relating to the Company or any of its
Subsidiaries or LLC or to any authorizations under which the Company conducts
its business. No proceedings are pending or, to the actual knowledge of the
Company, threatened to revoke or limit any of the Company Permits or the
personal communications service licenses held by Sprint PCS or its Affiliates
(the "Sprint Licenses"). For purposes of this Section 4.16(b) only, "actual
knowledge of the Company" means the actual knowledge of the Chief Executive
Officer, the Chief Financial Officer, the Chief Operating Officer or the Chief
Technology Officer of the Company.
(c) To the knowledge of the Company, no event has occurred which (i) results
in, or after notice or lapse of time or both could reasonably be expected to
result in, revocation, suspension, adverse modification, non-renewal,
impairment, restriction or termination of, or order of forfeiture or
substantial fine with respect to, any of the Company Permits or the Sprint
Licenses, or (ii) affects or could reasonably be expected in the future to
affect any of the rights of the Company or its Subsidiaries under any material
Company Permits or any of the rights of Sprint PCS or its Affiliates under the
Sprint Licenses. No facts are known to the Company or the Company Subsidiaries
which if known by a Governmental Entity of competent jurisdiction would present
a substantial risk that any Company Permit could be revoked, suspended,
adversely modified, not renewed, impaired, restricted, terminated, forfeited or
a substantial fine imposed against the Company or any of the Company
Subsidiaries, and neither the execution by the Company of this Agreement nor
the consummation of the Merger or any of the other transactions contemplated by
this Agreement is reasonably likely to result in the occurrence of any of the
consequences set forth in this Section 4.16(c).
Section 4.17. Benefit Plans. (a) Section 4.17(a) of the Company Disclosure
Schedule sets forth a true and complete list of each "employee benefit plan"
(within the meaning of section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")); each deferred compensation plan, incentive
compensation plan, equity compensation plan, employment, termination or
severance agreement; and each other employee benefit plan, fund, program,
agreement or arrangement, in each case, that is sponsored, maintained or
contributed to or required to be contributed to by the Company or by any trade
or business, whether or not incorporated, that together with the Company would
be deemed a "single employer" within the meaning of Section 414 of the Code (a
"Company ERISA Affiliate"), for the benefit of any current or former employee
of the Company or any Company ERISA Affiliate (the "Company Benefit Plans").
(b) The Company has heretofore made available to Public true and complete
copies of each of the Company Benefit Plans and all related documents,
including but not limited to (i) the most recent actuarial report for such
Company Benefit Plan (if applicable), and (ii) the most recent determination
letter from the Internal Revenue Service (if applicable) for such Company
Benefit Plan.
(c) Except as set forth in Section 4.17(c) of the Company Disclosure
Schedule, (i) each of the Company Benefit Plans has been operated and
administered in material compliance with its terms and applicable law,
including but not limited to the Exchange Act, the Securities Act, ERISA and
the Code, (ii) to the knowledge of the Company, each of the Company Benefit
Plans intended to be "qualified" within the meaning of Section 401(a) of the
Code, either (1) has received a favorable determination letter from the IRS, or
(2) is or will be the subject of an application for a favorable determination
letter, and the Company is not aware of any circumstances reasonably likely to
result in the revocation or denial of any such favorable determination letter,
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(iii) no Company Benefit Plan provides benefits, including without limitation
death or medical benefits (whether or not insured), with respect to current or
former employees of the Company or any Company ERISA Affiliate beyond their
retirement or other termination of service, other than (w) coverage mandated by
applicable law, (x) death benefits or retirement benefits under any "employee
pension plan," as that term is defined in Section 3(2) of ERISA, (y) deferred
compensation benefits accrued as liabilities on the books of the Company or the
Company ERISA Affiliates or (z) benefits which are fully insured or the full
cost of which is borne by the current or former employee (or his beneficiary),
(iv) no Company Benefit Plan is subject to Title IV of ERISA, and no liability
under Title IV of ERISA has been incurred by the Company or any Company ERISA
Affiliate that has not been satisfied in full, and neither the Company nor a
Company ERISA Affiliate has any contingent liability under Title IV of ERISA,
(v) no Company Benefit Plan is a "multiemployer pension plan," as such term is
defined in Section 3(37) of ERISA, (vi) all contributions or other amounts
payable by the Company or any Company ERISA Affiliates as of the Effective Time
with respect to each Company Benefit Plan in respect of current or prior plan
years have been paid or accrued in accordance with GAAP, (vii) neither the
Company nor any Company ERISA Affiliate has engaged in a transaction or has
taken or failed to take any action in connection with which the Company or any
Company ERISA Affiliate reasonably could be subject to either a civil penalty
assessed pursuant to Section 409 or 502(i) of ERISA or a tax imposed pursuant
to Section 4975, 4976 or 4980B of the Code, (viii) there are no pending, or, to
the best knowledge of the Company, threatened or anticipated claims or
proceedings (other than routine claims for benefits) by, on behalf of or
against any of the Company Benefit Plans or any trusts related thereto, and
(ix) the consummation of the transactions contemplated by this Agreement will
not, either alone or in combination with any other event, (y) entitle any
current or former employee, officer, director or consultant of the Company or
any Company ERISA Affiliate to severance pay, termination pay or any other
payment or benefit, except as expressly provided in this Agreement or (z)
accelerate the time of payment or vesting or increase the amount or value of
compensation or benefits due any such employee, officer, director or
consultant.
Section 4.18. Taxes. (a) Except as set forth in Section 4.18(a) of the
Company Disclosure Schedule, each of the Company and its Subsidiaries has (i)
duly and timely filed (including applicable extensions granted without penalty)
all Tax Returns (as hereinafter defined) required to be filed at or prior to
the Effective Time, and such Tax Returns are true, correct and complete in all
material respects, and (ii) paid in full or made adequate provision in the
financial statements of the Company (in accordance with GAAP) for all Taxes (as
hereinafter defined) due to be paid or accrued at or prior to the Effective
Time. No deficiencies for any Taxes have been proposed, asserted, assessed or,
to the knowledge of the Company, threatened against or with respect to the
Company or any of its Subsidiaries. Except as set forth in Section 4.18(a) of
the Company Disclosure Schedule, (i) there are no liens for Taxes upon the
assets of either the Company or its Subsidiaries except for statutory liens for
current Taxes not yet due, (ii) neither the Company nor any of its Subsidiaries
has requested any extension of time within which to file any Tax Returns in
respect of any fiscal year which have not since been filed and no request for
waivers of the time to assess any Taxes are pending or outstanding, (iii) with
respect to each taxable period of the Company and its Subsidiaries, (A) the
federal and state income Tax Returns of the Company and its Subsidiaries have
been audited by the Internal Revenue Service or appropriate state tax
authorities, (B) the time for assessing and collecting income Tax with respect
to such taxable period has closed and such taxable period is not subject to
review, or (C) the time for assessing and collecting income Tax with respect to
such taxable period has not closed, but no audit or review of such taxable
period has yet been initiated or threatened, (iv) neither the Company nor any
of its Subsidiaries has filed or been included in a combined, consolidated or
unitary income Tax Return other than one in which the Company was the parent of
the group filing such Tax Return, (v) neither the Company nor any of its
Subsidiaries is a party to any agreement providing for the allocation or
sharing of Taxes (other than the allocation of federal income taxes as provided
by Regulation 1.1552-1(a)(1) under the Code), (vi) neither the Company nor any
of its Subsidiaries is required to include in income any adjustment pursuant to
Section 481(a) of the Code (or any similar or corresponding provision or
requirement of state, local or foreign income Tax law), by reason of the
voluntary change in accounting method (nor has any taxing authority proposed
any such adjustment or change of accounting method), (vii) neither the Company
nor any of its Subsidiaries has filed a consent pursuant to Section 341(f) of
the Code, (viii) neither the Company nor its Subsidiaries has any liability for
Taxes of any
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Person (other than a liability of the Company for Taxes of any of its
Subsidiaries or a liability of any of the Company's Subsidiaries for Taxes of
the Company) under Regulation 1.1502-6 or 1.1502-78(b)(2) under the Code (or
similar provisions of state, local or foreign law), as a transferee or
successor, by contract or otherwise, and (ix) neither the Company nor any of
its Subsidiaries has made any payment or may be obligated to make any payment
(by contract or otherwise) which will not be deductible by reason of Section
280G or Section 162(m) of the Code.
(b) For the purposes of this Agreement, "Taxes" shall mean all taxes,
charges, fees, levies, penalties or other assessments imposed by any United
States federal, state, local or foreign taxing authority, including, but not
limited to income, excise, property, sales, transfer, franchise, payroll,
withholding, social security or other taxes, including any interest, penalties
or additions attributable thereto. For purposes of this Agreement, "Tax Return"
shall mean any return, report, information return or other document (including
any related or supporting information) with respect to Taxes.
Section 4.19. Sprint Agreement Compliance. (a) Neither the Company nor any
of its Subsidiaries has violated or failed to meet any deadline or requirement
in the Company Sprint Agreements, except as has been remedied, waived or
modified and previously disclosed to Public in writing. Section 4.19(a) of the
Company Disclosure Schedule sets forth the extent of the Company's progress in
the completion of its build-out and network launch as of the date of this
Agreement.
(b) Section 4.19(b) of the Company Disclosure Schedule sets forth a list of
all agreements between the Company, its Subsidiaries or any of its Affiliates,
on the one hand, and Sprint PCS and any of its Affiliates, on the other hand
(collectively, the "Company Sprint Agreements"). The Company has made available
to Public a true and complete copy of each of the written instruments, plans,
contracts and agreements, including the Company Sprint Agreements, and an
accurate description of each of the oral arrangements, oral contracts and oral
agreements, which are listed on Section 4.12(a) and Section 4.19(b) of the
Company Disclosure Schedule, together with all amendments, waivers or other
changes thereto. There are no unwritten amendments to, or waivers under, any
Sprint Agreement.
(c) The Company Sprint Agreements are valid, binding and enforceable against
the Company or its Subsidiaries, in accordance with their respective terms, and
shall be in full force and effect without penalty in accordance with their
terms upon consummation of the Merger and the other transactions contemplated
by this Agreement, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other laws affecting creditors'
rights generally and limitations on the availability of equitable remedies. The
Company and its Subsidiaries have performed in all material respects all
obligations required to be performed by them under, and they are not in default
under or in breach of, nor in receipt of any claim of default or breach under,
any of the Company Sprint Agreements. To the knowledge of the Company, no event
has occurred which with the passage of time or the giving of notice or both
would result in a default, breach or event of noncompliance by the Company or
any Subsidiary, or would permit termination or modification by Sprint PCS or
any of its Affiliates, under any of the Company Sprint Agreements. Neither the
Company nor any Subsidiary has knowledge of any cancellation or anticipated
cancellation by Sprint PCS or any of its Affiliates of any of the Company
Sprint Agreements. The Company has provided Public with copies of all written
notices (excluding e-mail messages) received by it from Sprint PCS during the
last six months (i) delivered pursuant to the official notice provisions of the
Company Sprint Agreements or (ii) alleging a material breach of the Company
Sprint Agreements.
Section 4.20. Intellectual Property. (a) "Intellectual Property' means all
intellectual property or other proprietary rights of every kind, including all
domestic or foreign patents, patent rights, domestic or foreign patent
applications, inventions (whether or not patentable), processes, products,
technologies, discoveries, copyrightable and copyrighted works, apparatus,
trade secrets, trademarks, trademark registrations and applications, service
marks, service mark registrations and applications, trade names, trade dress,
copyright registrations, customer lists, confidential marketing and customer
information, licenses, confidential technical information, software, inventions
(whether or not patentable), and all documentation thereof.
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(b) The Company owns or has the right to use, whether through licensing or
otherwise, and to authorize others to use, all Intellectual Property
significant to the businesses of the Company and its Subsidiaries in
substantially the same manner as such businesses are conducted on the date
hereof ("Company Material Intellectual Property"). Except as set forth in
Section 4.20 of the Company Disclosure Schedule: (1) no written claim of
invalidity or conflicting ownership rights with respect to any Company Material
Intellectual Property has been made by a third party and no such Intellectual
Property is the subject of any pending or, to the Company's knowledge,
threatened action, suit, claim, investigation, arbitration or other proceeding;
(2) no Person or entity has given notice to the Company or any of its
Subsidiaries that the use of any Company Material Intellectual Property by the
Company, any Company Subsidiary or any licensee is infringing or has infringed
any domestic or foreign patent, trademark, service mark, trade name, or
copyright or design right, or that the Company, any of its Subsidiaries or any
licensee has misappropriated or improperly used or disclosed any trade secret,
confidential information or know-how; (3) to the Company's knowledge after due
inquiry for such purpose, the making, using, selling, manufacturing, marketing,
licensing, reproduction, distribution, or publishing of any process, machine,
manufacture or product related to any Company Material Intellectual Property,
does not and will not infringe any domestic or foreign patent, trademark,
service mark, trade name, copyright or other intellectual property right of any
third party, and does not and will not involve the misappropriation or improper
use or disclosure of any trade secrets, confidential information or know-how of
any third party; (4) to the Company's knowledge, there exists no prior act or
current conduct or use by the Company, any of its Subsidiaries or any third
party that would void or invalidate any Company Material Intellectual Property;
(5) to the Company's knowledge, no other Person is interfering with, infringing
upon, misappropriating or otherwise coming into conflict with any Intellectual
Property of the Company or any of its Subsidiaries; and (6) the execution,
delivery and performance of this Agreement by the Company and the consummation
of the transactions contemplated hereby and thereby will not breach, violate or
conflict with any instrument or agreement concerning any Company Material
Intellectual Property, will not cause the forfeiture or termination of or give
rise to a right of forfeiture or termination of any of the Company Material
Intellectual Property, or trigger additional fees or transfer costs payable by
the Company or any of its Subsidiaries with respect to, or impair the right of
the Surviving Corporation to make, use, sell, license or dispose of, or to
bring any action for the infringement of, any Company Material Intellectual
Property. In addition, the matters disclosed on Section 4.20 of the Company
Disclosure Schedule would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on the Company.
Section 4.21. Labor Matters. (a) Neither the Company nor any of its
Subsidiaries is a party to any collective bargaining agreement or other labor
union contract applicable to Persons employed by them. No union representation
question exists and, to the knowledge of the Company and its Subsidiaries,
there has been no union organization effort respecting the employees of the
Company and its Subsidiaries. Neither the Company nor any of its Subsidiaries
is delinquent in payments to any of its employees for any wages, salaries,
commissions, bonuses or other direct compensation for any services performed by
them or amounts required to be reimbursed to such employees. No retired
employees of the Company are entitled to (i) receive current or future
compensation from the Company or its Subsidiaries other than pursuant to the
terms of any Company Benefit Plan or (ii) participate in any Company Benefit
Plan (except as required by section 4980B of the Code or similar provisions of
applicable state law).
(b) (i) Each of the Company and its Subsidiaries is in compliance with all
federal, state and other applicable laws, domestic or foreign, respecting
employment and employment practices, terms and conditions of employment, wages
and hours, immigration, the payment of social security and similar taxes,
occupational safety and health and plant closing, and has not and is not
engaged in any unfair labor practice; (ii) no unfair labor practice complaint
against the Company or any of its Subsidiaries is pending before the National
Labor Relations Board; (iii) there is no labor strike, dispute, slowdown or
stoppage actually pending or threatened against or involving the Company or any
of its Subsidiaries; (iv) no grievance that might have an adverse effect upon
the Company or any of its Subsidiaries or the conduct of their respective
businesses exists, no arbitration proceeding arising out of or under any
collective bargaining agreement is pending and no claim therefor has
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been asserted; and (v) no collective bargaining agreement is currently being
negotiated by the Company or any of its Subsidiaries.
(c) Except for employees who are parties to employment agreements with the
Company or any of its Subsidiaries, which agreements are set forth in Section
4.21 (c) of the Company Disclosure Schedule, and except as otherwise disclosed
in Section 4.21(c) of the Company Disclosure Schedule, all employees of the
Company and its Subsidiaries are terminable at will, with or without cause, and
without cost to the Company and its Subsidiaries for severance obligations, or
any other liability, except for payment of accrued salaries or wages and
vacation pay. No employee or former employee has any right to be rehired by the
Company or its Subsidiaries prior to the hiring of a person not previously
employed by the Company or such Subsidiary.
Section 4.22. Reorganization. As of the date of this Agreement, the Company
has no reason to believe that the Merger will fail to qualify as a
reorganization under Section 368(a) of the Code. As of the date of this
Agreement, the Company knows of no reason why it will be unable to deliver to
Mayer, Brown & Platt and to Winston & Strawn representation letters with
respect to the Company in form and substance sufficient to enable such counsel
to render the opinions required by Sections 8.2(e) and 8.3(d).
Section 4.23. Broker's Fees. Except as set forth on Section 4.23 of the
Company Disclosure Schedule, neither the Company nor any of its Subsidiaries,
nor any of their respective officers or directors has employed any broker or
finder or incurred any liability for any broker's fees, commissions or finder's
fees in connection with the Merger or any of the transactions contemplated by
this Agreement. The terms of any such broker's fees, commissions or finder's
fees are as set forth in Section 4.23 of the Company Disclosure Schedule.
Section 4.24. Related Party Transactions. Except as set forth on Section
4.24 of the Company Disclosure Schedule, to the knowledge of the Company, no
stockholder nor any officer or director of the Company or any of its
Subsidiaries owns or holds, directly or indirectly, any interest in (excepting
holdings solely for passive investment purposes of securities of publicly held
and traded entities constituting less than 5% of the equity of any such
entity), or is an officer, director, employee or consultant of any Person that
is, a competitor, lessor, lessee, customer or supplier of the Company or which
conducts a business similar to any business conducted by the Company. No
stockholder, officer or director of the Company or any of its Subsidiaries (a)
owns or holds, directly or indirectly, in whole or in part, any Intellectual
Property used by the Company or any of its Subsidiaries, (b) to the knowledge
of the Company has any claim, charge, action or cause of action against the
Company or any of its Subsidiaries, except for claims for reasonable
unreimbursed travel or entertainment expenses, accrued vacation pay or accrued
benefits under any employee benefit plan existing on the date hereof, (c) to
the knowledge of the Company, has made, on behalf of the Company or any of its
Subsidiaries, any payment or commitment to pay any commission, fee or other
amount to, or to purchase or obtain or otherwise contract to purchase or obtain
any goods or services from, any other Person of which any stockholder, officer
or director of the Company or any of its Subsidiaries is a partner or
shareholder (except holdings solely for passive investment purposes of
securities of publicly held and traded entities constituting less than 5% of
the equity of any such entity), (d) owes any money to the Company or any of its
Subsidiaries or (e) has any material interest in any property, real or
personal, tangible or intangible, used in or pertaining to the business of the
Company or any of its Subsidiaries.
Section 4.25. Company Information. None of the information supplied or to be
supplied by the Company or its Subsidiaries for inclusion or incorporation by
reference in (i) the Registration Statement on Form S-4 to be filed with the
SEC by Public in connection with the issuance of shares of Public Common Stock
in the Merger (including the proxy statement and prospectus (the
"Prospectus/Proxy Statement") constituting a part thereof) (the "S-4
Registration Statement") will, at the time the S-4 Registration Statement
becomes effective under the Securities Act, and (ii) the Prospectus/Proxy
Statement and any amendment or supplement thereto will, at the date of mailing
to stockholders and at the time of the Public Special Meeting (as hereinafter
defined), in any such case, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
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Section 4.26. Required Vote of the Company. Except as set forth in Section
4.26 of the Company Disclosure Schedule, and except for the affirmative vote of
the holders of at least a majority of the issued and outstanding shares of
capital stock of the Company to adopt and approve this Agreement and the
Merger, no vote of the stockholders of the Company, or any class thereof, or of
the holders of any securities of the Company (equity or otherwise), is required
by law, the Amended and Restated Certificate of Incorporation or the Amended
and Restated By-Laws of the Company or otherwise in order for the Company to
consummate the Merger and the other transactions contemplated by this
Agreement. The total number of shares of capital stock subject to Company
Support Agreements constitutes in excess of 50% of the voting power of the
issued and outstanding capital stock of the Company on a fully diluted basis.
Section 4.27. Takeover Statutes. No "fair price," "moratorium," "control
share acquisition" or other similar anti-takeover statute or regulation enacted
under state and federal laws in the United States (each a "Takeover Statute")
(with the exception of Section 203 of the DGCL) is applicable to the
transactions contemplated by this Agreement (including the Merger). The action
previously taken by the Board of Directors of the Company in approving this
Agreement and the transactions contemplated hereby is sufficient to render
inapplicable to this Agreement and the transactions contemplated hereby the
restrictions on business combinations with interested stockholders set forth in
Section 203 of the DGCL.
Section 4.28. Amount of Indebtedness. The aggregate principal amount of
indebtedness for borrowed money (not including capital leases and amounts under
the Company Indenture) of the Company and its Subsidiaries outstanding as of
the date hereof is approximately $50,000,000. Except as set forth in Section
4.28 of the Company Disclosure Schedule, the Company and its Subsidiaries are
not subject to any prepayment penalties with respect to any such indebtedness.
ARTICLE V
Representations and Warranties of Public
Except as set forth in the Public Disclosure Schedule (each reference
contained herein to such Public Disclosure Schedule qualifies the referenced
representation and warranty to the extent specified in the Public Disclosure
Schedule), Public, on behalf of itself and Merger Sub, hereby represents and
warrants to the Company as follows:
Section 5.1. Corporate Organization. (a) Public is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware.
(b) Public has the corporate power and authority to own or lease all of its
properties and assets and to carry on its business as it is now being
conducted, and is duly licensed or qualified to do business and in good
standing in each jurisdiction in which the nature of the business conducted by
it or the character or location of the properties and assets owned or leased by
it makes such licensing or qualification necessary, except where the failure to
be so qualified or in good standing could not reasonably be expected to have a
Material Adverse Effect on Public. Upon Merger Sub's execution of this
Agreement, Merger Sub will be a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware.
(c) Each of Public's Subsidiaries is duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation or
organization. Each of Public's Subsidiaries has the corporate power and
authority to own or lease all of its properties and assets and to carry on its
business as it is now being conducted, and is duly licensed or qualified to do
business in each jurisdiction in which the nature of the business conducted by
it or the character or location of the properties and assets owned or leased by
it makes such licensing or qualification necessary, except where the failure to
be so qualified or licensed could not reasonably be expected to have a Material
Adverse Effect on Public. The articles of incorporation, by-laws and similar
governing documents of each Subsidiary of Public, copies of which have
previously been made
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available to the Company, are true, complete and correct copies of such
documents as in effect as of the date of this Agreement.
(d) Each of Public and its Subsidiaries is qualified, authorized, registered
and licensed to do business as a foreign corporation in the jurisdictions
identified in Section 5.1(d) of the Public Disclosure Schedule. Each of Public
and its Subsidiaries are in good standing as a foreign corporation in each of
the jurisdictions identified in Section 5.1(d) of the Public Disclosure
Schedule.
(e) The certificate of incorporation and by-laws of Public and each of its
Subsidiaries, copies of which have previously been made available to the
Company, are true, complete and correct copies of such documents as in effect
as of the date of this Agreement. Neither Public nor any of its Subsidiaries is
in violation of any provision of its respective certificate of incorporation or
by-laws.
Section 5.2. Capitalization. (a) The authorized capital stock of Public
consists of 150,000,000 shares of Public Common Stock and 5,000,000 shares of
preferred stock, par value $0.01 per share ("Public Preferred Stock"). As of
the date of this Agreement, (i) 13,359,734 shares of Public Common Stock are
issued and outstanding and no shares of Public Common Stock are held in
Public's treasury, (ii) no shares of Public Preferred Stock were issued and
outstanding and (iii) 2,000,000 shares of Public Common Stock are authorized
for issuance under Public's 1999 Stock Option Plan, 200,000 shares of Public
Common Stock are authorized for issuance under Public's 2001 Stock Option Plan
and 150,000 shares of Public Common Stock are authorized for issuance under the
Public Employee Stock Purchase Plan. All of the issued and outstanding shares
of Common Stock are, and all shares authorized for issuance under Public's 1999
Stock Option Plan, 2001 Stock Option Plan and Public Employee Stock Purchase
Plan will be, upon issuance in accordance with the terms specified in such
plans and agreements, duly authorized, validly issued, fully paid and
nonassessable and, except as set forth in Section 5.2(a) of the Public
Disclosure Schedule, free of preemptive rights, with no personal liability
attaching to the ownership thereof. Except as referred to above or reflected in
Section 5.2(a) of the Public Disclosure Schedule, Public does not have and is
not bound by any outstanding subscriptions, options, warrants, calls,
commitments or agreements of any character calling for the purchase or issuance
of any shares of Public Common Stock, Public Preferred Stock or any other
equity security of Public or any securities representing the right to purchase
or otherwise receive any shares of Public Common Stock, Public Preferred Stock
or any other equity security of Public. The shares of Public Common Stock to be
issued pursuant to the Merger (including the shares of Public Common Stock
issuable upon exercise of the Converted Company Options) will be duly
authorized and validly issued and, at the Effective Time, all such shares will
be fully paid, nonassessable and free of preemptive rights, with no personal
liability attaching to the ownership thereof.
(b) Section 5.2(b) of the Public Disclosure Schedule sets forth a true and
correct list of all of the Subsidiaries of Public. Except as set forth in
Section 5.2(b) of the Public Disclosure Schedule, Public owns, directly or
indirectly, all of the issued and outstanding shares of capital stock of each
of such Subsidiaries, free and clear of all liens, charges, encumbrances and
security interests whatsoever, and all of such shares are duly authorized and
validly issued and are fully paid, nonassessable and free of preemptive rights,
with no personal liability attaching to the ownership thereof. No Subsidiary of
Public has or is bound by any outstanding subscriptions, options, warrants,
calls, commitments or agreements of any character calling for the purchase or
issuance of any shares of capital stock or any other equity security of such
Subsidiary or any securities representing the right to purchase or otherwise
receive any shares of capital stock or any other equity security of such
Subsidiary. Except as described in Section 5.2 of the Public Disclosure
Schedule, neither the Company nor any of its Subsidiaries owns, directly or
indirectly, any interest, or has made any investment in, any partnership, joint
venture, corporation, trust or other entity.
(c) Upon Merger Sub's execution of this Agreement, the authorized capital
stock of Merger Sub will consist of 1,000 shares of Merger Sub Common Stock and
100 shares of Merger Sub Common Stock will be issued and outstanding.
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Section 5.3. Authority; No Violation. (a) Public has full corporate power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the Merger and the other transactions contemplated by
this Agreement have been duly and validly approved by the Board of Directors of
Public and, subject only to (ii) the approval of the issuance of Public Common
Stock in connection with the Merger as required by the applicable rules of
Nasdaq (the "Required Public Vote"), no other corporate proceedings on the part
of Public or its respective stockholders are necessary to approve this
Agreement and to consummate the Merger and the other transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered by
Public and (assuming due authorization, execution and delivery by the Company)
this Agreement constitutes a valid and binding obligation of Public,
enforceable against it in accordance with its terms, except as enforcement may
be limited by general principles of equity whether applied in a court of law or
a court of equity and by bankruptcy, insolvency and similar laws affecting
creditors' rights and remedies generally.
(b) Upon Merger Sub's execution of this Agreement, Merger Sub will have full
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. Upon Merger Sub's execution of
this Agreement, the execution and delivery of this Agreement and the
consummation of the Merger and the other transactions contemplated by this
Agreement will have been duly and validly approved by the Board of Directors of
Merger Sub and the sole stockholder of Merger Sub, and no other corporate
proceedings on the part of Merger Sub or its stockholders will be necessary to
approve this Agreement and to consummate the Merger and the other transactions
contemplated hereby. Upon Merger Sub's execution of this Agreement, this
Agreement will have been duly and validly executed and delivered by Merger Sub
and (assuming due authorization, execution and delivery by the Company) this
Agreement constitutes a valid and binding obligation of Merger Sub, enforceable
against it in accordance with its terms, except as enforcement may be limited
by general principles of equity whether applied in a court of law or a court of
equity and by bankruptcy, insolvency and similar laws affecting creditors'
rights and remedies generally.
(c) Except as set forth in Section 5.3(c) of the Public Disclosure Schedule,
neither the execution and delivery of this Agreement by Public (or Merger Sub
upon its execution of this Agreement) nor the consummation by Public (or Merger
Sub upon its execution of this Agreement) of the Merger or of any of the other
transactions contemplated by this Agreement, nor compliance by Public (or
Merger Sub upon its execution of this Agreement) with any of the terms or
provisions hereof, will (i) violate any provision of the Certificate of
Incorporation or By-Laws of Public or the articles of incorporation, by-laws or
similar governing documents of any of its Subsidiaries or (ii) assuming that
the consents and approvals referred to in Section 5.4 are duly obtained, (x)
violate any statute, code, ordinance, rule, regulation, judgment, order, writ,
decree or injunction applicable to Public or any of its Subsidiaries or any of
their respective properties or assets, or (y) violate, conflict with, result in
a breach of any provision of or the loss of any benefit under, constitute a
default (or an event which, with or without notice or lapse of time, or both,
would constitute a default) under, result in the termination of or a right of
termination or cancellation under, accelerate the performance required by, or
result in the creation of any lien, pledge, security interest, charge or other
encumbrance upon any of the respective properties or assets of Public or any of
its Subsidiaries under, any of the terms, conditions or provisions of any loan,
guarantee of indebtedness, note, bond, mortgage, indenture, deed of trust,
license, permit, concession, franchise, lease, agreement or other instrument or
obligation to which Public or any of its Subsidiaries is a party, or by which
they or any of their respective properties or assets may be bound or affected.
Section 5.4. Consents and Approvals. Except for (a) the filing of a
notification under the HSR Act (as defined in Section 8.1(b)), (b) the receipt
of the Required Public Vote, (c) the filing of the Certificate of Merger with
the Secretary pursuant to the DGCL, (d) such filings and approvals as are
required to be made or obtained under the securities or "Blue Sky" laws of
various states in connection with the issuance of the shares of Public Common
Stock pursuant to this Agreement, and (e) such filings, authorizations or
approvals as may be set forth in Section 5.4 of the Public Disclosure Schedule,
no consents or approvals of, or filings or registrations with, any Governmental
Entity or with any third party are necessary in connection with the
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execution and delivery by Public and Merger Sub of this Agreement or the
consummation by Public and Merger Sub of the Merger and the other transactions
contemplated thereby.
Section 5.5. Financial Statements. (a) Public has previously made available
to the Company copies of (i) the consolidated balance sheets of Public and its
Subsidiaries as of September 30, 1999 and 2000 and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for
such periods, as reported in the Annual Report on Form 10-K of Public for the
fiscal years ended September 30, 2000, 1999 and 1998 filed with the SEC under
the Exchange Act, in each case accompanied by the audit report of KPMG LLP,
independent public accountants with respect to Public (the "Public Audited
Financial Statements"), and (ii) the unaudited consolidated balance sheets of
Public and its Subsidiaries as of June 30, 2000 and 2001 and the related
unaudited consolidated statements of operations, changes in stockholders'
equity and cash flows for the nine-month periods ended as reported in Public's
Quarterly Report on Form 10-Q for the period ended June 30, 2001 filed with the
SEC under the Exchange Act (the "Public Unaudited Financial Statements" and,
together with the Public Audited Financial Statements, the "Public Financial
Statements". The Public Financial Statements (including the related notes,
where applicable) fairly present, and the financial statements to be delivered
by Public to the Company after the date of this Agreement pursuant to Section
7.12 hereof and to be filed by Public with the SEC after the date of this
Agreement will fairly present, the consolidated financial positions of Public
and its Subsidiaries as of the respective dates thereof and the results of the
consolidated operations and consolidated financial position of the parties to
which they relate for the respective fiscal periods or as of the respective
dates therein set forth (subject, in the case of the unaudited statements, to
recurring audit adjustments normal in amount and nature and to any other
adjustments described therein) in conformity with GAAP (except in the case of
the unaudited statements for the lack of complete notes thereto) applied on a
consistent basis during the periods involved (except as may be indicated
therein or in the notes thereto. Since December 31, 2000, Public has not made
any change in the accounting practices or policies applied in the preparation
of its financial statements.
(b) Each of the Public Financial Statements (including the related notes)
complies in all material respects with applicable accounting requirements and
with the published rules and regulations of the SEC with respect thereto at the
date of their filing. Each of such statements (including, in each case, any
notes thereto) has been prepared in accordance with GAAP consistently applied
during the periods involved, (i) except as indicated in the notes thereto, (ii)
with respect to unaudited financial statements, as permitted by Form 10-Q and
(iii) with respect to monthly financial statements, for the absence of notes
thereto. The books and records of Public and its Subsidiaries have been, and
are being, maintained in accordance with GAAP and reflect only actual
transactions.
(c) For purposes of this Agreement, "Public Balance Sheet" shall mean the
most recent audited balance sheet of Public included in the Public Financial
Statements.
Section 5.6. No Undisclosed Liabilities. Except (a) as disclosed in the
Public Financial Statements, (b) for liabilities and obligations incurred in
the ordinary course of business and consistent with past practice since the
date of the Public Balance Sheet and (c) liabilities that could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Public, neither Public nor any of its Subsidiaries has any
liability or obligation of any nature, whether or not accrued, contingent or
otherwise.
Section 5.7. Absence of Certain Changes or Events. Except as may be set
forth in Section 5.7 of the Public Disclosure Schedule or as disclosed in any
Public Report (as defined in Section 5.8) filed with the SEC prior to the date
of this Agreement or in the Public Financial Statements, since December 31,
2000, (i) neither Public nor any of its Subsidiaries has incurred any
liability, except in the ordinary course of their business and consistent with
their past practices and (ii) there has been no change or development or
combination of changes or developments which has had, or is reasonably likely
to have, individually or in the aggregate, a Material Adverse Effect on Public.
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Section 5.8. SEC Reports. Public has previously made available to the
Company a true and correct copy of each (a) final registration statement,
prospectus, report, schedule and definitive proxy statement filed by Public
with the SEC pursuant to the Securities Act or the Exchange Act (the "Public
Reports"), (b) material written communication between Public and the SEC, and
(c) communication mailed by Public to its stockholders and no such registration
statement, prospectus, report, schedule, proxy statement or communication as of
its date of filing contained any untrue statement of a material fact or omitted
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances in which they
were made, not misleading. Public has timely filed all Public Reports and other
documents required to be filed by it under the Securities Act and the Exchange
Act, and, as of their respective dates, all Public Reports complied with the
published rules and regulations of the SEC with respect thereto, including
rules and regulations relating to the filing of exhibits thereto.
Section 5.9. Property. (a) Each of Public and its Subsidiaries has good and
marketable title, free and clear of all liens, encumbrances, mortgages,
pledges, charges, defaults or equitable interests, to all of the properties and
assets, real and personal, tangible or intangible, which are reflected on the
Public Balance Sheet or acquired after the date of the Public Balance Sheet,
except (i) liens under the Public Credit Facility, (ii) liens for taxes not yet
due and payable or contested in good faith by appropriate proceedings, (iii)
pledges to secure deposits and other liens incurred in the ordinary course of
business, (iv) such imperfections of title, easements and encumbrances, if any,
as do not interfere with the use of the property as such property is used on
the date of this Agreement, (v) for dispositions of and encumbrances on such
properties or assets in the ordinary course of business or (vi) mechanics',
materialmen's, workmen's, repairmen's, warehousemen's, carrier's and other
similar liens and encumbrances arising in the ordinary course of business (the
items in clauses (i), (ii), (iii), (iv) and (vi) are collectively referred to
as the "Public Permitted Liens").
(b) Section 5.9(b) of the Public Disclosure Schedule sets forth an accurate
and complete list and description of all real property owned by Public or any
of its Subsidiaries and all buildings and improvements thereon.
Section 5.10. Leases. (a) Section 5.10(a) of the Public Disclosure Schedule
contains an accurate and complete list of each lease pursuant to which Public
or any of its Subsidiaries leases any real property (excluding leases or
licenses of tower space to which either Public or any of its Subsidiaries is a
party ("Public Tower Leases") and leases of land containing towers)) (each a
"Public Lease"). A true and complete copy of each Public Lease has heretofore
been made available to the Company.
(b) To the knowledge of Public, each Public Lease is valid, binding and
enforceable in accordance with its terms and is in full force and effect. The
leasehold estate created by each Public Lease of real property (a "Public
Leased Premise") is free and clear of all encumbrances other than Public
Permitted Liens. There are no existing defaults by Public or any of its
Subsidiaries under any of the Public Leases, and to the knowledge of Public no
event has occurred that (whether with or without notice, lapse of time or the
happening or occurrence of any other event) would constitute a default under
any Public Lease. Public has received no notice, and has no other reason to
believe, that any lessor under any Public Lease will not consent (where such
consent is necessary) to the consummation of the Merger without requiring any
material modification of the rights or obligations of the lessee thereunder.
Section 5.11. Environmental Matters. Except as set forth in Section 5.11 of
the Public Disclosure Schedule:
(a) Public and each of its Subsidiaries (1) are in compliance in all
material respects with all, and, to the knowledge of Public, are not
subject to any liability with respect to any, applicable Environmental
Laws, (2) hold or have applied for all Environmental Permits necessary to
conduct their current operations and (3) are in compliance with their
respective Environmental Permits and such Environmental Permits are in full
force and effect.
A-24
(b) Neither Public nor any of its Subsidiaries has received any written
notice, demand, letter, claim or request for information alleging that
Public or any of its Subsidiaries is in violation of any Environmental Law
or liable for remediation, cost recovery or contribution under CERCLA.
(c) Neither Public nor any of its Subsidiaries (1) has entered into or
agreed to any consent decree or order or is subject to any judgment, decree
or judicial order relating to compliance with Environmental Laws,
Environmental Permits or the investigation, sampling, monitoring,
treatment, remediation, removal or cleanup of Hazardous Materials and, to
the knowledge of Public, no investigation, litigation or other proceeding
is pending or threatened in writing with respect thereto, or (2) is an
indemnitor in connection with any claim threatened or asserted in writing
by any third-party indemnitee for any liability under any Environmental Law
or relating to any Hazardous Materials.
(d) None of the real property owned or leased by Public or any Public
Subsidiary is listed or, to the knowledge of the Public, proposed for
listing on the "National Priorities List" under CERCLA, as updated through
the date hereof, or any similar state or foreign list of sites requiring
investigation or cleanup.
(e) To the knowledge of Public, there are no underground storage tanks
or above-ground storage tanks located on any Public Real Property which are
now, or in the past were, used to store Hazardous Materials. "Public Real
Property" shall mean all real property that is owned or used by Public or
any of its Subsidiaries or that is reflected as an asset of Public or any
of its Subsidiaries on the Public Balance Sheet.
Section 5.12. Certain Contracts. (a) Except for Contracts described in
clauses (i), (iii), (iv), (v), (vii), (viii), (xiii), (xiv), (xvi), (xvii),
(xx), (xxi) and (xxii) that provide for aggregate payments to any Person in any
calendar year of less than $100,000, Section 5.12(a) of the Public Disclosure
Schedule contains a complete and accurate list of each of the following
Contracts:
(i) Contracts of Public or any of its Subsidiaries relating to
indebtedness, liability for borrowed money or the deferred purchase price
of property (excluding trade payables in the ordinary course of business)
or any guarantee or other contingent liability in respect of any
indebtedness or obligation of any Person (other than the endorsement of
negotiable instruments for collection in the ordinary course of business);
(ii) Contracts that contain restrictions with respect to payment of
dividends or any other distribution in respect of the equity of Public or
any of its Subsidiaries;
(iii) any letters of credit or similar arrangements relating to Public
or any of its Subsidiaries;
(iv) any employment agreements with any employee of Public or any of its
Subsidiaries or other Person on a consulting basis;
(v) any management, consulting or advisory agreements, or severance
plans or arrangements for any present or former employee of Public or any
of its Subsidiaries;
(vi) any non-disclosure agreements and non-compete agreements binding
present and former employees of Public or any of its Subsidiaries;
(vii) any agreement under which Public or any of its Subsidiaries is
lessee of or holds or operates any property, real or personal;
(viii) any agreement under which Public or any of its Subsidiaries is
lessor of or permits any third party to hold or operate any property, real
or personal;
(ix) any agreement relating to the acquisition or divestiture of the
capital stock or other equity securities, assets or business of any Person
involving Public or any of its Subsidiaries or pursuant to which Public or
any of its Subsidiaries has any liability, contingent or otherwise;
(x) any powers of attorney granted by or on behalf of Public or any of
its Subsidiaries;
A-25
(xi) any agreement, other than agreements entered into in the ordinary
course of Public's or any of its Subsidiaries' business consistent with
past practice, which prevents Public or any of its Subsidiaries from
disclosing confidential information;
(xii) any agreement which in any way purports to prohibit Public or any
of its Subsidiaries from freely engaging in business anywhere in the world
or competing with any other Person;
(xiii) any sales distribution agreements, franchise agreements and
advertising agreements relating to Public or any of its Subsidiaries;
(xiv) any warranty, guaranty or other similar undertaking with respect
to a contractual performance extended by Public or any of its Subsidiaries;
(xv) any agreement pursuant to which Public or any of its Subsidiaries
has agreed to defend, indemnify or hold harmless any other Person, other
than Public Tower Leases;
(xvi) any agreement pursuant to which Public or any of its Subsidiaries
has agreed to settle any liability for Taxes;
(xvii) any agreement pursuant to which Public has agreed to shift or
allocate the liability of Public, any of its Subsidiaries or any other
Person for Taxes;
(xviii) any agreement pursuant to which Public may be required to file a
registration statement under the Securities Act with respect to any
securities issued by Public;
(xix) any joint venture agreement or partnership agreement
(xx) any requirement or output contracts;
(xxi) any vendor agreements
(xxii) any construction contracts or construction management contracts;
(xxiii) any agreement between Public or any of its Subsidiaries and any
of their respective stockholders; and
(xxiv) any other agreement to which Public or any of its Subsidiaries is
a party or by which Public or any of its Subsidiaries is bound and which is
material to Public and its Subsidiaries taken as a whole.
(b) Except as set forth in Section 5.12(b) of the Public Disclosure
Schedule, with respect to each Public Contract (as defined below): (i) the
Public Contract is in full force and effect and is valid and enforceable in
accordance with its terms; (ii) neither Public nor any of its Subsidiaries is
in breach or default thereof, nor has Public or any of its Subsidiaries
received notice that it is in breach of or default thereof; (iii) to the
knowledge of Public, no event has occurred which, with notice, or lapse of time
or both, would constitute a breach or default thereof by Public or any of its
Subsidiaries or by any other party thereto; (iv) to the knowledge of Public, no
event has occurred that would permit termination, modification, or acceleration
thereof by any other party thereto; and (v) neither Public nor any of its
Subsidiaries nor to the knowledge of Public, any other party thereto has
repudiated or acted in a manner inconsistent with any provision thereof.
Neither Public nor any of its Subsidiaries is a party to any verbal contract,
agreement, or other arrangement which, if reduced to written form, would be
required to be listed on Section 5.12(b) of the Public Disclosure Schedule
under the terms of this Section 5.12.
(c) Except as disclosed in the Public Reports filed with the SEC prior to
the date of this Agreement or as disclosed in Section 5.12(c) of the Company
Disclosure Schedule, no "Event of Default" (as defined in the Public Indenture
and the Public Credit Facility, respectively) has occurred and is continuing
under either of the Public Indenture or the Public Credit Facility and neither
Public nor any of its Subsidiaries has previously received a waiver of any
Event of Default (as defined in the Public Indenture and the Public Credit
Facility, respectively) under the Public Indenture or the Public Credit
Facility.
A-26
(d) Each contract, arrangement, commitment or understanding of any type or
form required to be described in Section 5.12(a), whether or not set forth in
Section 5.12(a) of the Public Disclosure Schedule, is referred to herein as a
"Public Contract."
Section 5.13. Distributors and Suppliers. Except as set forth on Section
5.13 of the Public Disclosure Schedule, since September 30, 2000, there has not
been any material adverse change in the business relationship of Public or any
of its Subsidiaries with any distributor who accounted for more than 2% of the
Company's sales (on a consolidated basis) during the period from December 31,
2000 to the date of this Agreement, or with any supplier from whom Public or
any of its Subsidiaries purchased more than 5% of the goods or services (on a
consolidated basis) which it purchased during the period from September 30,
2000 to the date of this Agreement. Except as set forth in Section 5.13 of the
Public Disclosure Schedule, neither Public nor any of its Subsidiaries has
knowledge of any termination or intended termination by any such 2% distributor
or 5% supplier of its business relationship with Public or any modification or
intended modification of its business relationship with Public in a manner
which is adverse in any material respect to Public, and neither Public nor any
of its Subsidiaries has knowledge of any facts which would could reasonably be
expected to form an adequate basis for such termination or modification.
Section 5.14. Insurance. Except as set forth in Section 5.14 of the Public
Disclosure Schedule, each of Public and its Subsidiaries is insured with
financially responsible insurers in such amounts and against such risks and
losses as are customary for companies conducting the business as conducted by
Public and its Subsidiaries. Except as set forth in Section 5.14 of the Public
Disclosure Schedule, neither Public nor any of its Subsidiaries has received
any notice of cancellation or termination with respect to any material
insurance policy of Public or its Subsidiaries. The insurance policies of
Public and of its Subsidiaries are valid and enforceable policies in all
material respects.
Section 5.15. Legal Proceedings. (a) Except as set forth in Section 5.15 of
the Public Disclosure Schedule, neither Public nor any of its Subsidiaries is a
party to any, and there are no pending or, to Public's knowledge, threatened,
legal, administrative, arbitral or other proceedings, claims, actions or
governmental or regulatory investigations of any nature against Public or any
of its Subsidiaries or, to the knowledge of Public, any of Public's or its
Subsidiaries' current or former directors or officers or any other person whom
Public or any of its Subsidiaries has agreed to indemnify, as such, challenging
the validity or propriety of the transactions contemplated by this Agreement
and, to the knowledge of Public, no event has occurred, and no state of facts
exists, that could reasonably be expected to result in any such action, suit or
proceeding.
(b) There is no injunction, order, judgment, decree, or regulatory
restriction imposed upon Public, any of its Subsidiaries or the assets of
Public or any of its Subsidiaries or, to the knowledge of Public, any of
Public's or its Subsidiaries' current or former directors or officers or any
other person whom Public or any of its Subsidiaries has agreed to indemnify, as
such.
Section 5.16. Compliance with Applicable Law. (a) Except for the Sprint
Licenses, Public and its Subsidiaries hold, and have at all times held, all
licenses, franchises, permits and authorizations (each, a "Public Permit")
necessary for the lawful conduct of their respective businesses and the lawful
ownership, use and operation of its assets under and pursuant to all, and have
complied with and are not in default in any material respect under any,
applicable law, statute, order, rule, regulation, policy and/or guideline of
any Governmental Entity relating to Public or any of its Subsidiaries, and
neither Public nor any of its Subsidiaries knows of, or has received notice of
violation of, any violations of any of the above.
(b) Public has no knowledge of any investigation, notice of apparent
liability, violation, forfeiture or other order or complaint issued by or
before the FCC or any other Governmental Entity or of any other proceedings of
or before the FCC or any other Governmental Entity relating to Public or any of
its Subsidiaries or to any authorizations under which Public conducts its
business. No proceedings are pending or, to the knowledge of Public, threatened
to revoke or limit any of the Public Permits or the Sprint Licenses.
A-27
(c) To the knowledge of Public, no event has occurred which (i) results in,
or after notice or lapse of time or both could reasonably be expected to result
in, revocation, suspension, adverse modification, non-renewal, impairment,
restriction or termination of, or order of forfeiture or substantial fine with
respect to, any of the Public Permits or the Sprint Licenses, or (ii) affects
or could reasonably be expected in the future to affect any of the rights of
Public or its Subsidiaries under any material Public Permits or any of the
rights of Sprint PCS or its Affiliates under the Sprint Licenses. No facts are
known to Public or the Public Subsidiaries which if known by a Governmental
Entity of competent jurisdiction would present a substantial risk that any
Public Permit could be revoked, suspended, adversely modified, not renewed,
impaired, restricted, terminated, forfeited or a substantial fine imposed
against Public or any of the Public Subsidiaries, and neither the execution by
Public or Merger Sub of this Agreement nor the consummation of the Merger or
any of the other transactions contemplated by this Agreement is reasonably
likely to result in the occurrence of any of the consequences set forth in this
Section 5.16(c).
Section 5.17. Benefit Plans. (a) Section 5.17(a) of the Public Disclosure
Schedule sets forth a true and complete list of each "employee benefit plan"
(within the meaning of section 3(3) of ERISA); each deferred compensation plan,
incentive compensation plan, equity compensation plan, employment, termination
or severance agreement; and each other employee benefit plan, fund, program,
agreement or arrangement, in each case, that is sponsored, maintained or
contributed to or required to be contributed to by Public or by any trade or
business, whether or not incorporated, that together with Public would be
deemed a "single employer" within the meaning of Section 414 of the Code (a
"Public ERISA Affiliate") for the benefit of any current or former employee of
Public or any Public ERISA Affiliate (the "Public Benefit Plans").
(b) Public has heretofore made available to the Company true and complete
copies of each of the Public Benefit Plans and all related documents, including
but not limited to (i) the most recent actuarial report for such Public Benefit
Plan (if applicable), and (ii) the most recent determination letter from the
Internal Revenue Service (if applicable) for such Public Benefit Plan.
(c) Except as set forth in Section 5.17(c) of the Public Disclosure
Schedule, (i) each of the Public Benefit Plans has been operated and
administered in material compliance with its terms and applicable law,
including but not limited to the Exchange Act, the Securities Act, ERISA and
the Code, (ii) to the knowledge of Public, each of the Public Benefit Plans
intended to be "qualified" within the meaning of Section 401(a) of the Code
either (1) has received a favorable determination letter from the IRS, or (2)
is or will be the subject of an application for a favorable determination
letter, and Public is not aware of any circumstances reasonably likely to
result in the revocation or denial of any such favorable determination letter,
(iii) no Public Benefit Plan provides benefits, including without limitation
death or medical benefits (whether or not insured), with respect to current or
former employees of Public or any Public ERISA Affiliate beyond their
retirement or other termination of service, other than (w) coverage mandated by
applicable law, (x) death benefits or retirement benefits under any "employee
pension plan," as that term is defined in Section 3(2) of ERISA, (y) deferred
compensation benefits accrued as liabilities on the books of Public or the
Public ERISA Affiliates or (z) benefits which are fully insured or the full
cost of which is borne by the current or former employee (or his beneficiary),
(iv) no Public Benefit Plan is subject to Title IV of ERISA and no liability
under Title IV of ERISA has been incurred by Public or any Public ERISA
Affiliate that has not been satisfied in full, and neither Public nor a Public
ERISA Affiliate has any contingent liability under Title IV of ERISA, (v) no
Public Benefit Plan is a "multiemployer pension plan," as such term is defined
in Section 3(37) of ERISA, (vi) all contributions or other amounts payable by
Public or any Public ERISA Affiliates as of the Effective Time with respect to
each Public Benefit Plan in respect of current or prior plan years have been
paid or accrued in accordance with GAAP, (vii) neither Public nor any Public
ERISA Affiliate has engaged in a transaction or has taken or failed to take any
action in connection with which Public or any Public ERISA Affiliate reasonably
could be subject to either a civil penalty assessed pursuant to Section 409 or
502(i) of ERISA or a tax imposed pursuant to Section 4975, 4976 or 4980B of the
Code, (viii) there are no pending, or, to the best knowledge of Public,
threatened or anticipated claims or proceedings (other than routine claims for
benefits) by, on behalf of or against any of the Public Benefit Plans or any
trusts related thereto, and (ix) the consummation of the
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transactions contemplated by this Agreement will not, either alone or in
combination with any other event, (y) entitle any current or former employee,
officer, director or consultant of Public or any Public ERISA Affiliate to
severance pay, termination pay or any other payment or benefit, except as
expressly provided in this Agreement or (z) accelerate the time of payment or
vesting or increase the amount or value of compensation or benefits due any
such employee, officer, director or consultant.
Section 5.18. Taxes. Except as set forth in Section 5.18 of the Public
Disclosure Schedule, each of Public and its Subsidiaries has (i) duly and
timely filed (including applicable extensions granted without penalty) all Tax
Returns required to be filed at or prior to the Effective Time, and such Tax
Returns are true, correct and complete in all material respects, and (ii) paid
in full or made adequate provision in the financial statements of Public (in
accordance with GAAP) for all Taxes due to be paid or accrued at or prior to
the Effective Time. No deficiencies for any Taxes have been proposed, asserted,
assessed or, to the knowledge of Public, threatened against or with respect to
Public or any of its Subsidiaries. Except as set forth in Section 5.18 of the
Public Disclosure Schedule, (i) there are no liens for Taxes upon the assets of
either Public or its Subsidiaries except for statutory liens for current Taxes
not yet due, (ii) neither Public nor any of its Subsidiaries has requested any
extension of time within which to file any Tax Returns in respect of any fiscal
year which have not since been filed and no request for waivers of the time to
assess any Taxes are pending or outstanding, (iii) with respect to each taxable
period of Public and its Subsidiaries, (A) the federal and state income Tax
Returns of Public and its Subsidiaries have been audited by the Internal
Revenue Service or appropriate state tax authorities, (B) the time for
assessing and collecting income Tax with respect to such taxable period has
closed and such taxable period is not subject to review, or (C) the time for
assessing and collecting income Tax with respect to such taxable period has not
closed, but no audit or review of such taxable period has yet been initiated or
threatened, (iv) neither Public nor any of its Subsidiaries has filed or been
included in a combined, consolidated or unitary income Tax Return other than
one in which Public was the parent of the group filing such Tax Return, (v)
neither Public nor any of its Subsidiaries is a party to any agreement
providing for the allocation or sharing of Taxes (other than the allocation of
federal income taxes as provided by Regulation 1.1552-1(a)(1) under the Code),
(vi) neither Public nor any of its Subsidiaries is required to include in
income any adjustment pursuant to Section 481(a) of the Code (or any similar or
corresponding provision or requirement of state, local or foreign income Tax
law), by reason of the voluntary change in accounting method (nor has any
taxing authority proposed any such adjustment or change of accounting method),
(vii) neither Public nor any of its Subsidiaries has filed a consent pursuant
to Section 341(f) of the Code, (viii) neither Public nor its Subsidiaries has
any liability for Taxes of any Person (other than a liability of Public for
Taxes of any of its Subsidiaries or a liability of any of the Public's
Subsidiaries for Taxes of Public) under Regulation 1.1502-6 or 1.1502-78(b)(2)
under the Code (or similar provisions of state, local or foreign law), as a
transferee or successor, by contract or otherwise, and (ix) neither Public nor
any of its Subsidiaries has made any payment or may be obligated to make any
payment (by contract or otherwise) which will not be deductible by reason of
Section 280G or Section 162(m) of the Code.
Section 5.19. Sprint Agreement Compliance. (a) Neither Public nor any of its
Subsidiaries has violated or failed to meet any deadline or requirement in the
Public Sprint Agreements, except as has been remedied, waived or modified prior
to the date hereof and previously disclosed to the Company in writing. Section
5.19(a) of the Public Disclosure Schedule sets forth the extent of Public's
progress in the completion of its build-out and network launch as of the date
of this Agreement.
(b) Section 5.19(b) of the Public Disclosure Schedule sets forth a list of
all agreements between Public, its Subsidiaries or any of its Affiliates, on
the one hand, and Sprint PCS and any of its Affiliates, on the other hand
(collectively, the "Public Sprint Agreements"). Public has made available to
the Company a true and complete copy of each of the written instruments, plans,
contracts and agreements, including the Public Sprint Agreements, and an
accurate description of each of the oral arrangements, oral contracts and oral
agreements, which are listed on Section 5.12(a) and Section 5.19(b) of the
Public Disclosure Schedule, together with all amendments, waivers or other
changes thereto. There are no unwritten amendments to, or waivers under, any
Sprint Agreement.
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(c) The Public Sprint Agreements are valid, binding and enforceable against
Public or its Subsidiaries, in accordance with their respective terms, and
shall be in full force and effect without penalty in accordance with their
terms upon consummation of the Merger and the other transactions contemplated
by this Agreement, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other laws affecting creditors'
rights generally and limitations on the availability of equitable remedies.
Public and its Subsidiaries have performed all obligations required to be
performed by them under, and they are not in default under or in breach of, nor
in receipt of any claim of default or breach under, any of the Public Sprint
Agreements. To the knowledge of Public, no event has occurred which with the
passage of time or the giving of notice or both would result in a default,
breach or event of noncompliance by Public or any Subsidiary, or would permit
termination or modification by Sprint PCS or any of its Affiliates, under any
of the Public Sprint Agreements. Neither Public nor any Subsidiary has
knowledge of any cancellation or anticipated cancellation by Sprint PCS or any
of its Affiliates of any of the Public Sprint Agreements. Public has provided
the Company with copies of all written notices (excluding e-mail messages)
received by it from Sprint PCS during the last six months (i) delivered
pursuant to the official notice provisions of Public Sprint Agreements or (ii)
alleging a material breach of Public Sprint Agreements.
Section 5.20. Intellectual Property. Public owns or has the right to use,
whether through licensing or otherwise, and to authorize others to use, all
Intellectual Property significant to the businesses of Public and its
Subsidiaries in substantially the same manner as such businesses are conducted
on the date hereof ("Public Material Intellectual Property"). Except as set
forth in Section 5.20 of the Public Disclosure Schedule: (1) no written claim
of invalidity or conflicting ownership rights with respect to any Public
Material Intellectual Property has been made by a third party and no such
Intellectual Property is the subject of any pending or, to Public's knowledge,
threatened action, suit, claim, investigation, arbitration or other proceeding;
(2) no Person or entity has given notice to Public or any of its Subsidiaries
that the use of any Public Material Intellectual Property by Public, any Public
Subsidiary or any licensee is infringing or has infringed any domestic or
foreign patent, trademark, service mark, trade name, or copyright or design
right, or that Public, any of its Subsidiaries or any licensee has
misappropriated or improperly used or disclosed any trade secret, confidential
information or know-how; (3) to Public's knowledge after due inquiry for such
purpose, the making, using, selling, manufacturing, marketing, licensing,
reproduction, distribution, or publishing of any process, machine, manufacture
or product related to any Public Material Intellectual Property, does not and
will not infringe any domestic or foreign patent, trademark, service mark,
trade name, copyright or other intellectual property right of any third party,
and does not and will not involve the misappropriation or improper use or
disclosure of any trade secrets, confidential information or know-how of any
third party; (4) to Public's knowledge, there exists no prior act or current
conduct or use by Public, any of its Subsidiaries or any third party that would
void or invalidate any Public Material Intellectual Property; (5) to Public's
knowledge, no other Person is interfering with, infringing upon,
misappropriating or otherwise coming into conflict with any Intellectual
Property of Public or any of its Subsidiaries; and (6) the execution, delivery
and performance of this Agreement by Public and the consummation of the
transactions contemplated hereby and thereby will not breach, violate or
conflict with any instrument or agreement concerning any Public Material
Intellectual Property, will not cause the forfeiture or termination of or give
rise to a right of forfeiture or termination of any of the Public Material
Intellectual Property, or trigger additional fees or transfer costs payable by
the Company or any of its Subsidiaries with respect to, or impair the right of
Public to make, use, sell, license or dispose of, or to bring any action for
the infringement of, any Public Material Intellectual Property. In addition,
the matters disclosed on Section 5.20 of the Public Disclosure Schedule would
not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on Public.
Section 5.21. Labor Matters. (a) Neither Public nor any of its Subsidiaries
is a party to any collective bargaining agreement or other labor union contract
applicable to Persons employed by them. No union representation question exists
and, to the knowledge of Public and its Subsidiaries, there has been no union
organization effort respecting the employees of Public and its Subsidiaries.
Neither Public nor any of its Subsidiaries is delinquent in payments to any of
its employees for any wages, salaries, commissions, bonuses or other direct
compensation for any services performed by them or amounts required to be
reimbursed to such
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employees. No retired employees of Public are entitled to (i) receive current
or future compensation from Public or its Subsidiaries other than pursuant to
the terms of any Public Benefit Plan or pursuant to a termination agreement
previously entered into with Public or (ii) participate in any Public Benefit
Plan (except as required by section 4980B of the Code or similar provisions of
applicable state law).
(b) (i) Each of Public and its Subsidiaries is in compliance with all
federal, state and other applicable laws, domestic or foreign, respecting
employment and employment practices, terms and conditions of employment, wages
and hours, immigration, the payment of social security and similar taxes,
occupational safety and health and plant closing, and has not and is not
engaged in any unfair labor practice; (ii) no unfair labor practice complaint
against Public or any of its Subsidiaries is pending before the National Labor
Relations Board; (iii) there is no labor strike, dispute, slowdown or stoppage
actually pending or threatened against or involving Public or any of its
Subsidiaries; (iv) no grievance that might have an adverse effect upon Public
or any of its Subsidiaries or the conduct of their respective businesses
exists, no arbitration proceeding arising out of or under any collective
bargaining agreement is pending and no claim therefor has been asserted; and
(v) no collective bargaining agreement is currently being negotiated by Public
or any of its Subsidiaries.
(c) Except for employees who are parties to employment agreements with
Public or any of its Subsidiaries, which agreements are set forth in Section
5.21(c) of the Company Disclosure Schedule, and except as otherwise disclosed
in Section 5.21(c) of Public Disclosure Schedule, all employees of Public and
its Subsidiaries are terminable at will, with or without cause, and without
cost to Public and its Subsidiaries for severance obligations, or any other
liability, except for payment of accrued salaries or wages and vacation pay. No
employee or former employee has any right to be rehired by Public or its
Subsidiaries prior to the hiring of a person not previously employed by Public
or such Subsidiary.
Section 5.22. Reorganization. As of the date of this Agreement, Public has
no reason to believe that the Merger will fail to qualify as a reorganization
under Section 368(a) of the Code. As of the date of this Agreement, Public
knows of no reason why it will be unable to deliver to Mayer, Brown & Platt and
to Winston & Strawn representation letters with respect to Public and Merger
Sub in form and substance sufficient to enable such counsel to render the
opinions required by Sections 8.2(e) and 8.3(d).
Section 5.23. Broker's Fees. Except as set forth on Section 5.23 of the
Public Disclosure Schedule, neither Public nor any of its Subsidiaries, nor any
of their respective officers or directors, has employed any broker or finder or
incurred any liability for any broker's fees, commissions or finder's fees in
connection with the Merger or any of the other transactions contemplated by
this Agreement. The terms of any such broker's fees, commissions or finder's
fees are as set forth in Section 5.23 of the Public Disclosure Schedule.
Section 5.24. Related Party Transactions. Except as set forth on Section
5.24 of the Public Disclosure Schedule, to the knowledge of Public, no
stockholder, officer or director of Public or any of its Subsidiaries owns or
holds, directly or indirectly, any interest in (excepting holdings solely for
passive investment purposes of securities of publicly held and traded entities
constituting less than 5% of the equity of any such entity), or is an officer,
director, employee or consultant of any Person that is, a competitor, lessor,
lessee, customer or supplier of Public or which conducts a business similar to
any business conducted by Public. No stockholder, officer or director of Public
or any of its Subsidiaries (a) owns or holds, directly or indirectly, in whole
or in part, any Intellectual Property used by Public or any of its
Subsidiaries, (b) to the knowledge of Public has any claim, charge, action or
cause of action against Public or any of its Subsidiaries, except for claims
for reasonable unreimbursed travel or entertainment expenses, accrued vacation
pay or accrued benefits under any employee benefit plan existing on the date
hereof, (c) to the knowledge of Public, has made, on behalf of Public or any of
its Subsidiaries, any payment or commitment to pay any commission, fee or other
amount to, or to purchase or obtain or otherwise contract to purchase or obtain
any goods or services from, any other Person of which any stockholder, officer
or director of Public or any of its Subsidiaries is a partner or shareholder
(except holdings solely for passive investment purposes of securities of
publicly held and traded entities constituting less than 5% of the equity of
any such entity), (d) owes any money to Public or any of its
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Subsidiaries or (e) has any material interest in any property, real or
personal, tangible or intangible, used in or pertaining to the business of
Public or any of its Subsidiaries.
Section 5.25. Public Information. None of the information relating to Public
and its Subsidiaries to be contained in or incorporated by reference in (i) the
S-4 Registration Statement (including the Prospectus/Proxy Statement
constituting a part thereof) will, at the time the S-4 Registration Statement
becomes effective under the Securities Act, and (ii) the Prospectus/Proxy
Statement and any amendment or supplement thereto will, at the date of mailing
to stockholders and at the time of the Public Special Meeting (as hereinafter
defined), in any such case, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The S-4 Registration Statement and the
Prospectus/Proxy Statement will comply with the provisions of the Securities
Act and the Exchange Act, respectively, and the rules and regulations
thereunder.
Section 5.26. Required Vote of Public. Except for the Required Public Vote,
no vote of the stockholders of Public, or any class thereof, or of the holders
of any securities of Public (equity or otherwise), is required by law, the
Certificate of Incorporation or Bylaws of Public or otherwise in order for
Public to consummate the Merger and the other transactions contemplated by this
Agreement.
Section 5.27. Amount of Indebtedness. The aggregate principal amount of
indebtedness for borrowed money (not including capital leases and amounts under
the Public Indenture) of Public and its Subsidiaries outstanding as of the date
hereof is approximately $75,300,000. Except as set forth in Section 5.27 of the
Public Disclosure Schedule, Public and its Subsidiaries are not subject to any
prepayment penalties with respect to any such indebtedness.
ARTICLE VI
Covenants Relating to Conduct of Business
Section 6.1. Covenants of the Company. During the period from the date of
this Agreement and continuing until the Effective Time, except as expressly
contemplated or permitted by this Agreement or with the prior written consent
of Public, the Company and its Subsidiaries shall carry on their respective
businesses in the ordinary course consistent with the past practice of the
Company and in compliance with applicable law (including all applicable
Environmental Laws). The Company will use its reasonable best efforts to (x)
preserve its business organization and that of its Subsidiaries intact, (y)
keep available to itself the present services of the employees of the Company
and its Subsidiaries and (z) preserve for itself the existing business
relationships and the goodwill of the customers and distributors of the Company
and its Subsidiaries and others with whom business relationships exist. Without
limiting the generality of the foregoing, and except as set forth in
Section 6.1 of the Company Disclosure Schedule or as otherwise contemplated by
this Agreement or consented to in writing by Public, prior to the Effective
Time or the date this Agreement terminates, the Company shall not, and shall
not permit any of its Subsidiaries to:
(a) other than dividends from one Subsidiary to another Subsidiary or to
the Company, declare, set aside, or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, other than the
distribution of additional shares of Company Preferred Stock to the holders
of Company Preferred Stock prior to the Effective Time pursuant to Sections
2(a) or 2(h) of the applicable Certificate of Designations;
(b) (i) split, combine or reclassify any shares of its capital stock, or
issue or authorize or propose the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock;
(ii) repurchase, redeem or otherwise acquire any shares of the capital
stock of the Company or any of its Subsidiaries, or any securities
convertible into or exercisable for any shares of the capital stock of the
Company or any of its Subsidiaries; or (iii) issue, deliver or sell, or
authorize or propose the issuance,
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delivery or sale of, any shares of its capital stock or any securities
convertible into or exercisable for, or any rights, warrants or options to
acquire, any such shares, or enter into any agreement with respect to any
of the foregoing, except, in the case of this clause (iii), for (A) the
issuance of Company Common Stock upon the exercise of options, warrants or
other rights to purchase Company Common Stock outstanding and in existence
on the date of this Agreement or issued as permitted by clauses (B) and (C)
hereof, in each case in accordance with their terms, (B) the issuance of
options to purchase shares of Company Common Stock in the ordinary course
of the Company's business, including, without limitation, option grants to
future employees of the Company consistent with past practice and (C) the
issuance of Company Common Stock upon the conversion of Company Preferred
Stock immediately prior to the Effective Time in accordance with Section
5(b) of the applicable Certificate of Designations with respect thereto;
(c) amend its Amended and Restated Certificate of Incorporation, Amended
and Restated By-laws or other similar governing documents, other than
immaterial amendments relating to corporate procedure and which do not
adversely affect the ability of the Company to consummate the transactions
contemplated hereby or to perform its obligations hereunder;
(d) (i) acquire, be acquired or agree to acquire or be acquired, by
merging or consolidating with, or by purchasing or selling a substantial
equity interest in or a substantial portion of the assets of, or by any
other manner, any business or any corporation, partnership, association or
other business organization or division thereof, which would, individually
or in the aggregate, exceed $2,500,000 or (ii) approve any transaction that
would permit any Person or group to acquire shares of Company Common Stock
if such acquisition would cause such Person or group to be deemed to own
15% or more of the shares of Company Common Stock for purposes of Section
203 of the DGCL;
(e) take any action that is intended or may reasonably be expected to
result in any of its representations and warranties set forth in this
Agreement being or becoming untrue in any material respect, or in any of
the conditions to the Merger set forth in Article VIII not being satisfied;
(f) change its methods of accounting in effect at December 31, 2000,
except as required to comply with changes in GAAP as concurred with by the
Company's independent auditors;
(g) (i) except as required by applicable law or as required to maintain
qualification pursuant to the Code, adopt, enter into, amend, renew or
terminate any employee benefit plan (including, without limitation, any
Company Benefit Plan) or any agreement, arrangement, plan or policy between
the Company or any Subsidiary of the Company and one or more of its current
or former directors, officers or employees, (ii) except for normal
increases to employees other than directors and officers of the Company
that are made in the ordinary course of business consistent with past
practice and except as required by applicable law, increase in any manner
the compensation or fringe benefits of any director, officer or employee or
pay any benefit not required by any Company Benefit Plan or agreement as in
effect as of the date hereof (including, without limitation, the granting
of stock options, stock appreciation rights, restricted stock, restricted
stock units or performance units or shares) or (iii) make any loans to any
of its officers, directors, employees, Affiliates, agents or consultants or
make any change in its existing borrowing or lending arrangements for or on
behalf of any of such Persons, whether pursuant to an employee benefit plan
or otherwise; provided, however, that the Company shall be permitted to
amend the Company's 401(k) Plan to provide for full vesting, as of the time
of termination of employment, of the unvested portion of the Company match
in the 401(k) account of any Company Employee whose employment with the
Company is terminated by the Company other than for cause at the later of:
(i) 90 days after the Effective Time or (ii) the date provided in a
severance agreement;
(h) take or cause to be taken any action that could reasonably be
expected to disqualify the Merger as a tax free reorganization under
Section 368(a) of the Code;
(i) sell, lease, encumber, assign or otherwise dispose of, or agree to
sell, lease, encumber, assign or otherwise dispose of, any of its assets,
properties or other rights or agreements, other than (i) dispositions
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required to be made pursuant to an agreement or contract to which the
Company or any of its Subsidiaries is a party or by which it is bound as of
the date of this Agreement and which has been disclosed to Public, (ii)
dispositions of inventory and excess or obsolete assets, (iii) the sale of
towers and the leaseback of availability of towers that result in proceeds
of at least $200,000 per tower and (iv) sales or dispositions not included
in clauses (i), (ii) or (iii) above involving consideration not to exceed
$5,000,000 in the aggregate;
(j) create, incur, assume, or suffer to exist any indebtedness or
issuances of debt securities or assume, guarantee, endorse or otherwise as
an accommodation become responsible for the obligations of any other
individual, corporation or other entity, other than (i) the accretion of
indebtedness under the Indenture, dated as of July 12, 2000 (the "Company
Indenture"), (ii) borrowings under the Senior Credit Facility, dated July
12, 2000, among the Company, its Subsidiaries, Toronto Dominion (Texas),
Inc., GE Capital Corporation and the other lenders party thereto (the
"Company Credit Facility") or any replacement facilities (iii) borrowings
in connection with intercompany loans solely between and among the Company
and its Subsidiaries, provided that the indebtedness under the Company
Credit Facility shall not exceed $100,000,000 in the aggregate prior to the
Effective Time;
(k) (i) enter into, renew, amend or waive in any material manner, or
terminate or give notice of a proposed renewal or material amendment,
waiver or termination of, any Company Contract, agreement or lease to which
the Company or any of its Subsidiaries is a party or by which the Company
or any of its Subsidiaries or their respective properties is bound, other
than in the ordinary course of business or (ii) enter into, renew, amend,
waive or terminate, or give notice of a proposed renewal, amendment, waiver
or termination of, any Company Sprint Agreement.
(l) take or cause to be taken any action that could reasonably be
expected to delay the consummation of the transactions contemplated hereby,
including without limitation, the consummation of the Merger and the filing
and the effectiveness of the S-4 Registration Statement;
(m) other than (i) elections made on the Company's and its Subsidiaries'
initial corporation federal and state tax returns, and (ii) the election
made by the Company and its Subsidiaries pursuant to Nebraska Regulation,
Reg. 1-009.05, make any material election relating to Taxes, change any
material election relating to Taxes already made, adopt any new accounting
method relating to Taxes, change any accounting method relating to Taxes
unless required by GAAP, enter into any closing agreement relating to
Taxes, settle any claim or assessment relating to Taxes or consent to any
claim or assessment relating to Taxes or any waiver of the statute of
limitations for any such claim or assessment;
(n) enter into or amend in any material manner any contract, agreement
or arrangement with any officer, director, employee, consultant or
stockholder of the Company or any of its Subsidiaries or with any Affiliate
or Associate of any of the foregoing;
(o) acquire additional territory or related assets from Sprint PCS
except if Public has failed to object in writing in its sole discretion
within ten business days after receipt of notification from the Company of
a proposal from Sprint PCS as to such territory or assets;
(p) authorize for issuance, issue, deliver, sell, pledge, dispose of,
encumber or grant any lien on, or authorize or propose the issuance,
delivery, sale, pledge, disposition of, encumbrance or grant of any lien
on, any shares of its capital stock or capital stock of any of its
Subsidiaries, or other voting securities or any securities convertible into
or exercisable for, or any rights, warrants or options to acquire, any such
securities or voting securities or any other ownership interest (or
interest the value of which is derived by reference to any of the
foregoing), or enter into any agreement with respect to any of the
foregoing;
(q) pay, satisfy, discharge or settle any claims, liabilities or
obligations (absolute, accrued, contingent or otherwise), other than in the
ordinary course of business and consistent with past practice or pursuant
to
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mandatory terms of any contract in effect on the date hereof, involving
payments by the Company in excess of $2,500,000, individually or in the
aggregate;
(r) make any loans, advances or capital contributions to, or investments
in any other Person in excess of $1,000,000, individually or in the
aggregate, other than (i) by the Company or a Subsidiary of the Company to
or in the Company or any direct or indirect wholly owned Subsidiary of the
Company or (ii) pursuant to and in accordance with the terms of any
contract or other legal obligations of the Company or any of its
Subsidiaries existing at the date of this Agreement and set forth in
Section 6.1(r) of the Company Disclosure Schedule;
(s) enter into any new line of business;
(t) enter into, implement, or otherwise become subject to or bound by
any new employment agreement, arrangement, commitment or program which
provides for severance payments or benefits, individually or in the
aggregate, or amend any existing employment agreement, arrangement,
commitment or program in a manner that increases any severance payments or
benefits by more than $100,000, individually or in the aggregate;
(u) authorize or permit any of its officers, directors, employees or
agents to directly or indirectly solicit, initiate or encourage any
inquiries relating to, or the making of any proposal which constitutes, a
"takeover proposal" (as defined below), or recommend or endorse any
takeover proposal, or participate in any discussions or negotiations, enter
into any agreement with respect to any takeover proposal or provide third
parties with any nonpublic information, relating to any such inquiry or
proposal or otherwise facilitate any effort or attempt to make or implement
a takeover proposal. The Company will immediately cease and cause to be
terminated any existing activities, discussions or negotiations previously
conducted with any parties other than Public with respect to any of the
foregoing. The Company will take all actions necessary or advisable to
inform the appropriate individuals or entities referred to in the first
sentence hereof of the obligations undertaken in this Section 6.1(u). The
Company will notify Public immediately if any such inquiries or takeover
proposals are received by, any such information is requested from, or any
such negotiations or discussions are sought to be initiated or continued
with, the Company, and the Company will promptly inform Public in writing
of all of the relevant details with respect to the foregoing. As used in
this Agreement, "takeover proposal" shall mean any tender or exchange
offer, proposal for a merger, consolidation or other business combination
involving the Company or any Subsidiary of the Company or any proposal or
offer to acquire in any manner a substantial equity interest in, or a
substantial portion of the assets of, the Company or any Subsidiary of the
Company other than the transactions contemplated or permitted by this
Agreement;
(v) make any capital expenditures other than those which are in an
amount of no more than $75,000,000 in the aggregate;
(w) voluntarily permit any material insurance policy naming the Company
or any Subsidiary of the Company as a beneficiary or a loss payee to be
canceled or terminated other than in the ordinary course of business; or
(x) agree to do any of the foregoing.
Section 6.2. Covenants of Public. During the period from the date of this
Agreement and continuing until the Effective Time, except as expressly
contemplated or permitted by this Agreement or with the prior written consent
of the Company, Public and its Subsidiaries shall carry on their respective
businesses in the ordinary course consistent with past practice and in
compliance with applicable law (including all applicable Environmental Laws).
Public will use its reasonable best efforts to (x) preserve its business
organization and that of its Subsidiaries intact, (y) keep available to itself
the present services of the employees of Public and its Subsidiaries and (z)
preserve for itself the existing business relationships and the goodwill of the
customers and distributors of Public and its Subsidiaries and others with whom
business relationships exist. Without limiting the generality of the foregoing,
and except as set forth in Section 6.2 of the Public Disclosure Schedule or as
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otherwise contemplated by this Agreement or consented to in writing by the
Company, prior to the Effective Time or the date this Agreement terminates,
Public shall not, and shall not permit any of its Subsidiaries to:
(a) other than dividends from one Subsidiary to another Subsidiary or to
Public, declare, set aside, or pay any dividends on or make any other
distributions in respect of any of its capital stock;
(b) (i) split, combine or reclassify any shares of its capital stock, or
issue or authorize or propose the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock;
(ii) repurchase, redeem or otherwise acquire any shares of the capital
stock of Public or any of its Subsidiaries, or any securities convertible
into or exercisable for any shares of the capital stock of Public or any of
its Subsidiaries; or (iii) issue, deliver or sell, or authorize or propose
the issuance, delivery or sale of, any shares of its capital stock or any
securities convertible into or exercisable for, or any rights, warrants or
options to acquire, any such shares, or enter into any agreement with
respect to any of the foregoing, except in the case of this clause (iii),
for (A) the issuance of Public Common Stock upon the exercise of options,
warrants or other rights to purchase Public Common Stock outstanding and in
existence on the date of this Agreement or issued as permitted by clause
(B) hereof, in each case in accordance with their terms and (B) the
issuance of options to purchase up to 400,000 shares of Public Common Stock
in the aggregate in the ordinary course of Public's business, including,
without limitation, option grants to future employees of Public consistent
with past practice;
(c) amend its Certificate of Incorporation, By-Laws or other similar
governing documents, other than immaterial amendments relating to corporate
procedure and which do not adversely affect the ability of Public to
consummate the transactions contemplated hereby or to perform its
obligations hereunder;
(d) (i) acquire, be acquired, or agree to acquire or be acquired, by
merging or consolidating with, or by purchasing or selling a substantial
equity interest in or a substantial portion of the assets of, or by any
other manner, any business or any corporation, partnership, association or
other business organization or division thereof, or otherwise acquire or
sell any assets, which would, individually or in the aggregate, exceed
$5,000,000; (ii) authorize or permit any of its officers, directors,
employees or Agents to directly or indirectly solicit, initiate or
encourage any inquiries relating to, or the making of any proposal which
constitutes a takeover proposal; (iii) approve any transaction that would
permit any Person or group to acquire shares of Public Common Stock if such
acquisition would cause such Person or group to be deemed to beneficially
own 15% or more of the shares of Public Common Stock for purposes of
Section 203 of the DGCL or (iv) participate in any discussions or
negotiations or provide third parties with any nonpublic information
relating to a takeover proposal unless the Public Board of Directors
determines in good faith that it would be inconsistent with its fiduciary
duties not to participate in such discussions or negotiations or provide
such information, after receipt of advice from its outside legal counsel to
such effect;
(e) take any action that is intended or may reasonably be expected to
result in any of its representations and warranties set forth in this
Agreement being or becoming untrue in any material respect, or in any of
the conditions to the Merger set forth in Article VIII not being satisfied;
(f) change its methods of accounting in effect at December 31, 2000,
except as required to comply with changes in GAAP as concurred with by
Public's independent auditors;
(g) take or cause to be taken any action that could reasonably be
expected to disqualify the Merger as a tax free reorganization under
Section 368(a) of the Code;
(h) sell, lease, encumber, assign or otherwise dispose of, or agree to
sell, lease, encumber, assign or otherwise dispose of, any of its assets,
properties or other rights or agreements, other than (i) dispositions
required to be made pursuant to an agreement or contract to which Public or
any of its Subsidiaries is a party or by which it is bound as of the date
of this Agreement and which has been disclosed to Public, (ii) dispositions
of inventory and excess or obsolete assets, (iii) the sale of towers and
the leaseback of availability of towers that result in proceeds of at least
$200,000 per tower and (iv) sales or dispositions
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not included in clauses (i), (ii) or (iii) above involving consideration
not to exceed $25,000,000 in the aggregate;
(i) create, incur, assume, or suffer to exist any indebtedness or
issuances of debt securities or assume, guarantee, endorse or otherwise as
an accommodation become responsible for the obligations of any other
individual, corporation or other entity, other than (i) the accretion of
indebtedness under the Indenture, dated as of September 30, 1999, by and
among Public, AGW Leasing Company, Inc. and Bankers Trust Company (the
"Public Indenture"), (ii) borrowings under the Credit Agreement, dated as
of August 16, 1999, among Public, State Street Bank and Trust Company (as
Collateral Agent), certain Lenders thereto and Lucent Technologies Inc.
(the "Public Credit Facility") or any replacement facilities and (iii)
borrowings in connection with intercompany loans solely between and among
Public and its Subsidiaries, provided, that the indebtedness under the
Public Credit Facility shall not exceed $125,300,000 in the aggregate prior
to the Effective Time;
(j) (i) enter into, renew, amend or waive in any material manner, or
terminate or give notice of a proposed renewal or material amendment,
waiver or termination of, any Public Contract, agreement or lease to which
Public or any of its Subsidiaries is a party or by which Public or any of
its Subsidiaries or their respective properties is bound, other than in the
ordinary course of business or (ii) enter into, renew, amend, waive or
terminate, or give notice of a proposed renewal, amendment, waiver or
termination of, any Public Sprint Agreement.
(k) take or cause to be taken any action that could reasonably be
expected to delay the consummation of the transactions contemplated hereby,
including without limitation, the consummation of the Merger and the filing
and the effectiveness of the S-4 Registration Statement;
(l) acquire additional territory or related assets from Sprint PCS
except if the Company has failed to object in writing in its sole
discretion within ten business days after receipt of notification from
Public of a proposal from Sprint PCS as to such territory or assets;
(m) make any loans, advances or capital contributions to, or investments
in any other Person in excess of $1,000,000, individually or in the
aggregate, other than by Public or a Subsidiary of Public to or in Public
or any direct or indirect wholly owned Subsidiary of Public;
(n) enter into any new line of business;
(o) make any capital expenditures other than those which are in an
amount of no more than $65,000,000 in the aggregate; or
(p) agree to do any of the foregoing.
ARTICLE VII
Additional Agreements
Section 7.1. Regulatory Matters. (a) Public shall prepare and file with the
SEC, as promptly as practicable following the date hereof (but in no event
later than September 30, 2001) the S-4 Registration Statement (including the
Prospectus/Proxy Statement constituting a part thereof) in a form which
contemplates the public reoffering of all of the Public Common Stock issued to
the former stockholders of the Company. Public shall use its reasonable best
efforts to have the S-4 Registration Statement declared effective under the
Securities Act as promptly as practicable after such filing, and promptly
thereafter shall mail the Prospectus/Proxy Statement to its stockholders.
Public shall also use its reasonable best efforts to obtain prior to the
effective date of the S-4 Registration Statement all necessary state securities
law or "Blue Sky" permits and approvals required in connection with the Merger
and the other transactions contemplated by this Agreement and will pay all
expenses incident thereto; provided, that Public shall not be required to
qualify to do business in any jurisdiction in which it is not now so qualified
to do business, to file a general consent to service of process in any
jurisdiction in which it is not now so qualified or to subject itself to
taxation in any jurisdiction in which it is not now so qualified to do
business. In addition to the foregoing, as promptly as is
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reasonably practicable following the date that the S-4 Registration statement
is declared effective under the Securities Act, Public shall prepare and file
with the SEC a registration statement on Form S-3 (the "S-3 Registration
Statement") relating to the proposed "Underwritten Offering" (as defined in
Section 2 of the Registration Rights Agreement). The Company shall furnish all
information concerning the Company and the holders of Company Common Stock and
Company Preferred Stock as may be reasonably requested in connection with any
of the foregoing actions. Prior to filing the S-4 Registration Statement and
the S-3 Registration Statement with the SEC pursuant to this Section 7.1(a),
Public shall provide the Company and its representatives a reasonable
opportunity to review and comment on the S-4 Registration Statement and the S-3
Registration Statement.
(b) The parties hereto shall cooperate with each other and use all
reasonable efforts to promptly prepare and file following the date of this
Agreement all necessary documentation (including, without limitation, assisting
each party's stockholders with filing notifications required to be filed by any
such stockholder under the HSR Act in connection with the Merger) to effect all
applications, notices, petitions and filings, and to obtain as promptly as
practicable all permits, consents, approvals and authorizations of all third
parties and Governmental Entities which are necessary or advisable to
consummate the transactions contemplated by this Agreement (including, without
limitation, filing the notification provided for under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act")) in connection
with the Merger, and taking all necessary action to cause the expiration of the
notice periods under the HSR Act with respect to the Merger as promptly as
reasonably practicable after the date of this Agreement; provided, however,
that nothing in this Section 7.1(b) shall require Public or Merger Sub to agree
to the imposition of conditions or any requirement of divestiture as a result
of antitrust concerns. The Company and Public shall have the right to review in
advance, and to the extent practicable each will consult the other on, in each
case subject to applicable laws relating to the exchange of information, all
the information relating to the Company or Public, as the case may be, and any
of their respective Subsidiaries, which appears in any filing made with, or
written materials submitted to, any third party or any Governmental Entity in
connection with the transactions contemplated by this Agreement, except for
documents filed pursuant to Item 4(c) of the Pre-Merger Notification and Report
Form filed under the HSR Act or communications regarding the same or documents
or information submitted in response to any request for additional information
or documents pursuant to the HSR Act which reveal Public's or the Company's
negotiating objectives or strategies or purchase price expectations. In
exercising the foregoing right, each of the parties hereto shall act reasonably
and as promptly as practicable. The parties hereto agree that they will consult
with each other with respect to the obtaining of all permits, consents,
approvals and authorizations of all third parties and Governmental Entities
necessary or advisable to consummate the transactions contemplated by this
Agreement and each party will keep the other apprised of the status of matters
relating to completion of the transactions contemplated herein. In the event
that either party shall fail to obtain any third party consent described above,
such party shall use its reasonable best efforts, and shall take any such
actions reasonably requested by the other party hereto, to minimize any adverse
effect upon the business of the Company, Public and any of their respective
Subsidiaries after the Effective Time which results from, or could reasonably
be expected to result from, the failure to obtain such consent.
(c) Each of Public and the Company shall, upon request, furnish the other
with all information concerning themselves, their Subsidiaries, directors,
officers and stockholders and such other matters as may be reasonably necessary
or advisable in connection with the S-4 Registration Statement, the
Prospectus/Proxy Statement, the Public Shelf Registration Statement (as defined
in Section 7.1(f)) or any other statement, filing, notice or application made
by or on behalf of Public, the Company or any of their respective Subsidiaries
to any Governmental Entity in connection with the Merger and the other
transactions contemplated by this Agreement.
(d) If at any time prior to the Effective Time any information relating to
Public or the Company, or any of their respective Affiliates, officers or
directors is discovered by Public or the Company which should be set forth in
an amendment or supplement to any of the S-4 Registration Statement, the
Prospectus/Proxy Statement or any other statement, filing, notice or
application made by or on behalf of Public, the Company or any of their
Subsidiaries to any Governmental Entity in connection with the Merger and the
other transactions contemplated by this Agreement, so that any of such
documents would not include any misstatement of a
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material fact or would omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, the party which
discovers such information shall promptly notify the other parties to this
Agreement and an appropriate amendment or supplement describing such
information shall be filed as soon as practicable with the SEC or such
Governmental Entity, as the case may be, and, to the extent required by law,
disseminated to the stockholders of Public.
(e) Each of Public and the Company shall promptly furnish each other with
true and correct copies of written communications received by Public or the
Company, as the case may be, or any of their respective Subsidiaries,
Affiliates or Associates from, or delivered by any of the foregoing to, any
Governmental Entity in respect of the transactions contemplated hereby
(including, (i) in the case of Public, all written correspondence with the SEC
in connection with the S-4 Registration Statement, the S-3 Registration
Statement and the Prospectus/Proxy Statement and all other documents filed by
Public with the SEC prior to the Effective Time and not available via EDGAR,
and (ii) in the case of the Company, all written communication between the
Company and the SEC prior to the Effective Time), except for documents filed
pursuant to Item 4(c) of the Pre-Merger Notification and Report Form filed
under the HSR Act or communications regarding the same or documents or
information submitted in response to any request for additional information or
documents pursuant to the HSR Act which reveal Public's or the Company's
negotiating objectives or strategies or purchase price expectations.
(f) Public shall file a reoffering prospectus (which shall include a
description of the plan of distribution of the shares of Public Common Stock
received pursuant to the Merger, including, without limitation, a description
that contemplates all anticipated forms of sales into the market, including
underwritten offerings, as well as block trades, and sales by in-kind
distributees, which description shall be in the form reasonably requested by
the former stockholders of the Company) as part of the S-4 Registration
Statement or if not permitted by the SEC to be included in the S-4 Registration
Statement then promptly after the Effective Time but in no event later than 15
days, Public shall file (i) pursuant to Rule 424 promulgated under the
Securities Act or (ii) if not permitted under Rule 424, then a post-effective
amendment to the S-4 Registration Statement (together with the prospectus
included therein, in either case the "Public Shelf Registration Statement")
pursuant to Rule 415 promulgated under the Securities Act in order to cover the
resale from time to time of shares of Public Common Stock received pursuant to
the Merger, and any securities issued or distributed in respect thereof, or in
substitution therefor, in connection with any stock split, dividend, spin-off
or combination, or any reclassification, merger, consolidation, exchange or
other similar reorganization or business combination (collectively, the "Merger
Common Shares"). If required to be filed as a post-effective amendment, Public
shall use its reasonable best efforts to cause such Public Shelf Registration
Statement to be declared effective as soon thereafter as practicable. Public
will use all reasonable efforts to keep such Public Shelf Registration
Statement effective, including, without limitation, maintaining current
disclosure required under the Exchange Act, until the earliest to occur of: (A)
such date as all of the Merger Common Shares have been resold, (B) such time as
all Merger Common Shares held by the former stockholders of the Company can be
resold pursuant to Rule 144(k) under the Securities Act and (C) the third
anniversary of the Effective Time. Public shall provide customary
indemnification to all holders of Public Common Stock whose shares are included
in the Public Shelf Registration Statement.
Section 7.2. Access to Information. (a) Upon reasonable notice and subject
to applicable laws relating to the exchange of information, the Company shall,
and shall cause each of its Subsidiaries to, afford to the officers, employees,
accountants, counsel and other representatives of Public, access, during normal
business hours during the period prior to the Effective Time, to all its
properties, books, contracts, commitments, records, officers, employees,
accountants, counsel and other representatives and, during such period, the
Company shall, and shall cause its Subsidiaries to, make available to Public
all information concerning its business, properties and personnel as Public may
reasonably request. Under no circumstance shall Public conduct any sampling of
the air, land, surface, water, groundwater or building structures or materials
without the prior written consent from the Company. Neither the Company nor any
of its Subsidiaries shall be required
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to provide access to or to disclose information where such access or disclosure
would violate or prejudice the rights of the Company's customers, jeopardize
any attorney-client privilege or contravene any law, rule, regulation, order,
judgment, decree or binding agreement entered into prior to the date of this
Agreement. The parties hereto will make appropriate substitute disclosure
arrangements under circumstances in which the restrictions of the preceding
sentence apply.
(b) Upon reasonable notice and subject to applicable laws relating to the
exchange of information, Public shall, and shall cause each of its Subsidiaries
to, afford to the officers, employees, accountants, counsel and other
representatives of the Company, access, during normal business hours during the
period prior to the Effective Time, to such information regarding Public and
its Subsidiaries as shall be reasonably necessary for the Company to confirm
that the representations and warranties of Public contained herein are true and
correct and that the covenants of Public contained herein have been performed
in all material respects. Neither Public nor any of its Subsidiaries shall be
required to provide access to or to disclose information where such access or
disclosure would violate or prejudice the rights of Public's customers,
jeopardize any attorney-client privilege or contravene any law, rule,
regulation, order, judgment, decree or binding agreement entered into prior to
the date of this Agreement. The parties hereto will make appropriate substitute
disclosure arrangements under circumstances in which the restrictions of the
preceding sentence apply.
(c) All information furnished by either party to the other party or its
representatives pursuant hereto shall be treated as the sole property of the
delivering party and, if the Merger shall not occur, the receiving party and
its representatives shall, if requested by the delivering party, return to the
delivering party all of such written information and all documents, notes,
summaries or other materials containing, reflecting or referring to, or derived
from, such information. The receiving party shall, and shall use all reasonable
efforts to cause its representatives to, keep confidential all such
information, and shall not directly or indirectly use such information for any
competitive or other commercial purpose. The obligation to keep such
information confidential shall continue for five years from the date the
proposed Merger is abandoned and shall not apply to any information which (x)
was already in the receiving party's possession prior to the disclosure thereof
by the delivering party; (y) was then generally known to the public or (z) was
disclosed to the receiving party by a third party not bound by an obligation of
confidentiality. It is further agreed that, if the receiving party, in the
opinion of its counsel, is required by applicable law, regulation or legal
process to disclose information concerning the delivering party to any tribunal
or governmental body or agency or else stand liable for contempt or suffer
other censure or penalty, the receiving party may disclose such information to
such tribunal or governmental body or agency without liability hereunder,
provided, however, that prior to any such disclosure, the receiving party shall
promptly notify the delivering party so that the delivering party may seek a
protective order or other appropriate remedy.
(d) Each of Public and the Company agrees to provide the other with copies
of any and all material correspondence between such party and Sprint PCS during
the period prior to the Effective Time.
(e) No investigation by either of the parties or their respective
representatives shall affect the representations, warranties, covenants or
agreements of the other set forth herein.
Section 7.3. Stockholder Meeting. (a) Public shall take all steps necessary
to duly call, give notice of, convene and hold a meeting of its stockholders to
be held as soon as practicable after the date on which the S-4 Registration
Statement becomes effective for the purpose of obtaining Public stockholder
approval of the Required Public Vote. Public, through its Board of Directors,
shall (i) recommend to its stockholders approval of the Required Public Vote
and (ii) use its best efforts (including the solicitation of proxies) to
solicit such approval and shall take all other action necessary or advisable to
secure the Required Public Vote.
(b) The Company shall take all steps necessary to duly call, give notice of,
convene and hold a meeting of its stockholders to be held prior to the
Effective Time for the purpose of voting to approve and adopt this Agreement
and the Merger; provided, however, that the Company may obtain the approval and
adoption of the Agreement and the Merger by its stockholders by written
consents in lieu of having a stockholder meeting. The
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Company will, through its Board of Directors, recommend to its stockholders
approval and adoption of this Agreement and the Merger.
Section 7.4. Legal Conditions to Merger. Prior to the Effective Time, each
of Public and the Company shall, and shall cause its Subsidiaries to, use all
reasonable efforts (a) to take, or cause to be taken, all actions necessary,
proper or advisable to comply promptly with all legal requirements which may be
imposed on such party or its Subsidiaries with respect to the Merger and,
subject to the conditions set forth in Article VIII hereof, to consummate the
Merger and (b) to obtain (and to cooperate with the other party to obtain) any
consent, authorization, order or approval of, or any exemption by, any
Governmental Entity and any other third party which is required to be obtained
by Public or the Company or any of their respective Subsidiaries in connection
with the Merger and the other transactions contemplated by this Agreement, and
to comply with the terms and conditions of such consent, authorization, order
or approval; provided, however, that nothing in this Section 7.4 shall require
Public or Merger Sub to agree to the requirement of any divestiture in exchange
for such consent.
Section 7.5. Affiliates. Prior to the Closing, if requested by Public, the
Company shall use its reasonable best efforts to cause each director, executive
officer and other Person who may be deemed an "affiliate" (for purposes of Rule
145 under the Securities Act) of Public following consummation of the Merger to
deliver to Public a written agreement in a form reasonably acceptable to Public
and the Company with respect to such Person's shares of Public Common Stock to
be acquired in connection with the Merger.
Section 7.6. Nasdaq Listing. Public shall use its best efforts to cause the
shares of Public Common Stock to be issued in the Merger and upon exercise of
Company Options and Company Warrants assumed by Public pursuant to Section 1.5
and Section 1.6 hereof to be approved for listing on Nasdaq, subject only to
official notice of issuance, prior to the Effective Time.
Section 7.7. Employee Benefit Plans; Existing Agreements. (a) It is the
present intention of Public that for one year following the Effective Time,
employees and former employees of the Company and its Subsidiaries (the
"Company Employees") shall either continue to participate in the Company
Benefit Plans on the same terms and conditions as applied immediately prior to
the Effective Time or shall participate in plans, policies, programs and
arrangements ("Public Plans") with substantially similar benefits in which
similarly-situated employees of Public and its Subsidiaries participate.
(b) With respect to each Public Plan that is an "employee benefit plan," as
defined in Section 3(3) of ERISA, for purposes of determining eligibility to
participate, vesting, and entitlement to benefits, including for severance
benefits and vacation entitlement (but not for accrual of pension benefits),
service with the Company and its Affiliates shall be treated as service with
Public; provided, however, that such service shall not be recognized to the
extent that such recognition would result in a duplication of benefits. Such
service also shall apply for purposes of satisfying any waiting periods,
evidence of insurability requirements, or the application of any preexisting
condition limitations. Company Employees shall be given credit for amounts paid
under a corresponding benefit plan during the same period for purposes of
applying deductibles, co-payments and out-of-pocket maximums as though such
amounts had been paid in accordance with the terms and conditions of the Public
Plan.
(c) Following the Effective Time, Public shall honor and shall cause the
appropriate Subsidiaries of Public (including the Company) to honor in
accordance with their terms all employment, severance and other compensation
agreements and arrangements existing prior to the execution of this Agreement
which are between the Company or any of its Subsidiaries and any director,
officer or employee thereof and which have been disclosed in the Company
Disclosure Schedule and previously have been delivered to Public.
(d) The Company agrees not to allow any cashless option exercises prior to
the Effective Time, and agrees not to take any action prior to the Effective
Time that would allow for cashless option exercises following the Effective
Time.
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Section 7.8. Additional Agreements. In case at any time after the Effective
Time any further action is necessary or desirable to carry out the purposes of
this Agreement, the proper officers and directors of each party to this
Agreement and their respective Subsidiaries shall take all such necessary
action as may be reasonably requested by Public.
Section 7.9. Advice of Changes. Prior to the Effective Time, each of Public
and the Company shall promptly advise the other party of any change or event
having a Material Adverse Effect on it or which it believes has had or could
reasonably be expected to cause or constitute a material breach of any of its
representations, warranties or covenants contained herein. From time to time
prior to the Effective Time (and on the date prior to the Closing Date), each
party will supplement or amend its Disclosure Schedules delivered in connection
with the execution of this Agreement to reflect any matter which, if existing,
occurring or known at the date of this Agreement, would have been required to
be set forth or described in such Disclosure Schedules or which is necessary to
correct any information in such Disclosure Schedules which has been rendered
inaccurate thereby. No supplement or amendment to such Disclosure Schedules
shall have any effect for the purpose of determining satisfaction of the
conditions set forth in Sections 8.2(a) or 8.3(a) hereof, as the case may be,
or the compliance by the Company or Public, as the case may be, with the
respective covenants and agreements of such parties contained herein.
Section 7.10. Current Information. During the period from the date of this
Agreement to the Effective Time, each of the Company and Public will cause one
or more of its designated representatives to confer on a regular and frequent
basis (not less than monthly) with representatives of the other and to report
the general status of its respective ongoing operations. Prior to the Effective
Time, each of the Company and Public will promptly notify the other of any
material change in the normal course of its business or in the operation of its
properties and of any governmental complaints, investigations or hearings (or
communications indicating that the same may be contemplated), or the
institution or the threat of significant litigation involving it, its
Subsidiaries, and will keep the other fully informed of such events.
Section 7.11. Accountants' Letter. The Company shall use its reasonable
efforts to cause to be delivered to Public a letter of its independent public
accountants dated (i) the date on which the S-4 Registration Statement shall
become effective (or if the Proxy Statement is not included in the S-4
Registration Statement, the date of the Proxy Statement) and (ii) the Closing
Date, and in each case addressed to the Board of Directors of Public and in
form and substance customary for "comfort" letters delivered by independent
accountants in connection with registration statements similar to the S-4
Registration Statement.
Section 7.12. Additional Reports and Information. (a) The Company shall
deliver to Public, concurrently with delivery to the members of the Company's
Board of Directors, all financial statements of the Company and its
Subsidiaries delivered to the Company's Board of Directors.
(b) Public shall deliver to the Company, concurrently with delivery to the
members of Public's Board of Directors, all financial statements of Public and
its Subsidiaries delivered to Public's Board of Directors.
Section 7.13. Section 16(b) Matters. Prior to the Effective Time, Public
shall take all such steps as may be required to cause any acquisitions of
Public Common Stock (including derivative securities with respect to Public
Common Stock), resulting from the transactions contemplated by this Agreement,
by each Person who will be subject to the reporting requirements of Section
16(a) of the Exchange Act with respect to Public, to be exempt under Rule 16b-3
promulgated under the Exchange Act, such steps to be taken in accordance with
the interpretive guidance of the SEC.
Section 7.14. Nomination of Directors. (a) Public shall cause two of the
eight members constituting its Board of Directors immediately prior to the
Effective Time to resign from the Board of Directors, effective as of the
Effective Time. Effective as of the Effective Time, the authorized number of
members on the Board of Directors of Public shall be increased by one member
such that the size of the Board of Directors of Public shall be fixed at nine
members and Public shall cause its remaining directors to fill the vacancies
created by
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such resignations so that Public's Board of Directors shall be comprised of (i)
one member designated by the Company (the "Company Director"), (ii) one member
designated by Blackstone (the "Blackstone Director") and (iii) one member
designated by the Company with the approval of Public, which approval shall not
be unreasonably withheld, provided that such member shall be an "independent
director" (as defined for purposes of listing on Nasdaq) (the "Independent
Director") and shall not be a Company Stockholder or an Affiliate or Associate
of a Company Stockholder (the directors contemplated in clause (i), (ii) and
(iii) above are collectively referred to as the "Company Nominated Directors").
(b) Subject to the foregoing, as of the Effective Time (i) the class of
directors whose term expires at Public's 2002 annual meeting of stockholders
shall include the Company Director, (ii) the class of directors whose term
expires at Public's 2003 annual meeting of stockholders shall include the
Blackstone Director and (iii) the class of directors whose term expires at
Public's 2004 annual meeting of stockholders shall include the Independent
Director. Public shall nominate the Company Director for re-election to the
Public Board of Directors at the 2002 annual meeting of stockholders for a term
expiring at Public's 2005 annual meeting of stockholders. In the event that the
Company Director ceases to serve on the Board of Directors of Public at any
time prior to Public's 2005 annual meeting of stockholders, the Company
Stockholders shall promptly designate a person to replace the Company Director
and Public shall appoint such designated person to the Public Board of
Directors. "Company Stockholders" shall mean the stockholders of the Company
immediately prior to the Effective Time.
(c) Effective as of the Effective Time, the Public Board of Directors shall
appoint one of the Company Nominated Directors to all committees of the Public
Board of Directors (including, without limitation, the Executive Committee);
provided, however, that if any committee of the Public Board of Directors shall
be comprised of more than four members, then the Public Board of Directors
shall appoint two of the Company Nominated Directors to such committee.
(d) Immediately upon any sales or in-kind distributions by Blackstone of a
cumulative aggregate number of shares of Public Common Stock equal to or
greater than 75% of the number of shares of Public Common Stock received by
Blackstone pursuant to the Merger, the Blackstone Director shall deliver to
Public his or her resignation as a member of the Public Board of Directors,
such resignation to be effective as of the day of completion of such sale or
in-kind distribution which satisfies or exceeds such cumulative aggregate
threshold and thereafter the Public Board of Directors shall be reduced by one
member.
Section 7.15. Supplemental Warrant Agreement; Warrant Notices. On or prior
to the Closing Date, (i) the Company and Public shall execute a supplemental
warrant agreement with ChaseMellon, pursuant to Section 8(m) of the Warrant
Agreement, and the Company shall provide ChaseMellon with a certificate from
the appropriate officer of the Company in accordance with the terms of Section
16 of the Warrant Agreement and (ii) the Company and Public shall deliver the
notice required by Section 2(d) of the Sprint Warrant. The Company shall also
provide any and all notices required to be provided on or prior to the Closing
Date pursuant to the Warrant Agreement (including without limitation pursuant
to Sections 8(m) and 10 of the Warrant Agreement).
Section 7.16. Expenses. Whether or not the Merger is consummated, all costs
and expenses incurred in connection with this Agreement, the Merger and the
transactions contemplated hereby shall be paid by the party incurring or
required to incur such expense. The expenses incurred in connection with filing
the S-4 Registration Statement (including the filing fee), printing and mailing
the Prospectus/Proxy Statement and the filing fees for all notifications
required to be filed in connection with the Merger under the HSR Act shall be
paid by Public. Nothing contained in this Section 7.16 shall limit either
party's rights to recover any liabilities or damages arising out of the other
party's willful\l breach of any provision of this Agreement.
Section 7.17. Indemnification. (a) From and after the Effective Time, Public
shall cause the Surviving Corporation to indemnify and hold harmless each
present and former director and officer of the Company (the "Indemnified
Parties") against any costs or expenses (including attorneys' fees), judgments,
fines, losses,
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claims, damages, liabilities or amounts paid in settlement incurred in
connection with any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, arising out of or pertaining
to matters existing or occurring at or prior to the Effective Time, whether
asserted or claimed prior to, at or after the Effective Time, to the fullest
extent that the Company would have been permitted under the DGCL and its
Certificate of Incorporation or Bylaws in effect on the date hereof to
indemnify and to provide advancement of expenses to such Indemnified Party.
(b) The provisions of this Section 7.17 are intended to be in addition to
the rights otherwise available to the current officers and directors of the
Company by law, charter, statute, bylaw or agreement, and shall operate for the
benefit of, and shall be enforceable by, each of the Indemnified Parties, their
heirs and their representatives.
(c) Public shall cause the persons serving as officers and directors of the
Company immediately prior to the Effective Time to be covered for a period of
six (6) years from the Effective Time (the "Coverage Period") by the directors'
and officers' liability insurance policy currently maintained by the Company
with respect to acts and omissions occurring prior to the Effective Time which
were committed by such officers and directors in their capacity as such;
provided, that only in the event that such existing policy is not available
Public may substitute for such policy, policies of directors' and officers'
liability insurance of at least the same coverage and amounts and containing
terms and conditions which are not less advantageous to such directors and
officers of the Company than the terms and conditions of such policy; provided
further, that Public shall not be required as to any such policy to pay
premiums in excess of an amount equal to (i) 200% of the amount currently
expended annually by the Company to obtain such insurance and (ii) the amount
of any unearned premium under the policy currently maintained by the Company,
and if such insurance cannot be obtained for such premium Public shall obtain
for such persons the maximum coverage that may be obtained for such premiums.
Section 7.18. Takeover Statute. If any Takeover Statute is or may become
applicable to the Merger or any of the other transactions contemplated by this
Agreement, Public and its Board of Directors shall grant such approvals and
take such actions as are necessary so that such transactions may be consummated
as promptly as practicable on the terms contemplated by this Agreement or by
the Merger and otherwise act to eliminate or minimize the effects of such
statute or regulation on such transactions.
Section 7.19. Registration Rights Agreement. Prior to the Effective Time,
Public shall enter into a Registration Rights Agreement, in the form of Exhibit
B attached hereto (the "Registration Rights Agreement"). Prior to the Effective
Time, Public hereby agrees not to grant registration rights to any party or to
amend or modify any existing registration rights agreement or provisions or any
lock-up agreement or provisions in a manner which benefits the other parties
covered thereby or otherwise increases Public's obligations thereunder.
Section 7.20. Plan of Reorganization. This Agreement is intended to
constitute a "plan of reorganization" within the meaning of section 1.368-2(g)
of the income tax regulations promulgated under the Code. From and after the
date hereof and until the Effective Time, each party hereto shall use its
reasonable best efforts to cause the Merger to qualify, and will not knowingly
take any actions or cause any actions to be taken which could reasonably be
expected to prevent the Merger from qualifying, as a reorganization under the
provisions of section 368(a) of the Code.
Section 7.21. Lock-Up Agreements. (a) The Company shall obtain and deliver
an agreement from each stockholder of the Company on the date of this Agreement
owning more than 50,000 shares of Company Common Stock or Company Preferred
Stock (the "Restricted Company Stockholders") that from and after the Effective
Time and continuing until the date that is 301 days after the Effective Time,
such stockholders will not sell, transfer, assign, pledge, make any short sale
of, loan, grant any option for the purchase of, or otherwise directly or
indirectly dispose of any of its shares of Public Common Stock (collectively,
"Transfer") without the prior written consent of Public unless such Transfer
complies with the provisions hereof (the
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"Resale Restriction"). Notwithstanding the foregoing and subject to a 90-day
underwriters lock-up (if required) provided for in the Registration Rights
Agreement in connection with any underwritten offering, (i) 20% of each
Restricted Company Stockholder's shares of Public Common Stock immediately
after the Effective Time shall be released from the Resale Restriction on the
date that is 120 days after the Effective Time; (ii) an additional 30% of each
Restricted Company Stockholder's shares of Public Common Stock immediately
after the Effective Time shall be released from the Resale Restriction on the
date that is 211 days after the Effective Time and (iii) the remaining 50% of
each Restricted Company Stockholder's shares of Public Common immediately after
the Effective Time shall be released from the Resale Restriction on the date
301 days after the Effective Time. Notwithstanding the foregoing, Blackstone
and TCW (each as defined below) shall be free of the lock-up restrictions set
forth in this Section 7.21 on the later of (i) the 121st day after the
Effective Time and (ii) the 90th day after the closing date of the first
underwritten offering of shares held by any Company Stockholder, if such
offering is consummated within 120 days of the Effective Time. The provisions
of the lock-up agreement referred to in this Section 7.21 shall not: (A)
prohibit any Company Stockholder from participating in the Underwritten
Offering (as defined in Section 2 of the Registration Rights Agreement); (B)
restrict transfers solely among the eight TCW entities included in the
definition of "TCW" set forth in Section 7.21(c); and (C) restrict transfers
solely among the three Blackstone entities (not including the limited partners
thereof) included in the definition of "Blackstone" set forth in Section
7.21(c); provided, however, that with respect to transfers contemplated by
clauses (B) and (C) above, any such transferees shall remain subject to the
provisions of the lock-up agreement referred to in this Section 7.21.
(b) The restrictions set forth in Section 7.21(a) shall apply to each
Company Stockholder proportionally, and the Company Stockholders shall have no
ability to allocate released percentages disproportionately to any Company
Stockholder or group of Company Stockholders.
(c) In addition to the release schedule set forth in Section 7.21(a) above,
Blackstone may, in its sole discretion upon written notice to Public, elect to
distribute a portion or all of its shares of Public Common Stock to the
Blackstone limited partners or other investors on the later of (i) the 121st
day after the Effective Time and (ii) the 90th day after the closing date of
the first underwritten offering of shares held by any Company Stockholder, if
such offering is consummated within 120 days of the Effective Time.
"Blackstone" means Blackstone/iPCS L.L.C., a Delaware limited liability
company, Blackstone iPCS Capital Partners L.P., a Delaware limited partnership,
and Blackstone Communications Partners I, L.P., a Delaware limited partnership,
and the limited partners thereof collectively. "TCW" means, collectively,
TCW/Crescent Mezzanine Partners II, L.P., TCW/Crescent Mezzanine Trust II, TCW
Leveraged Income Trust, L.P., TCW Leveraged Income Trust II, L.P., TCW
Leveraged Income Trust IV, L.P., TCW Shared Opportunity Fund II, L.P., Shared
Opportunity Fund IIB, L.L.C. and TCW Shared Opportunity Fund III, L.P.
Section 7.22. Transfer of Company Records. Prior to the Closing, the Company
shall cooperate with and assist Public in transferring after the Effective Time
or causing to be transferred to Public after the Effective Time any files,
books, records or other documents relating to the business of the Company or
any of its Subsidiaries that are the property of the Company or any of its
Subsidiaries, that are located on premises which will not be occupied by the
Company or any of its Subsidiaries after the Closing and that are not otherwise
in the possession of the Company or any of its Subsidiaries.
Section 7.23. Formation of Merger Sub and Execution and Delivery of Sub
Joinder Agreement. Prior to the Effective Time and promptly after obtaining the
requisite consent under the Public Credit Facility, Public shall form Merger
Sub and cause Merger Sub to execute the Sub Joinder Agreement, an executed
counterpart of which shall be delivered to the Company; provided, however, that
the parties may agree to utilize \another wholly owned subsidiary of Public as
the Merger Sub referred to herein.
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ARTICLE VIII
Conditions Precedent
Section 8.1. Conditions to Each Party's Obligation To Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the satisfaction at or prior to the Effective Time of the following conditions,
any or all of which may be waived by the parties, in whole or in part, to the
extent permitted by applicable law:
(a) Stockholder Approval. This Agreement and the Merger shall have been
duly approved and adopted by the stockholders of the Company in accordance
with the DGCL, the Amended and Restated Certificate of Incorporation and
the Amended and Restated Bylaws of the Company, and the issuance of the
shares of Public Common Stock in connection with the Merger shall have been
approved by the stockholders of Public in accordance with the applicable
rules and requirements of Nasdaq.
(b) HSR Act and Other Governmental Approvals. All waiting periods, if
any, under the HSR Act with respect to the Merger (including without
limitation the waiting periods under the HSR Act applicable to
notifications filed by any stockholder of the Company) shall have expired
or been terminated. All consents, permits, licenses and approvals required
by any Governmental Entity for the Merger and the other transactions
contemplated by this Agreement shall have been obtained, in each case,
without the requirement of divestiture.
(c) No Injunctions or Restraints; Illegality. No order, injunction or
decree issued by any court or agency of competent jurisdiction or other
legal restraint or prohibition (an "Injunction") preventing the
consummation of the Merger shall be in effect (collectively, the
"Restraints"); provided, however, that each of the parties shall have used
its reasonable best efforts to prevent the entry of such Restraints and to
appeal as promptly as possible any such Restraints that may be entered. No
statute, rule, regulation, order, injunction or decree shall have been
enacted, entered, promulgated or enforced by any Governmental Entity which
prohibits, restricts or makes illegal consummation of the Merger.
(d) S-4. The S-4 Registration Statement shall have become effective
under the Securities Act. No stop order suspending the effectiveness of the
S-4 Registration Statement shall have been issued, and no proceedings for
that purpose shall have been initiated or be threatened by the SEC.
(e) Certificate of Merger. Prior to the Effective Time, the Certificate
of Merger shall be accepted for filing with the Secretary of State of the
State of Delaware.
(f) No Downgrade Event. No event or circumstance that results in or
causes any of the conditions set forth in clauses (i) through (iv) of the
definition of "Change of Control" in the Company Indenture to fail to be
satisfied shall have occurred and not subsequently have been removed.
(g) Public Consents Under Agreements. The consent, approval or waiver of
each Person whose consent or approval shall be required in connection with
the transactions contemplated hereby under any loan or credit agreement
(including the Public Credit Facility), note, mortgage, indenture, lease,
license or other agreement or instrument set forth in Section 5.4 of the
Public Disclosure Schedule shall have been obtained.
(h) Company Consents Under Agreements. The consent, approval or waiver
of each Person whose consent or approval shall be required in order to
permit the succession by the Surviving Corporation pursuant to the Merger
to any obligation, right or interest of the Company or any Subsidiary of
the Company under any loan or credit agreement (including the Company
Credit Facility), note, mortgage, indenture, lease, license or other
agreement or instrument set forth in Schedule 8.1(h) of the Company
Disclosure Schedule shall have been obtained.
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Section 8.2. Conditions to Obligations of Public and Merger Sub. The
obligation of each of Public and Merger Sub to effect the Merger is also
subject to the satisfaction, or waiver by each of Public and Merger Sub, at or
prior to the Effective Time of the following conditions:
(a) Representations and Warranties. The representations and warranties
of the Company set forth in Article IV of this Agreement shall be true and
correct in all material respects as of the date of this Agreement (except
to the extent such representations and warranties speak as of an earlier
date) and as of the Closing Date (except to the extent such representations
and warranties speak as of an earlier date) as though made on and as of the
Closing Date, except in each case where the failure of such representations
and warranties to be true and correct in all material respects, considered
in the aggregate, has not had, and is not reasonably likely to have, a
Material Adverse Effect on the Company. The Company shall have delivered to
Public and Merger Sub a certificate signed on behalf of the Company by the
Chief Executive Officer and the Chief Financial Officer of the Company to
the foregoing effect.
(b) Performance of Obligations of the Company. The Company shall have
performed all of its obligations in all material respects required to be
performed by it under this Agreement at or prior to the Closing Date, and
the Company shall have delivered to Public and Merger Sub a certificate
signed on behalf of the Company by the Chief Executive Officer and the
Chief Financial Officer of the Company to such effect.
(c) No Pending Governmental Actions. No proceeding initiated by any
Governmental Entity seeking an Injunction shall be pending.
(d) Resignation of Directors. The Company shall have delivered to Public
and Merger Sub a written resignation from each of the directors of the
Company and its Subsidiaries effective as of the Effective Time.
(e) Tax Opinion. Public shall have received a written opinion of Winston
& Strawn, in form and substance reasonably satisfactory to it, to the
effect that the Merger will constitute a reorganization within the meaning
of Section 368(a) of the Code. The issuance of such opinion shall be
conditioned on the receipt by such tax counsel of representation letters
from each of Public, Merger Sub and the Company. The specific provisions of
each representation letter shall be in a form and substance reasonably
satisfactory to such tax counsel, and each representation letter shall be
dated on or before the date of such opinion and shall not have been
withdrawn or modified in any material respect.
(f) Termination of Listed Agreements. Each of the parties to (i) the
Stockholders Agreement, dated as of July 12, 2000, by and among TCW
(together with Blackstone, the "holders of Series A-1 Preferred Stock"),
Blackstone, Geneseo Communications, Inc., an Illinois corporation,
Cambridge Telcom, Inc., an Illinois corporation, and the Company, (ii) the
Investment Agreement, dated as of July 12, 2000, among the holders of
Series A-1 Preferred Stock and the Company and (iii) the Registration
Rights Agreement, dated as of July 12, 2000 among the holders of Series A-1
Preferred Stock and the Company (collectively, the "Listed Agreements")
shall have executed and delivered an agreement in form and substance
reasonably satisfactory to Public, terminating and extinguishing, as of the
Effective Time, all of such Persons' rights and obligations under such
Listed Agreements.
(g) Company Documents. The Company shall have delivered to Public and
Merger Sub (a) a certificate, validly executed by the Secretary of the
Company and dated as of the date of the Effective Time, certifying as to
(i) the terms and effectiveness of the Company's Amended and Restated
Certificate of Incorporation and Amended and Restated By-Laws and (ii) the
valid adoption of resolutions of the Board of Directors of the Company and
the resolutions validly adopted by written consent of the stockholders of
the Company approving and adopting this Agreement and the consummation of
the transactions contemplated hereby and (b) certificates, issued not more
than seven days prior to the date of the Closing, (i) from the Secretary of
State of the State of Delaware, evidencing that the Company is validly
existing under the laws of such state, (ii) from every jurisdiction where
the Company is qualified, authorized, registered or licensed to do business
as a foreign entity, as set forth in Section 4.1(b) of the
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Company Disclosure Schedule, evidencing that the Company is qualified,
authorized, registered or licensed to do business as a foreign entity in
such jurisdiction and (c) a bring down certificate or other reasonably
reliable confirmation that the Company is validly existing under the laws
of Delaware as of the Closing Date.
(h) Subsidiary Documents. Each Subsidiary of the Company shall deliver
to Public and Merger Sub (a) a certificate, validly executed by a duly
authorized officer, general partner or managing member of such Subsidiary,
and dated as of the date of the Effective Time, certifying as to the terms
and effectiveness of such Subsidiary's Certificate of Incorporation and By-
Laws and (b) certificates, issued not more than seven days prior to the
date of the Closing, (i) from the Secretary of State of the State of
Delaware, evidencing that each Subsidiary is validly existing under the
laws of such state, (ii) from every jurisdiction where such Subsidiary is
qualified, authorized, registered or licensed to do business as a foreign
entity, as set forth in Section 4.1(b) of the Company Disclosure Schedule,
evidencing that such Subsidiary is qualified, authorized, registered or
licensed to do business as a foreign entity in such jurisdiction and (c)
bring down certificates or other reasonably reliable confirmation that each
Subsidiary of the Company incorporated under the laws of Delaware is
validly existing under the laws of Delaware as of the Closing Date.
(i) Accountant Letters. Public shall have received the "cold comfort"
letter of the Company's independent public accountants dated (i) the date
on which the S-4 Registration Statement shall become effective and (ii) the
Closing Date, and in each case addressed to the Board of Directors of
Public, in form and substance reasonably satisfactory to Public, and
reasonably customary in scope and substance for comfort letters delivered
by independent public accountants.
(j) Registration Rights Agreement. The stockholders of the Company
identified in the Registration Rights Agreement shall have executed and
delivered to Public the Registration Rights Agreement.
(k) Company Indenture; Company Credit Facility. No "Event of Default"
(as defined in the Company Indenture and the Company Credit Facility,
respectively) shall have occurred and be continuing under either of the
Company Indenture or the Company Credit Facility.
(l) Company Sprint Agreements. No material default by the Company or any
of its Subsidiaries shall have occurred and be continuing under the Company
Sprint Agreements.
Section 8.3. Conditions to Obligations of the Company. The obligation of the
Company to effect the Merger is also subject to the satisfaction, or waiver by
the Company, at or prior to the Effective Time of the following conditions:
(a) Representations and Warranties. The representations and warranties
of Public set forth in Article V of this Agreement shall be true and
correct in all material respects as of the date of this Agreement (except
to the extent such representations and warranties speak as of an earlier
date) and as of the Closing Date (except to the extent such representations
and warranties speak as of an earlier date) as though made on and as of the
Closing Date, except in each case where the failure of such representations
and warranties to be true and correct in all material respects, considered
in the aggregate, has not had, and is not reasonably likely to have, a
Material Adverse Effect on Public. Public shall have delivered to the
Company a certificate signed on behalf of Public by the Chief Executive
Officer and the Chief Financial Officer of Public to the foregoing effect.
(b) Performance of Obligations of Public and Merger Sub. Each of Public
and Merger Sub shall have performed all of its obligations in all material
respects required to be performed by it under this Agreement at or prior to
the Closing Date, and the Company shall have received a certificate signed
on behalf of Public and Merger Sub by the Chief Executive Officer and the
Chief Financial Officer of each of them to such effect.
(c) No Pending Governmental Actions. No proceeding initiated by any
Governmental Entity seeking an Injunction shall be pending.
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(d) Tax Opinion. The Company shall have received a written opinion of
Mayer, Brown & Platt, in form and substance reasonably satisfactory to it,
to the effect that the Merger will constitute a reorganization within the
meaning of Section 368(a) of the Code. The issuance of such opinion shall
be conditioned on the receipt by such tax counsel of representation letters
from each of Public, Merger Sub and the Company. The specific provisions of
each representation letter shall be in a form and substance reasonably
satisfactory to such tax counsel, and each representation letter shall be
dated on or before the date of such opinion and shall not have been
withdrawn or modified in any material respect.
(e) Nasdaq Listing. The shares of Public Common Stock to be issued to
the stockholders of the Company upon consummation of the Merger and upon
exercise of Company Options and Company Warrants assumed by Public pursuant
to Section 1.5 and Section 1.6 hereof shall have been authorized for
listing on Nasdaq, subject to official notice of issuance.
(f) Registration Rights Agreement. Public shall have executed and
delivered to the Company the Registration Rights Agreement.
(g) Public Indenture; Public Credit Facility. No "Event of Default" (as
defined in the Public Indenture and the Public Credit Facility,
respectively) shall have occurred and be continuing under either of the
Public Indenture or the Public Credit Facility.
(h) Public Sprint Agreements. No material default by Public or any of
its Subsidiaries shall have occurred and be continuing under the Public
Sprint Agreements.
Section 8.4. Standards. (a) Solely for purposes of Sections 8.2(a) and
8.3(a) of this Agreement, no representation or warranty of the Company
contained in Article IV (other than the representations and warranties
contained in Sections 4.1(a), 4.2, 4.3(a) 4.3(b)(i), 4.5, 4.23 and 4.26, which
shall be true and correct in all material respects) or of Public contained in
Article V (other than the representations and warranties contained in Sections
5.1(a), 5.2, 5.3(a), 5.3(c)(i), 5.5 and 5.26, which shall be true and correct
in all material respects) shall be deemed untrue or incorrect as a consequence
of the existence or absence of any fact, circumstance or event unless such
fact, circumstance or event, individually or when taken together with all other
facts, circumstances or events inconsistent with any other representations or
warranties contained in Article IV, in the case of the Company, or Article V,
in the case of Public, has had or is reasonably likely to have a Material
Adverse Effect with respect to the Company or Public, respectively. For
purposes of applying the standard set forth in the previous sentence pursuant
to Section 8.2(a) and 8.3(a), no effect shall be given to any qualifications
contained in any such representations or warranties concerning "materiality,"
"in all material respects" or "Material Adverse Effect."
ARTICLE IX
Termination and Amendment
Section 9.1. Termination. This Agreement may be terminated by action of the
Board of Directors of the terminating party or parties and the Merger may be
abandoned at any time prior to the Effective Time, whether before or after the
approval by the stockholders of the Company or the approval by the stockholders
of Public of the respective matters referred to in Section 8.1(a):
(a) by mutual written consent of the Company and Public;
(b) by either Public or the Company if the Merger shall not have been
consummated on or before March 1, 2002, unless the failure of the Closing
to occur by such date shall be due to the failure of the party seeking to
terminate this Agreement to perform or observe the covenants and agreements
of such party set forth herein;
(c) by either Public or the Company (provided that the party seeking to
terminate this Agreement shall not be in material breach of any of its
obligations under Section 7.3 hereof) if any approval of the
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stockholders of either Public or the Company required for the consummation
of the Merger or any of the other transactions contemplated by this
Agreement (including, in the case of Public, the Required Public Vote)
shall not have been obtained by reason of the failure to obtain the
required vote at a duly held meeting of such stockholders thereof;
(d) by either Public or the Company (provided that the terminating party
is not then in material breach of any representation, warranty, covenant or
other agreement contained herein) if there shall have been a material
breach of any of the representations or warranties set forth in this
Agreement on the part of the other party, which breach is not cured within
thirty days following written notice to the party committing such breach,
or sooner if such breach, by its nature, cannot be cured prior to the
Closing; provided, however, that neither party shall have the right to
terminate this Agreement pursuant to this Section 9.1(d) unless the breach
of a representation or warranty, together with all other such breaches,
would entitle the party receiving such representation not to consummate the
transactions contemplated hereby under Section 8.2(a) (in the case of a
breach of representation or warranty by the Company) or Section 8.3(a) (in
the case of a breach of representation or warranty by Public);
(e) by either Public or the Company (provided that the terminating party
is not then in material breach of any representation, warranty, covenant or
other agreement contained herein) if there shall have been a material
breach of any of the material covenants or agreements set forth in this
Agreement on the part of the other party, which breach shall not have been
cured within thirty days following receipt by the breaching party of
written notice of such breach from the other party hereto, or sooner if
such breach, by its nature, cannot be cured prior to the Closing;
(f) by either Public or the Company if any decree, permanent injunction,
judgment, order or other action by any court of competent jurisdiction or
any Governmental Entity preventing or prohibiting consummation of the
Merger shall have become final and nonappealable.
Section 9.2. Effect of Termination. (a) In the event of termination of this
Agreement by either Public or the Company as provided in Section 9.1, this
Agreement shall forthwith become void and have no effect except that (i)
Sections 7.2(c), 7.16, 9.2 and 10.3 shall survive any termination of this
Agreement and (ii) notwithstanding anything to the contrary contained in this
Agreement, no party shall be relieved or released from any liabilities or
damages arising out of its willful breach of any provision of this Agreement.
(b) If this Agreement is terminated by the Company as a result of the
failure to obtain the Required Public Vote pursuant to Section 9.1(c), (i)
Public shall pay to the Company a termination fee which consists of 257,000
shares of Public Common Stock (the "Termination Fee Shares"), which shares
shall be issued to the Company as soon as practicable but in no event later
than two Business Days after the date of such termination and shall be
exclusive of any expenses to be paid by Public pursuant to Section 7.16 and
(ii) as soon as practicable following the issuance of the Termination Fee
Shares, Public shall file a shelf registration statement providing for the
registration and reoffering of the Termination Fee Shares by the Company.
(c) The payment of a termination fee by Public pursuant to this Section 9.2
shall be the sole and exclusive remedy of the Company, its Subsidiaries and
their respective stockholders, directors, officers, employees, agents, advisors
or other representatives with respect to the occurrence giving rise to such
payment; provided that this limitation shall not apply in the event of a
willful breach of this Agreement by Public.
Section 9.3. Amendment. Subject to compliance with applicable law, this
Agreement may be amended by the parties hereto, by action taken or authorized
by their respective Boards of Directors, if applicable, at any time before or
after the approval by the stockholders of the Company or the approval by the
stockholders of Public of the respective matters referred to in Section 8.1(a);
provided, however, that after any such approval by the stockholders of the
Company or by the stockholders of Public, there may not be, without further
approval of such stockholders, any amendment or change to the provisions hereof
which by law or in accordance with the rules of any relevant stock exchange
required further approval by such stockholders. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
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Section 9.4. Extension; Waiver. At any time prior to the Effective Time,
Public, on the one hand, and the Company, on the other hand, by action taken or
authorized by its respective Board of Directors, may, to the extent legally
allowed, (a) extend the time for the performance of any of the obligations or
other acts of the Company, on the one hand, and Public or Merger Sub, on the
other hand, (b) waive any inaccuracies in the representations and warranties of
the Company, on one hand, and Public or Merger Sub, on the other hand,
contained herein or in any document delivered pursuant hereto and (c) waive
compliance by the Company, on the one hand, and Public or Merger Sub, on the
other hand, with any of its agreements contained herein, or waive compliance
with any of the conditions to its obligations hereunder. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party, but such
extension or waiver or failure to insist on strict compliance with an
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure.
ARTICLE X
General Provisions
Section 10.1. No Survival of Representations and Warranties. None of the
representations, warranties, covenants and agreements in this Agreement or in
any instrument delivered pursuant to this Agreement shall survive the Effective
Time, except for those covenants and agreements contained herein and therein
which by their terms are to be performed in whole or in part after the
Effective Time.
Section 10.2. Closing. Subject to the terms and conditions of this
Agreement, the closing of the Merger (the "Closing") will take place at 10:00
a.m. no later than three Business Days after the satisfaction or waiver
(subject to applicable law) of the latest to occur of the conditions set forth
in Article IX hereof (other than those conditions which relate to actions to be
taken at the Closing) (the "Closing Date"), at the offices of Winston & Strawn,
35 West Wacker Drive, Chicago, Illinois 60601, unless another time, date or
place is agreed to in writing by the parties hereto.
Section 10.3. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, telecopied
(with confirmation), mailed by registered or certified mail (return receipt
requested) or delivered by an express courier (with confirmation) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) if to Public or Merger Sub, to:
AirGate PCS, Inc.
Harris Tower
233 Peachtree Street NE, Suite 1700
Atlanta, Georgia 30303
Attention: Barbara L. Blackford
with a copy to:
Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601
Attn: Robert F. Wall
R. Cabell Morris, Jr.
and
(b) if to the Company, to:
iPCS, Inc.
1900 East Golf Road
Suite 900
Schaumburg, Illinois 60173
Attn: Timothy M. Yager
Stebbins B. Chandor, Jr.
A-51
with a copy to:
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
Attn: Paul W. Theiss
Robert J. Wild
Section 10.4. Interpretation, Certain Definitions. When a reference is made
in this Agreement to Sections, Exhibits or Schedules, such reference shall be
to a Section of or Exhibit or Schedule to this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include", "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation". The phrases "the date of this Agreement", "the
date hereof" and terms of similar import, unless the context otherwise
requires, shall be deemed to refer to August 28, 2001.
For purposes of this Agreement, except as otherwise expressly provided:
(a) "Affiliate" shall have the meaning set forth in Rule 12b-2
promulgated under the Exchange Act.
(b) "Associate" shall have the meaning set forth in Rule 12b-2
promulgated under the Exchange Act.
(c) "Business Day" means any day other than a day on which banks in the
State of New York are authorized or obligated to be closed.
(d) "Material Adverse Effect" means, with respect to any Person, a
material adverse effect on (i) the business, assets, properties,
liabilities, working capital, cash flows, results of operations or
financial condition of such Person and its Subsidiaries taken as a whole,
or (ii) the ability of such Person and its Subsidiaries to consummate the
transactions contemplated hereby or to perform its obligations hereunder;
provided, however, that "Material Adverse Effect" shall not be deemed to
include the impact of (A) actions and omissions of such Person or any of
its Subsidiaries taken with the prior written informed consent of the other
Person in contemplation of the transactions contemplated hereby, (B)
conditions or effects resulting from the announcement of the existence of
this Agreement and the direct effects of compliance with Sections 6.1 or
6.2 of this Agreement on the operating performance of such Person,
including expenses incurred in consummating the transactions contemplated
hereby; or (C) changes in program requirements implemented by Sprint PCS
which are generally applicable to Sprint PCS Affiliates; or (D) changes in
laws of general applicability or interpretations thereof by courts or
governmental authorities or changes in GAAP, except to the extent any such
change adversely affects the referenced Person to a materially greater
degree than other companies engaged in the same industry or business are
affected generally.
(e) "Person" means a natural person, partnership, corporation, limited
liability company, business trust, joint stock company, trust,
unincorporated association, joint venture, Governmental Entity or other
entity or organization.
(f) "Subsidiary" means, with respect to any Person, any corporation or
other organization, whether incorporated or unincorporated, of which (i)
such Person or any other Subsidiary of such Person is a general partner or
(ii) at least a majority of the securities or other interests having by
their terms ordinary voting power to elect a majority of the board of
directors or others performing similar functions with respect to such
corporation or other organization is, directly or indirectly, owned or
controlled by such
A-52
Person or by any one or more of its Subsidiaries, or by such Person and any
one or more of its Subsidiaries.
Section 10.5. Counterparts. This Agreement may be executed in counterparts,
all of which shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each of the parties and
delivered to the other parties, it being understood that all parties need not
sign the same counterpart.
Section 10.6. Entire Agreement. This Agreement (including the documents and
the instruments referred to herein) constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof.
Section 10.7. Governing Law and Venue. This Agreement shall be governed and
construed in accordance with the laws of the State of Delaware, without regard
to any applicable conflict of law principles. The parties hereby irrevocably
and unconditionally consent to submit to the exclusive jurisdiction of the
courts of the State of Delaware and of the United States of America located in
Wilmington, Delaware (the "Delaware Courts"), and consent to service of process
served in accordance with the notice provisions set forth in Section 10.3, for
any litigation arising out of or relating to this Agreement (and agree not to
commence any litigation relating thereto except in such Delaware Courts), waive
any objection to the laying of venue of any such litigation in the Delaware
Courts and agree not to plead or claim in any Delaware Court that such
litigation brought therein has been brought in an inconvenient forum.
Section 10.8. Enforcement of Agreement. The parties hereto agree that
irreparable damage would occur in the event that the provisions of this
Agreement were not performed in accordance with their specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions thereof in any court of the
United States or any state having jurisdiction, this being in addition to any
other remedy to which they are entitled at law or in equity.
Section 10.9. Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
Section 10.10. Publicity, etc. Except as otherwise required by law or by the
rules of Nasdaq, so long as this Agreement is in effect, neither Public nor the
Company shall, or shall permit any of its Subsidiaries to, issue or cause the
publication of any press release or other public announcement with respect to,
or otherwise make any public statement concerning, the transactions
contemplated by this Agreement without the consent of the other party, which
consent shall not be unreasonably withheld. In the event that Public desires to
effect an amendment to the Company Credit Facility prior to the Effective Time,
the Company agrees to cooperate in any such effort, it being understood that
any such amendment shall not be a condition to either party's obligations to
consummate the Merger, and such effort shall not be undertaken in conjunction
with obtaining a consent to the Merger under the Company Credit Facility.
Section 10.11. Assignment. Except as otherwise provided herein, neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any of the parties hereto (whether by operation of law or
otherwise) without the prior written consent of the other parties. Subject to
the preceding sentence, this Agreement will be binding upon, inure to the
benefit of and be enforceable by the parties and their respective successors
and assigns.
A-53
Section 10.12. No Third Party Beneficiaries. Except as provided in Sections
1.4, 1.5, 1.6, 2.1, 7.1, 7.6, 7.13, 7.14, 7.17 and 7.21, this Agreement is not
intended to confer upon any Person other than the parties to this Agreement any
rights or remedies under this Agreement.
IN WITNESS WHEREOF, Public and the Company have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first above written.
Airgate PCS, Inc.
/s/ Thomas M. Dougherty
By: _________________________________
Name: Thomas M. Dougherty
Title: President and Chief
Executive Officer
iPCS, Inc.
/s/ Timothy M. Yager
By: _________________________________
Name: Timothy M. Yager
Title: President and Chief
Executive Officer
A-54
ANNEX B
FORM OF SUPPORT AGREEMENT
THIS SUPPORT AGREEMENT (this "Agreement") is made and entered into as of
August 28, 2001, by and between AirGate PCS, Inc., a Delaware corporation
("Public"), and , the undersigned stockholder (the
"Stockholder") of iPCS, Inc, a Delaware corporation (the "Company").
RECITALS
A. Concurrently with the execution of this Agreement Public and the Company
have entered into an Agreement and Plan of Merger, dated as of August 28, 2001
(the "Merger Agreement"), which provides for the merger (the "Merger") of a
wholly owned subsidiary of Public with and into the Company.
B. Pursuant to the Merger, each share of common stock, par value $0.01 per
share, of the Company (the "Company Common Stock") issued and outstanding
immediately prior to the Effective Time (as defined in the Merger Agreement)
(including all shares of Series A-1 Convertible Participating Preferred Stock,
par value $.01 per share, of the Company and Series A-2 Convertible
Participating Preferred Stock, par value $.01 per share, of the Company which
shall have been converted into Company Common Stock immediately prior to the
Effective Time in accordance with Section 5(b)(ii) of the respective
Certificates of Designations with respect thereto) will, upon the terms and
subject to the conditions and limitations set forth in the Merger Agreement, be
converted into shares of common stock, par value $0.01 per share, of Public
(the "Public Common Stock") on and subject to the terms and conditions set
forth in the Merger Agreement.
C. Stockholder is the record and beneficial owner (as defined in Rule 13d-3
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of
the number of shares of Company Common Stock and other securities convertible
into, or exercisable or exchangeable for, shares of Company Common Stock, as
set forth on the signature page of this Agreement (collectively, the "Shares").
D. In consideration of the execution of the Merger Agreement by Public,
Stockholder desires to restrict the transfer or disposition of any of the
Shares, or any other shares of capital stock of the Company acquired by
Stockholder hereafter and prior to the Expiration Date (as defined herein), and
desires to vote the Shares and any other such shares of capital stock of the
Company so as to facilitate the consummation of the Merger.
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and agreements contained herein, and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
1. Agreement to Retain Shares.
(a) The Stockholder irrevocably agrees, during the period beginning on
the date hereof and ending on the earlier of (i) the Effective Time (as
defined in the Merger Agreement) or (ii) the date of termination of the
Merger Agreement in accordance with Article IX thereof (such earlier date,
the "Expiration Date"), not to, directly or indirectly (including, without
limitation, through the disposition or transfer of any equity interest in
another person), transfer, assign, sell, grant any option with respect to,
exchange, pledge or otherwise dispose of or encumber (collectively,
"Transfer"), or enter into any agreement or understanding with respect to
the foregoing, any Shares or any New Shares (as defined below), or to
discuss, negotiate, or make any offer or agreement relating thereto, other
than to or with Public, in each case without the prior written consent of
Public or grant any proxies or enter into any voting trust or other
agreement or arrangement with respect to the voting of any Shares or New
Shares.
(b) The Stockholder agrees that any shares of capital stock of the
Company that the Stockholder purchases or with respect to which the
Stockholder otherwise acquires beneficial ownership after the date
B-1
of this Agreement and prior to the Expiration Date, including, without
limitation, shares issued upon the conversion, exercise or exchange, as the
case may be, of all securities held by the Stockholder which are
convertible into, or exercisable or exchangeable for, shares of capital
stock of the Company ("New Shares"), shall be subject to the terms and
conditions of this Agreement to the same extent as if they constituted the
Shares.
2. Agreement to Vote Shares. Until the Expiration Date, at any meeting of
stockholders of the Company called with respect to any of the following, and at
every adjournment or postponement thereof, and on every action or approval by
written consent of stockholders of the Company with respect to any of the
following, the Stockholder shall vote or cause to be voted its Shares and any
New Shares (to the extent any such New Shares may be voted):
(a) in favor of the adoption of the Merger Agreement and each of the
transactions contemplated thereby;
(b) against (i) any proposal made in opposition to or in competition
with the Merger and the Merger Agreement and the transactions contemplated
by the Merger Agreement, or (ii) any merger, reorganization, consolidation,
share exchange, business combination, sale of assets, recapitalization,
liquidation, winding up, extraordinary dividend or distribution,
significant share repurchase or other similar transaction with or involving
the Company and any party other than Public.
(c) against any action that is intended, or could reasonably be expected
to, impede, frustrate, interfere with, impair, delay or prevent
consummation of the transactions contemplated by the Merger or any of the
other transactions contemplated by the Merger Agreement.
The obligation of the Stockholder specified in this Section 2 shall apply
regardless of whether the Company recommends to its stockholders the approval
and adoption of the Merger Agreement and the Merger. Prior to the Expiration
Date, the Stockholder shall not enter into any agreement or understanding with
any Person to vote or give instructions in any manner inconsistent with this
Section 2. For purposes of this Agreement, the term "Person" shall mean a
natural person, partnership, corporation, limited liability company, business
trust, joint stock company, trust, unincorporated association, joint venture,
governmental entity or other or organization.
3. Representations, Warranties and Covenants of Stockholder. Stockholder
represents, warrants and covenants to Public as follows:
(a) Stockholder is the sole beneficial and record owner, and has good
and marketable title to, all the Shares, with sole and full power to vote
or direct the voting of the Shares for and on behalf of all beneficial
owners of the Shares with no limitations, qualifications or restrictions on
such rights.
(b) Except as set forth in the Stockholders Agreement, dated as of July
12, 2000, among the Company and certain of its stockholders, as of the date
hereof the Shares are, and at all times up until the Expiration Date the
Shares will be, free and clear of any rights of first refusal, co-sale
rights, security interests, liens, pledges, claims, options, charges or
other encumbrances (including any restriction on the right to vote or
otherwise dispose of the Shares).
(c) Other than as set forth on the signature page hereof, Stockholder
does not beneficially own any (a) shares of capital stock or voting
securities of the Company or Public, (b) securities of the Company or
Public convertible into or exchangeable for shares of capital stock or
voting securities of the Company or Public or (c) options or other rights
to acquire from the Company or Public any capital stock, voting securities
or securities convertible into or exchangeable for capital stock or voting
securities of the Company or Public other than the Shares and any New
Shares.
B-2
(d) Stockholder has the legal capacity and full power and authority to
make, enter into and carry out the terms of this Agreement and to perform
its obligations hereunder. This Agreement has been duly and validly
executed and delivered by Stockholder and constitutes a valid and binding
agreement of Stockholder, enforceable against Stockholder in accordance
with its terms.
(e) None of the Shares is subject to any voting trust, proxy or other
agreement, arrangement or restriction with respect to voting.
(f) Stockholder agrees that it shall not enter into any voting
arrangement, whether by proxy, power-of-attorney, voting agreement, voting
trust or otherwise, directly or indirectly, with respect to the Shares, in
each case, that is inconsistent with this Agreement.
(g) Stockholder shall not:
(i) acquire, announce an intention to acquire, offer or propose to
acquire, or agree to acquire, directly or indirectly, by purchase or
otherwise, beneficial ownership of any Voting Securities (as defined
below), or direct or indirect rights to options to acquire (through
purchase, exchange, conversion or otherwise) any Voting Securities;
(ii) form, join or in any way participate in a "group" (within the
meaning of Section 13(d)(e) of the 1934 Act) with respect to any Voting
Securities, other than a group which Stockholder is a member of as of
the date hereof; or
(iii) disclose any intention, plan or arrangement inconsistent with
the foregoing.
"Voting Securities" means securities of Public, including shares of Public
Common Stock, with the power to vote with respect to the election of directors
generally, including any securities that are convertible or exchangeable for
Voting Securities, it being understood that the number of Voting Securities
outstanding as of any time of determination shall be determined as though all
such securities, whether or not in the money, had been converted or exchanged,
in accordance with their terms, into or for Voting Securities immediately prior
to the time of determination.
(h) The execution and delivery of this Agreement by Stockholder do not,
and the performance of this Agreement by Stockholder will not, (i) conflict
with or violate any governing instrument of Stockholder if it is not a
natural person, (ii) conflict with or violate any law applicable to
Stockholder or by which Stockholder or any of Stockholder's assets is bound
or affected, or (iii) result in any breach of or constitute a default (or
an event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, acceleration, or
cancellation of, or result in the creation of a lien or encumbrance on any
assets of Stockholder, including, without limitation, the Shares, pursuant
to, any notice, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise, or other instrument or obligation to which
Stockholder is a party or by which Stockholder or any of Stockholder's
assets is bound or affected.
(i) Stockholder shall not request the Company to register the transfer
(book-entry or otherwise)
of any certificate or uncertificated interests representing any of the
Shares, unless such transfer is made in compliance with this Agreement and
acknowledges that Public and the Company may notify the Company's transfer
agent of the terms hereof.
(j) Stockholder understands and acknowledges that Public is entering
into the Merger Agreement in reliance upon Stockholder's execution,
delivery and performance of this Agreement.
(k) No broker, investment banker, financial advisor or other person is
entitled to any broker's, finder's financial adviser's or other similar fee
or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of such Stockholder.
4. Additional Documents. Upon request by the other party, Stockholder and
Public hereby covenant and agree to execute and deliver any additional
documents reasonably necessary or desirable to carry out the purpose and intent
of this Agreement.
B-3
5. Consents, Waivers and Approvals. Stockholder hereby gives any consents or
waivers that are reasonably required for the consummation of the Merger or the
transactions contemplated by the Merger Agreement under the terms of any
agreement to which Stockholder is a party or pursuant to any rights Stockholder
may have, including, without limitation, any rights to appraisal the
Stockholder may have under the DGCL as a result of the Merger.
6. Termination. This Agreement shall terminate and shall have no further
force or effect as of the Expiration Date, provided, however, that
notwithstanding the foregoing the provisions in Sections 6 and 7 hereof shall
survive in full force and effect following the Expiration Date if the Merger is
consummated.
7. Miscellaneous.
(a) Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, then the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
(b) Binding Effect and Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns, but,
except as otherwise specifically provided herein, neither this Agreement
nor any of the rights, interests or obligations of the parties hereto may
be assigned by any of the parties without the prior written consent of the
other parties.
(c) Amendments and Modification. This Agreement may not be modified,
amended, altered or supplemented except by the execution and delivery of a
written agreement executed by the parties hereto.
(d) Waiver. No waiver by any party hereto of any condition or of any
breach of any provision of this Agreement shall be effective unless in
writing. No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single
or partial exercise thereof preclude any other or further exercise thereof
or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any
rights or remedies provided by law.
(e) Specific Performance; Injunctive Relief. The Stockholder
acknowledges that Public will be irreparably harmed and that there will be
no adequate remedy at law for a violation of any of the covenants or
agreements of Stockholder set forth herein. Therefore, it is agreed that,
in addition to any other remedies that may be available to Public upon any
such violation, Public shall have the right to enforce such covenants and
agreements by specific performance, injunctive relief or by any other means
available to Public at law or in equity.
(f) Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
messenger or courier service, or mailed by registered or certified mail
(return receipt requested) or sent via facsimile (with acknowledgement of
complete transmission) to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice);
provided, however, that notices sent by mail will not be deemed given until
received:
If to Public, to:
AirGate PCS, Inc.
Harris Tower
233 Peachtree Street NE, Suite 1700
Atlanta, Georgia 30303
Attn: Barbara L. Blackford
B-4
With a copy to:
Winston & Strawn
35 W. Wacker Drive, Suite 4200
Chicago, Illinois 60601
Attn: Robert F. Wall
R. Cabell Morris, Jr.
If to Stockholder:
To the address for notice set forth on the signature page hereof.
With a copy to:
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
Attn: Paul W. Theiss
Robert J. Wild
(g) Governing Law. This Agreement shall be governed by, construed and
enforced in accordance with the laws of the State of Delaware, without
giving effect to any choice or conflict of law provision or rule (whether
of the State of Delaware or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of
Delaware. Each of the parties hereto hereby irrevocably and unconditionally
consents to submit to the exclusive jurisdiction of the courts of the State
of Delaware and of the United States of America located in Wilmington,
Delaware (the "Delaware Courts") for any litigation arising out of or
relating to this Agreement (and agrees not to commence any litigation
relating thereto except in such Delaware Courts), consents to service of
process by notice as provided in Section 9(c) of this Agreement, waives any
objection to the laying of venue of any such litigation in the Delaware
Courts and agrees not to plead or claim in any Delaware Court that such
litigation brought therein has been brought in an inconvenient forum.
(h) Attorneys' Fees and Expenses. If any action or other proceeding
relating to the enforcement of any provision of this Agreement is brought
by either party, the prevailing party shall be entitled to recover
reasonable attorneys' fees, costs and disbursements (in addition to any
other relief to which the prevailing party any may be entitled).
(i) Entire Agreement. This Agreement contains the entire understanding
of the parties in respect of the subject matter hereof, and supersedes all
prior negotiations and understandings between the parties with respect to
such subject matter.
(j) Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
(k) Effect of Headings. The section headings herein are for convenience
only and shall
not affect the construction or interpretation of this Agreement.
(l) Definitions. Capitalized terms not otherwise defined in this
Agreement shall have the
meaning ascribed to them in the Merger Agreement.
B-5
IN WITNESS WHEREOF, the undersigned have executed this Support Agreement on
the date first above written.
Airgate PCS, Inc.
By: _________________________________
Name:
Title:
STOCKHOLDER:
-------------------------------------
Print Name: _________________________
Address: ____________________________
-------------------------------------
-------------------------------------
Company Capital Stock:
Common Stock:
Series A-1 Preferred Stock:
Series A-2 Preferred Stock:
Options:
B-6
ANNEX C
FORM OF REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT, dated as of , 200 (this
"Agreement"), is by and among the following:
(i) AirGate PCS, Inc., a Delaware corporation ("Public");
(ii) Blackstone/iPCS L.L.C., a Delaware limited liability company,
Blackstone iPCS Capital Partners L.P., a Delaware limited partnership, and
Blackstone Communications Partners I L.P., a Delaware limited partnership
(collectively and including successors, assigns and Transferees thereof,
"Blackstone");
(iii) TCW/Crescent Mezzanine Partners II, L.P., TCW/Crescent Mezzanine
Trust II, TCW Leveraged Income Trust, L.P., TCW Leveraged Income Trust II,
L.P., TCW Leveraged Income Trust IV, TCW Shared Opportunity Fund II, Shared
Opportunity Fund IIB, L.L.C. and TCW Shared Opportunity Fund III, L.P.
(collectively and including successors, assigns and Transferees, "TCW");
(iv) Geneseo Communications, Inc., an Illinois corporation ("Geneseo");
(v) Cambridge Telcom, Inc., an Illinois corporation ("Cambridge");
(vi) Cass Communications, Inc., an Illinois corporation ("Cass");
(vii) Technology Group, LLC, an Illinois limited liability company
("Technology");
(viii) Montrose Mutual PCS, Inc., an Illinois corporation ("Montrose");
(ix) Gridley Enterprises, Inc., an Illinois corporation ("Gridley"); and
(x) Timothy M. Yager, an individual, and Kelly M. Yager, an individual
(collectively, the "Yagers").
Blackstone, TCW, Geneseo, Cambridge, Cass, Technology, Montrose, Gridley
and the Yagers are referred to herein collectively as the "Holders."
WHEREAS, Public is a party to an Agreement and Plan of Merger, dated as of
August 28, 2001 (the "Merger Agreement"), by and between Public and iPCS,
Inc., a Delaware corporation (the "Company"), which provides for the merger of
Merger Sub with and into the Company (the "Merger");
WHEREAS, pursuant to the Merger Agreement, Merger Sub will merge with and
into the Company with the Company being the surviving corporation (the
"Merger"), and the beneficial owners of shares of common stock, par value
$0.01 per share, of the Company (the "Company Common Stock") will receive
shares of Public Common Stock (as defined below) at the effective time of the
Merger in accordance with the terms of the Merger Agreement;
WHEREAS, as a result of the Merger, the Holders will be beneficial owners
of Public Common Stock;
WHEREAS, Public has agreed to provide certain registration rights to the
Holders with respect to their shares of Public Common Stock upon the terms and
subject to the conditions set forth herein.
NOW THEREFORE, in consideration of the mutual covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties to this Agreement hereby agree as
follows:
1. Definitions. As used in this Agreement, the following terms shall have
the following respective meanings:
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute then in effect, and a reference to
a particular section thereof shall be deemed to include a reference to the
comparable section, if any, of any such similar federal statute.
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"Governmental Entity" shall mean any court, department, body, board,
bureau, administrative agency or commission or other governmental authority
or instrumentality.
"Person" shall mean an individual, corporation, limited liability
company, association, partnership, group (as defined in Section 13(d)(3) of
the Exchange Act), trust, joint venture, business trust or unincorporated
organization, or a government or any agency or political subdivision
thereof or any other entity of any nature whatsoever.
"Public Common Stock" shall mean the common shares, par value $0.01 per
share, of Public and any securities issued or distributed in respect
thereof, or in substitution therefor, in connection with any stock split,
dividend, spin-off or combination, or any reclassification,
recapitalization, merger, consolidation, exchange or other similar
reorganization or business combination.
"Public Common Stock Equivalents" shall mean any stock, warrants,
rights, calls, options, debt or other securities exchangeable or
exercisable for or convertible into Public Common Stock.
"Public Shelf Registration Statement" shall have the meaning set forth
in the Merger Agreement.
"Registrable Securities" shall mean any shares of Public Common Stock
and any shares of Public Common Stock owned or to be acquired upon
conversion, exercise or exchange of Public Common Stock Equivalents, in
each case now or hereafter owned by the Holders (exclusive of any shares
acquired in the open market or in a bi-lateral transaction involving such
Holder and a third-party (other than another Holder)). As to any particular
Registrable Securities, once issued, such Registrable Securities shall
cease to be Registrable Securities when (i) a registration statement with
respect to the sale by the applicable Holder of such securities has become
effective under the Securities Act and such securities have been disposed
of in accordance with such registration statement, (ii) such securities
have been distributed to the public pursuant to Rule 144 (or any successor
provision) under the Securities Act, (iii) with respect to any Holder, all
such Registrable Securities held by such Holder can be resold pursuant to
Rule 144(k) (or any successor provision) under the Securities Act, (iv)
such securities have been otherwise transferred, new certificates for such
securities not bearing a legend restricting further transfer have been
delivered by Public and subsequent disposition of such securities does not
require registration or qualification of such securities under the
Securities Act or any state securities or blue sky law then in force, or
(v) such securities have ceased to be outstanding.
"Registration Expenses" shall mean all expenses incident to Public's
performance of or compliance with this Agreement, including, without
limitation, all SEC and stock exchange or National Association of
Securities Dealers, Inc. (the "NASD") registration and filing fees and
expenses, fees and expenses of compliance with securities or blue sky laws
(including, without limitation, reasonable fees and disbursements of
counsel for any underwriters in connection with blue sky qualifications of
the Registrable Securities), rating agency fees, printing expenses,
messenger, telephone and delivery expenses, the fees and expenses incurred
in connection with the listing of the securities to be registered on any
securities exchange or national market system, fees and disbursements of
counsel for Public and all independent certified public accountants
(including the expenses of any annual audit, special audit and "cold
comfort" letters required by or incident to such performance and
compliance), securities laws liability insurance (if Public so desires),
the fees and disbursements of underwriters (including, without limitation,
all fees and expenses of any "qualified independent underwriter" required
by the rules of the NASD) customarily paid by issuers or sellers of
securities in public equity offerings (excluding, for the sake of clarity,
the fees and expenses of counsel), the expenses customarily borne by the
issuers of securities in a "road show" presentation to potential investors,
the reasonable fees and expenses of any special experts retained by Public
in connection with such registration, fees and expenses of other persons
retained by Public (but not including any underwriting discounts or
commissions (which shall be paid or borne by the selling Holder) or
transfer taxes, if any, attributable to the sale of Registrable Securities)
and other reasonable out-of-pocket expenses of the Holder.
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"S-4 Registration Statement" shall have the meaning set forth in the
Merger Agreement.
"SEC" shall mean the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act or the Exchange
Act.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar federal statute then in effect, and a reference to a particular
section thereof shall be deemed to include a reference to the comparable
section, if any, of any such similar federal statute.
"Sprint Warrant" shall mean the warrant to purchase 1,151,938 shares of
Company Common Stock issued to Sprint Spectrum L.P. and assumed by Public
pursuant to Section 1.6 of the Merger Agreement.
"Transferee" shall mean any Person to whom any Holder or any Transferee
thereof transfers Registrable Securities.
2. Demand Registration.
(a) Underwritten Offering. Prior to the date that is 120 days after the
Effective Time (as defined in the Merger Agreement), at a time during such
period designated by Blackstone, Public will use its best efforts to effect an
underwritten offering of the Registrable Securities (the "Underwritten
Offering") (which offering may also include, in the sole discretion of the
Holders in consultation with the underwriter of such offering, the number of
equity securities of Public which Public proposes to sell for its own account,
but shall not include any other equity securities of Public held by persons
other than the Holders). Blackstone, the other selling Holders and Public shall
consult with one another prior to, and throughout, the registration and
offering process to coordinate the timing of the proposed offering taking into
consideration, among other things, the existence of any material business
combination discussions that may be ongoing. Public shall have no obligation to
price the Underwritten Offering at any time after the date that is 120 days
after the Effective Time. Adequate procedures shall be used to ensure that all
Holders shall have an opportunity to elect to have shares included in the
Underwritten Offering.
(b) Request for Registration. In addition to the Underwritten Offering, at
any time on or after the first anniversary of the Effective Time (as defined in
the Merger Agreement), upon the written demand of Blackstone or, at any time
after Blackstone has sold 75% of the Registrable Securities held by it
immediately after the Effective Time without exercising such right, then upon
the written demand of Geneseo (in either case, the "Requesting Party"),
demanding that Public effect the registration under the Securities Act of all
or part of the Registrable Securities and specifying the intended method of
disposition thereof, Public will use its best efforts to effect the
registration under the Securities Act of such Registrable Securities (which
registration shall also include any Registrable Securities requested by the
other Holders to be included in such registration request made by the
Requesting Party). Prior to making such request, the Requesting Party shall
notify the other Holders of its intent to make such request and afford such
other Holders the opportunity to include Registrable Securities in such
request. The Requesting Party, any other selling Holder and Public shall
consult with one another prior to, and throughout, the registration process to
coordinate the timing of the proposed offering, among other things with respect
to the existence of any material business combination discussions that may be
ongoing. Notwithstanding the foregoing, in no event shall Public have any
obligation to effect an underwritten public offering under this Section 2(b)
unless the amount of the Registrable Securities requested to be included in
such offering would result in initial aggregate proceeds (determined at the
time of the time of the initial filing of the registration statement relating
thereto) in excess of $40,000,000.
(c) Registration Statement Form. If any registration requested pursuant to
this Section 2 which is proposed by Public to be effected by the filing of a
registration statement on Form S-3 (or any successor or similar short-form
registration statement) shall be in connection with an underwritten public
offering, and if the managing underwriter shall advise Public in writing that,
in its opinion, the use of the type of disclosure required by another form of
registration statement is of material importance to the success of such
proposed offering, then Public shall cooperate with the managing underwriters
to provide such disclosure as would be
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required by such other form. Public agrees to include in any registration
statement all information which, in the reasonable opinion of counsel to the
underwriters (if any) or the Requesting Holder, is required to be included.
(d) Effective Registration Statement. A registration requested pursuant to
this Section 2 shall not be deemed to have been effected:
(i) unless a registration statement with respect thereto has become
effective and remained effective in compliance with the provisions of the
Securities Act until such time as all of such Registrable Securities have
been disposed of in accordance with the intended methods of disposition
thereof set forth in such registration statement, other than primarily as a
result of acts or omissions of any selling Holder or any authorized agent
thereof;
(ii) if after it has become effective, such registration is interfered
with by any stop order, injunction or other order or requirement of the SEC
or other Governmental Entity for any reason not attributable to any selling
Holder or any of their Affiliates; or
(iii) if the conditions to closing specified in the underwriting
agreement, if any, entered into in connection with such registration are
not satisfied or waived.
(e) Priority in Requested Registrations. If a requested registration
pursuant to this Section 2 involves an underwritten offering (including the
Underwritten Offering) and the managing underwriter (in consultation with the
underwriter appointed by the Requesting Holder pursuant to Section 2(h) below)
advises Public and the Holders in writing that, in its opinion, the number of
equity securities requested to be included in such registration by the Holders
exceeds the largest number of equity securities which can be sold without
reasonably expecting to have an adverse effect on such offering, including the
price at which such equity securities can be sold, the number of such equity
securities to be included in such registration shall be reduced to such extent,
and Public shall include in such registration the number of equity securities
as follows: (i) no less than 75% of the equity securities included in such
registration shall be comprised of Registrable Securities requested to be
included in such registration by Blackstone and TCW and (ii) the Registrable
Securities of each Holder (other than Blackstone and TCW) to be included in
such registration shall equal the lesser of (A) 25% of such Holder's pro rata
portion of the shares owned by all of the Company Stockholders (as defined in
the Merger Agreement) (other than Blackstone and TCW) immediately after the
Effective Time, and (B) the number of Registrable Securities requested to be
included in such registration by such Holder. To the extent that the number of
Registrable Securities which Blackstone, TCW and the other Holders have
requested to include is, in the aggregate, less than the number of equity
securities which Public has been advised can be sold in such offering without
having the adverse effect referred to above, then Public shall be entitled to
include that number of equity securities which result in the underwritten
offering not exceeding the maximum amount of equity securities that would cause
the effect referred to above. After giving effect to the foregoing, any
remaining capacity will be allocated first to Blackstone and TCW and thereafter
to the other Holders. If any Holder advises the managing underwriter of any
underwritten offering that the Registrable Securities and other equity
securities covered by the registration statement cannot be sold in such
offering within a price range acceptable to such Holder, then such Holder shall
have the right to exclude its Registrable Securities from registration. The
parties hereto acknowledge that the holders of any equity securities of Public
issued upon exercise of the Sprint Warrant do not have the right to include
equity securities in any such registration made pursuant to this Section 2.
(f) Limitations on Registration on Request. Notwithstanding anything in this
Section 2 to the contrary, the Holders shall be entitled to the Underwritten
Offering pursuant to Section 2(a) and only one requested registration pursuant
to Section 2(b), unless either (i) a registration so requested is not deemed to
have been effected pursuant to Section 2(d) or (ii) the number of Registrable
Securities included by Blackstone in such registration and sold pursuant
thereto is less than 75% of the number of shares of Registrable Securities
sought to be included by Blackstone in such registration.
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(g) Expenses. Public will pay all Registration Expenses in connection with
the registrations requested pursuant to this Section 2(e).
(h) Selection of Underwriters. In the Underwritten Offering, and in any
requested registration pursuant to Section 2(b) if the Requesting Holder
requests that such registration shall be in the form of an underwritten
offering, Public, in consultation with the Requesting Holder, shall have the
right to select any investment banker and book-running manager to administer
the offering and the Requesting Holder, in consultation with Public, shall have
the right to select a co- manager (in each case, subject to the approval of the
other party (such approval not to be unreasonably withheld)). Public and all
participating Holders shall enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for such underwriting, as
well as all other documents customary in similar offerings, including, without
limitation, underwriting agreements, custody agreements, powers of attorney,
and indemnification agreements.
3. Incidental Registration.
(a) Rights to Include Registrable Securities. If Public proposes to register
(other than pursuant to Section 2 hereof) any of its equity securities under
the Securities Act (other than a registration on Form S-8, S-4 or any successor
or similar forms), whether or not for sale for its own account, then Public
will each such time, subject to the provisions of Section 3(b) hereof, give
prompt written notice to the Holders of its intention to do so and of Holders'
rights under this Section 3, at least 15 business days prior to the anticipated
filing date of the registration statement relating to such registration. Such
notice shall offer the Holders the opportunity to include in such registration
statement such number of Registrable Securities as each Holder may request.
Upon the written request of any Holder made within 10 business days after the
receipt of Public's notice (which request shall specify the number of
Registrable Securities intended to be disposed of by such Holder), Public shall
use its best efforts to effect the proposed registration under the Securities
Act of all Registrable Securities which Public has been so requested to
register by such Holder to the extent requisite to permit the disposition of
the Registrable Securities so to be registered; provided that (i) if such
registration involves an underwritten offering, any such Holder must sell its
Registrable Securities to the underwriters selected by Public on the same terms
and conditions as apply to Public (except that indemnification obligations of
any such Holder shall be limited to those obligations set forth in Section 7
hereof) and (ii) if, at any time after giving written notice of its intention
to register any securities pursuant to this Section 3(a) and prior to the
effective date of the registration statement filed in connection with such
registration, Public shall determine for any reason not to register such
securities, Public shall give written notice to each such Holder and,
thereupon, shall be relieved of its obligation to register any Registrable
Securities in connection with such registration. If a registration pursuant to
this Section 3(a) involves an underwritten public offering, any such Holder may
elect, in writing no less than three days prior to the effective date of the
registration statement filed in connection with such registration, not to
register such securities in connection with such registration. No registration
effected under this Section 3 shall relieve Public of its obligations to effect
registrations upon request under Section 2 hereof. Public will pay all
Registration Expenses in connection with each registration of Registrable
Securities requested pursuant to this Section 3.
(b) Priority in Incidental Registrations.
(i) If a registration pursuant to this Section 3 involves an
underwritten offering (other than as set forth in Section 3(b)(ii) below)
and the managing underwriter advises Public in writing that, in its
opinion, the number of equity securities (including all Registrable
Securities) which Public, the Holders and any other persons intend to
include in such registration exceeds the largest number of equity
securities which can be sold without having an adverse effect on such
offering, including the price at which such equity securities can be sold,
the number of such equity securities to be included in such registration
shall be reduced to such extent, and Public will include in such
registration such maximum number of equity securities as follows: (A)
first, all the equity securities Public proposes to sell for its own
account in such registration and (B) second, to the extent that the number
of equity securities which Public proposes to sell for its own account
pursuant to Section 3(a) hereof is less than the number of equity
securities which
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Public has been advised can be sold in such offering without having the
adverse effect referred to above, Public shall include in such registration
the number of equity securities determined as follows: (i) no less than 75%
of the equity securities included in such registration shall be comprised
of Registrable Securities requested to be included in such registration by
Blackstone and TCW and (ii) the Registrable Securities of each Holder
(other than Blackstone and TCW) to be included in such registration shall
equal the lesser of (A) 25% of such Holder's pro rata portion of the shares
owned by all of the Company Stockholders (other than Blackstone and TCW)
immediately after the Effective Time, and (B) the number of Registrable
Securities requested to be included in such registration by such Holder. To
the extent that the number of Registrable Securities which Blackstone, TCW
and the other Holders have requested to include is, in the aggregate, less
than the number of equity securities which Public has been advised can be
sold in such offering without having the adverse effect referred to above,
then the number of such equity securities requested to be included in such
registration by the holders thereof shall be limited to such extent and,
subject to any rights of such holders, shall be allocated pro rata among
all such holders on the basis of the relative number of such equity
securities then held by each such holder; provided, that any such amount
thereby allocated to any such holder that exceeds such holder's request
shall be reallocated among the remaining requesting holders in like manner.
After giving effect to the foregoing, any remaining capacity will be
allocated first to Blackstone and TCW and thereafter to the other Holders.
(ii) If any holder of Public Common Stock, Public Common Stock
Equivalents or other equity securities of the Company other than Blackstone
or Geneseo makes a requested or demand registration (the "Requesting
Holder") and such requested or demand registration involves an underwritten
offering and the managing underwriter advises Public in writing that, in
its opinion, the number of equity securities requested to be included in
such registration (including Registrable Securities) exceeds the largest
number of equity securities which can be sold without reasonably expecting
to have an adverse effect on such offering, including the price at which
such equity securities can be sold, the number of such equity securities to
be included in such registration shall be reduced to such extent, and
Public shall include in such registration such maximum number of equity
securities as follows: (A) first, the number of such equity securities
requested to be included in such registration by the Requesting Holder and
(B) second, to the extent that the number of equity securities which the
Requesting Holder has requested to be included in such registration is less
than the number of equity securities which Public has been advised can be
sold in such offering without having the adverse effect referred to above,
Public shall include in such registration the number of equity securities
as follows: (i) no less than 75% of the equity securities included in such
registration shall be comprised of Registrable Securities requested to be
included in such registration by Blackstone and TCW and (ii) the
Registrable Securities of each Holder (other than Blackstone and TCW) to be
included in such registration shall equal the lesser of (A) 25% of such
Holder's pro rata portion of the shares owned by all of the Company
Stockholders (other than Blackstone and TCW) immediately after the
Effective Time, and (B) the number of Registrable Securities requested to
be included in such registration by such Holder. To the extent that the
number of Registrable Securities which the Requesting Holder, Blackstone,
TCW and the other Holders have requested to include is, in the aggregate,
less than the number of equity securities which Public has been advised can
be sold in such offering without having the adverse effect referred to
above, then the number of such equity securities requested to be included
in such registration by the holders thereof shall be limited to such extent
and, subject to any rights of such holders, shall be allocated pro rata
among all such holders on the basis of the relative number of such equity
securities then held by each such holder; provided, that any such amount
thereby allocated to any such holder that exceeds such holder's request
shall be reallocated among the remaining requesting holders in like manner.
After giving effect to the foregoing, any remaining capacity will be
allocated first to Blackstone and TCW and thereafter to the other Holders.
4. Holdback Agreements.
(a) Restrictions on Public Sale by the Holders. If any registration of
Public Common Stock shall be in connection with an underwritten public offering
to which each Holder has a right to include shares pursuant to Section 2 or 3
hereof, each Holder agrees not to effect any sale or distribution, including
any sale pursuant to
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Rule 144 under the Securities Act, of any Registrable Securities, and not to
effect any such sale or distribution of other equity securities of Public or of
any securities convertible into or exchangeable or exercisable for any other
equity securities of Public (in each case, other than as part of such
underwritten public offering) during the 15 days prior to, and during such
period as the managing underwriter may request (not to exceed 90 days)
beginning on, the closing date of the sale of the Public Common Stock pursuant
to an effective registration statement, except as part of such registration.
(b) Restrictions on Public Sale by Public and Others. If any registration of
Registrable Securities shall be made in connection with an underwritten public
offering, Public agrees (i) not to effect any public sale or distribution of
any Public Common Stock, Public Common Stock Equivalents or other equity
securities or of any security convertible into or exchangeable or exercisable
for any Public Common Stock, Public Common Stock Equivalents or other equity
securities of Public (other than in connection with an employee stock option or
other benefit plan) during the 15 days prior to, and during the 90-day period
beginning on, the closing date of the sale of the Registrable Securities
pursuant to an effective registration statement (except as part of such
registration) and (ii) that any agreement entered into after the date of this
Agreement pursuant to which Public issues or agrees to issue any privately
placed Public Common Stock, Public Common Stock Equivalents or other equity
securities shall contain a provision under which holders of such securities
agree not to effect any sale or distribution of any such securities during the
period referred to in the foregoing clause (i), including any sale pursuant to
Rule 144 under the Securities Act (except as part of such registration, if
permitted).
(c) In the event Blackstone distributes a portion or all of its shares of
Public Common Stock pursuant to Section 7.21(c) of the Merger Agreement, the
distributees of such shares shall not be subject to the restrictions set forth
in this Section 4, nor shall such distributees be entitled to any further
registration rights under this Agreement.
5. Registration Procedures. If and whenever Public is required to use its
best efforts to effect or cause the registration of any Registrable Securities
under the Securities Act as provided in this Agreement, and in connection with
the filing of the Public Shelf Registration Statement as provided in the Merger
Agreement, Public will, as expeditiously as possible:
(a) In the case of a registration as provided in this Agreement, use its
best efforts to prepare and file with the SEC within 30 days after receipt of a
request for registration with respect to such Registrable Securities, a
registration statement on any form for which Public then qualifies or which
counsel for Public shall deem appropriate, and which form shall be available
for the sale of the Registrable Securities in accordance with the intended
methods of distribution thereof, and use its best efforts to cause such
registration statement to become and remain effective as promptly as
practicable, subject to the right of Blackstone to defer Public's request for
the acceleration of effectiveness of any such registration statement as may be
necessary to accommodate the anticipated timetable for such offering; provided
that before filing with the SEC a registration statement or prospectus or any
amendments or supplements thereto, Public will (i) furnish to the selling
Holders copies of the form of preliminary prospectus proposed to be filed and
furnish to counsel of the selling Holders copies of all such documents proposed
to be filed, which documents will be subject to the review of such counsel and
shall not be filed without the approval of such counsel (which approval shall
not be unreasonably withheld) and (ii) notify the selling Holders of any stop
order issued or threatened by the SEC and take all reasonable actions required
to prevent the entry of such stop order or to remove it if entered; and, in the
case of the Public Shelf Registration Statement, in the event that Public was
not permitted by the SEC to include in the S-4 Registration Statement a re-
offering prospectus (which shall include a description of the plan of
distribution for the Registrable Securities) covering the resale from time to
time of the Registrable Securities, then Public shall file such re-offering
prospectus as a post-effective amendment to the S-4 Registration Statement
promptly after the Effective Time (as defined in the Merger Agreement), but in
no event later than 15 days after the Effective Time, and use all reasonable
efforts to keep the Public Shelf Registration Statement (as defined in the
Merger Agreement) effective until the earliest to occur of: (i) such date as
all of the Registrable Securities have been resold, (ii) such time as all of
the Registrable Securities can be resold pursuant to Rule 144(k) under the
Securities Act and (iii) the third anniversary of the Effective Time.
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(b) prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may
be necessary to keep such registration statement effective for a period of not
less than 180 days or such shorter period which will terminate when all
Registrable Securities covered by such registration statement have been sold,
and comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement during
such period in accordance with the intended methods of disposition by the
sellers thereof set forth in such registration statement;
(c) promptly furnish to each Holder and each underwriter, if any, of
Registrable Securities covered by such registration statement such number of
copies of such registration statement, each amendment and supplement thereto
(in each case including all financial statements, schedules and exhibits
thereto), the prospectus included in such registration statement (including
each preliminary prospectus), in conformity with the requirements of the
Securities Act, copies of any correspondence with the SEC or its staff relating
to the registration statement and such other documents as any Holder or
underwriter may reasonably request in order to facilitate the disposition of
the Registrable Securities;
(d) use its best efforts to register or qualify such Registrable Securities
under the securities or blue sky laws of such jurisdictions as any Holder or
each underwriter, if any, reasonably requests and do any and all other acts and
things which may be reasonably necessary or advisable to enable such Holder and
each underwriter, if any, to consummate the disposition in such jurisdictions
of the Registrable Securities; provided that Public will not be required to (i)
qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this paragraph (d), (ii) subject
itself to taxation in any such jurisdiction or (iii) consent to general service
of process in any such jurisdiction;
(e) immediately notify the selling Holders (the facts prompting which
notification the selling Holders shall keep confidential) at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, of the happening of any event which comes to Public's attention if as a
result of such event the prospectus included in such registration statement
contains an untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, and Public will promptly prepare and furnish to the selling
Holders a supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of such Registrable Securities, such prospectus
will not contain an untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading;
(f) use its best efforts to prevent the issuance of and obtain the
withdrawal of any stop order suspending the effectiveness of a registration
statement relating to the Registrable Securities or of any order preventing or
suspending the use of any preliminary or final prospectus at the earliest
practicable moment;
(g) if requested by the managing underwriter or underwriters or any Holder,
immediately incorporate in a prospectus supplement or post-effective amendment
such information as the managing underwriters and each applicable selling
Holder agree should be included therein relating to the plan of distribution
with respect to such Registrable Securities, including, without limitation,
information with respect to the number of Registrable Securities being sold to
such underwriters, the purchase price being paid therefor by such underwriters
and with respect to any other terms of the underwritten (or best efforts
underwritten) offering of the Registrable Securities to be sold in such
offering; and make all required filings of such prospectus supplement or post-
effective amendment as soon as notified of the matters to be incorporated in
such prospectus supplement or post-effective amendment;
(h) cooperate with the Holders and the managing underwriters, if any, to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold and not bearing any restrictive legends; and
enable such Registrable Securities to be in such denominations and registered
in such names as the managing underwriters may request prior to any sale of the
Registrable Securities to the underwriters;
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(i) use its best efforts to cause all such Registrable Securities to be
listed on a national securities exchange or quotation system, and on each
securities exchange or quotation system on which similar securities issued by
Public are then listed, and enter into such customary agreements including a
listing application and indemnification agreement in customary form, provided
that the applicable listing requirements are satisfied, and to provide a
transfer agent and registrar for such Registrable Securities covered by such
registration statement no later than the effective date of such registration
statement;
(j) enter into such customary agreements (including an underwriting
agreement in customary form) and take all such other actions as a selling
Holder or the underwriters, if any, reasonably request in order to expedite or
facilitate the disposition of such Registrable Securities, including customary
indemnification and supporting Holders' efforts to execute block trades with
institutional buyers, including without limitation, making appropriate members
of senior management of Public available (subject to consulting with them in
advance as to schedule) for customary participation in telephonic, in-person
conferences or "road show" presentations to potential investors;
(k) make available for inspection by the selling Holders, any underwriter
participating in any disposition pursuant to such registration statement, and
any attorney, accountant or other agent retained by any Holder or underwriter
(collectively, the "Inspectors"), all financial and other records, pertinent
corporate documents and properties of Public and its subsidiaries, if any, as
shall be reasonably necessary to enable them to exercise their due diligence
responsibility, and cause Public's and its subsidiaries' officers, directors
and employees to supply all information and respond to all inquiries reasonably
requested by any such Inspector in connection with such registration statement;
(l) use its best efforts to obtain (i) an opinion or opinions of counsel to
Public and (ii) a "cold comfort" letter or letters from Public's independent
public accountants in customary form and covering such matters of the type
customarily covered by opinions and "cold comfort" letters as the selling
Holders or the underwriter requests;
(m) otherwise use its best efforts to comply with all applicable rules and
regulations of the SEC, and make available to its security holders, within the
required time periods, an earnings statement covering a period of at least
twelve months, beginning with the first month after the effective date of the
registration statement (as the term "effective date" is defined in Rule 158(c)
under the Securities Act), which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder or
any successor provisions thereto;
(n) promptly prior to the filing of any document which is to be incorporated
by reference into the registration statement or the prospectus (after initial
filing of the registration statement), provide copies of such document to
counsel to the selling Holders and to the managing underwriters, if any, make
Public's representatives available for discussion of such document and give due
consideration to changes in such document prior to the filing thereof as
counsel for the selling Holders may propose;
(o) promptly notify the selling Holders, counsel for the selling Holders and
the managing underwriter or agent, (i) when the registration statement, or any
post-effective amendment to the registration statement, shall have become
effective, or any supplement to the prospectus or any amendment to the
prospectus shall have been filed, (ii) of the receipt of any comments from the
SEC, (iii) of any request of the SEC to amend the registration statement or
amend or supplement the prospectus or for additional information, and (iv) of
the issuance by the SEC of any stop order suspending the effectiveness of the
registration statement or of any order preventing or suspending the use of any
preliminary prospectus, or of the suspension of the qualification of the
registration statement for offering or sale in any jurisdiction, or of the
institution or threatening of any proceedings for any of such purposes;
(p) cooperate with the selling Holders and each underwriter or agent
participating in the disposition of such Registrable Securities and their
respective counsel in connection with any filings required to be made with or
any other securities exchange and/or the NASD;
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(q) in the case of a Public Shelf Registration Statement, upon the
occurrence or any event contemplated by clause (e) above, prepare and file with
the SEC a post-effective amendment to the Public Shelf Registration Statement
or a supplement to the prospectus or any other required document so that, as
thereafter delivered to the purchasers of the securities being sold thereunder,
such prospectus will not contain an untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading; and
(r) in the case of a Public Shelf Registration Statement, promptly notify
the selling Holders, counsel for the selling Holders and any managing
underwriter or agent and confirm the notice in writing, (i) when the Public
Shelf Registration Statement, or any post-effective amendment to the Public
Shelf Registration Statement, shall have become effective, or any supplement to
the prospectus or any amendment to the prospectus shall have been filed, (ii)
of the receipt of any comments from the SEC, (iii) of any request of the SEC to
amend the Public Shelf Registration Statement or amend or supplement the
prospectus or for additional information, (iv) of the issuance by the SEC of
any stop order suspending the effectiveness of the Public Shelf Registration
Statement or of any order preventing or suspending the use of any preliminary
prospectus, or of the suspension of the qualification of the Public Shelf
Registration Statement for offering or sale in any jurisdiction, or of the
institution or threatening of any proceedings for any of such purposes and (v)
of Public's reasonable determination that a post-effective amendment to the
Public Shelf Registration Statement would be appropriate.
It shall be a condition precedent to the obligation of Public to take any
action pursuant to this Agreement in respect of the Registrable Securities
which are to be registered at the request of any Holder that such Holder shall
furnish to Public such information regarding the Registrable Securities held by
such Holder and the intended method of disposition thereof as Public shall
reasonably request in connection with such registration.
Each Holder agrees that, upon receipt of any notice from Public of the
happening of any event of the kind described in Section 5(e) hereof, such
Holder will forthwith discontinue disposition of Registrable Securities
pursuant to the registration statement covering such Registrable Securities
until such Holder receives the copies of the prospectus supplement or amendment
contemplated by Section 5(e) hereof, and, if so directed by Public, such Holder
will deliver to Public (at Public's expense) all copies, other than permanent
file copies, then in such Holder's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice. In the
event Public shall give any such notice, the period mentioned in Section 5(b)
hereof shall be extended by the greater of (i) three months or (ii) the number
of days during the period from and including the date of the giving of such
notice pursuant to Section 5(e) hereof to and including the date when such
Holder shall have received the copies of the prospectus supplement or amendment
contemplated by Section 5(e) hereof.
6. Indemnification.
(a) Indemnification by Public. In the event of any registration of any
Registrable Securities under the Securities Act pursuant to Section 2 or 3
hereof, and in connection with the registration of Registrable Securities under
the Public Shelf Registration Statement pursuant to the terms of the Merger
Agreement, Public will, and it hereby does, indemnify and hold harmless, to the
full extent permitted by law, each Holder, their directors and officers,
employees, stockholders, general partners, limited partners, members, advisory
directors, managing directors (and directors, officers, stockholders, general
partners, limited partners, members, advisory directors, managing directors and
controlling persons thereof), each other person who participates as an
underwriter in the offering or sale of such securities and each other person,
if any, who controls, is controlled by or is under common control with any
Holder or any such underwriter within the meaning of the Securities Act,
against any and all losses, claims, damages or liabilities, joint or several,
and expenses (including any amounts paid in any settlement effected with
Public's consent) to which such Holder, any such director, or officer,
employee, stockholder, general or limited partner, member, or advisory or
managing director or any such underwriter or controlling person may become
subject under the Securities Act, state securities or blue sky laws, common law
or otherwise, insofar as such losses, claims, damages or liabilities (or
actions or proceedings
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in respect thereof) or expenses arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained, on the
effective date thereof, in any registration statement under which such
Registrable Securities were registered under the Securities Act, any
preliminary, final or summary prospectus contained therein, or any amendment or
supplement thereto or (ii) any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading (in the case of a prospectus, in light of the
circumstances under which they are made), and Public will reimburse each Holder
and each such director, officer, employee, general partner, limited partner,
advisory director, managing director or underwriter and controlling person for
any legal or any other expenses reasonably incurred by them as such expenses
are incurred in connection with investigating or defending such loss, claim,
liability, action or proceeding; provided that Public shall not be liable in
any such case to the extent that any such loss, claim, damage, liability (or
action or proceeding in respect thereof) or expense arises out of or is based
upon any untrue statement or alleged untrue statement or omission or alleged
omission made in such registration statement or amendment or supplement thereto
or in any such preliminary, final or summary prospectus in reliance upon and in
conformity with written information furnished to Public through an instrument
duly executed by such Holder or any such director, officer, employee, general
or limited partner, managing director or underwriter specifically stating that
it is for use in the preparation thereof; provided, further, however, that
Public shall not be required to indemnify any such indemnified Person if such
untrue statement or omission or alleged untrue statement or omission was
contained or made in any preliminary prospectus and corrected in the final
prospectus or any amendment or supplement thereto and the final prospectus does
not contain any other untrue statement or omission or alleged untrue statement
or omission of a material fact that was the subject matter of the related
proceeding and any such loss, liability, claim, damage or expense suffered or
incurred by such indemnified Person resulted from any action, claim or suit by
any Person who purchased Registrable Securities which are the subject thereof
from such indemnified Person and it is established in the related proceeding
that such indemnified Person failed to deliver or provide a copy of the final
prospectus (as amended or supplemented) to such Person with or prior to the
confirmation of the sale of such Registrable Securities sold to such Person if
required by applicable law, unless such failure to deliver or provide a copy of
the final prospectus (as amended or supplemented) was a result of noncompliance
by Public with this Section 6 or as a result of the failure of Public to
provide such final prospectus.
(b) Indemnification by Holders and Underwriters. Each Holder and any
underwriter will, and they hereby do, indemnify and hold harmless (in the same
manner and to the same extent as set forth in subdivision (a) of this Section
6) Public and its directors, officers, employees, controlling persons and all
other prospective sellers and their respective directors, officers, general and
limited partners, managing directors, and their respective controlling persons,
against any and all losses, claims, damages or liabilities, joint or several,
and expenses (including any amounts paid in any settlement effected with the
consent of the applicable Holder and any underwriter) to which Public and its
directors, officers, employees, controlling persons or any other prospective
sellers and their respective directors, officers, general and limited partners,
managing directors, and their respective controlling persons may become subject
under the Securities Act, state securities or blue sky laws, common law or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
or proceedings in respect thereof) or expenses arise out of or are based upon
(i) any untrue statement or alleged untrue statement of any material fact
contained, on the effective date thereof, in any registration statement under
which such Registrable Securities were registered under the Securities Act, any
preliminary, final or summary prospectus contained therein, or any amendment or
supplement thereto or (ii) any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading (in the case of a prospectus, in light of the
circumstances under which they are made), and the applicable Holder and any
underwriter will reimburse Public and its directors, officers, employees,
controlling persons and all other prospective sellers and their respective
directors, officers, general and limited partners, managing directors, and
their respective controlling persons for any legal or any other expenses
reasonably incurred by them as such expenses are incurred in connection with
investigating or defending such loss, claim, liability, action or proceeding;
provided that any Holder and any underwriter shall only be liable in any such
case if any such loss, claim, damage, liability (or action or proceeding in
respect thereof) or expense arises out of or is based upon any untrue statement
or alleged untrue statement or omission or alleged omission made in
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such registration statement or amendment or supplement thereto or in any such
preliminary, final or summary prospectus in reliance upon and in conformity
with written information furnished to Public through an instrument duly
executed by such Holder or any such underwriter specifically stating that it is
for use in the preparation thereof; provided, further, however, that such
Holder or underwriter shall not be required to indemnify Public if such untrue
statement or omission or alleged untrue statement or omission was contained or
made in any preliminary prospectus and corrected in the final prospectus or any
amendment or supplement thereto and the final prospectus does not contain any
other untrue statement or omission or alleged untrue statement or omission of a
material fact that was the subject matter of the related proceeding and any
such loss, liability, claim, damage or expense suffered or incurred by Public
resulted from any action, claim or suit by any Person who purchased Registrable
Securities which are the subject thereof from Public and it is established in
the related proceeding that Public failed to deliver or provide a copy of the
final prospectus (as amended or supplemented) to such Person with or prior to
the confirmation of the sale of such Registrable Securities sold to such Person
if required by applicable law, unless such failure to deliver or provide a copy
of the final prospectus (as amended or supplemented) was a result of
noncompliance by the Holder or any underwriter with this Section 6 or as a
result of the failure of the Holder or any underwriter to provide such final
prospectus. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of Public or any such director, officer,
employee or controlling person. No Holder shall be liable under this Section 6
for any amounts exceeding the product of the purchase price per Registrable
Security and the number of Registrable Securities being sold pursuant to such
registration statement or prospectus by such Holder.
(c) Notices of Claims, Etc. Promptly after receipt by an indemnified party
hereunder of written notice of the commencement of any action or proceeding
with respect to which a claim for indemnification may be made pursuant to this
Section 6, such indemnified party shall, if a claim in respect thereof is to be
made against an indemnifying party, promptly give written notice to the latter
of the commencement of such action; provided that the failure of any
indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under the preceding subsections of this
Section 6, except to the extent that the indemnifying party is actually
materially prejudiced by such failure to give notice. In case any such action
is brought against an indemnified party, unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim, the indemnifying party
will be entitled to participate in and, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, to the extent that it
may wish, with counsel reasonably satisfactory to such indemnified party, and
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party for any legal or other expenses subsequently
incurred by the latter in connection with the defense thereof, unless in such
indemnified party's reasonable judgement a conflict of interest between such
indemnified and indemnifying parties exists or the indemnifying party is not
adequately defending such action or proceeding. An indemnifying party will not
be subject to any liability for any settlement made without its consent (which
consent shall not be unreasonably withheld). No indemnifying party will consent
to entry of any judgment or enter into any settlement of any pending or
threatened proceeding which (i) does not include as an unconditional term
thereof the giving by the claimant or plaintiff to all indemnified parties of a
release from all liability in respect to such claim or litigation, (ii)
involves the imposition of equitable remedies or the imposition of any non-
financial obligations on such indemnified party or (iii) does not otherwise
adversely affect such indemnified party, other than as a result of the
imposition of financial obligations for which such indemnified party will be
indemnified hereunder. Notwithstanding anything to the contrary contained
herein, an indemnifying party will not be obligated to pay the fees and
expenses of more than one counsel (together with appropriate local counsel) for
all parties indemnified by such indemnifying party with respect to such claim.
(d) Contribution. If the indemnification provided for in this Section 6 is
unavailable to an indemnified party under Section 6(a) or Section 6(b) hereof
(other than by reason of exceptions provided in those Sections) in respect of
any losses, claims, damages, liabilities or expenses referred to therein, then
each applicable indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses in such
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proportion as is appropriate to reflect the relative benefits received by the
indemnifying party on the one hand and the indemnified party on the other, and
the relative fault of the indemnifying party on the one hand and of the
indemnified party on the other in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or expenses, as
well as any other relevant equitable considerations. The relative fault of the
indemnifying party on the one hand and of the indemnified party on the other
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the indemnifying
party or by the indemnified party and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed to
include, subject to the limitations set forth in Sections 6(a) and 6(b), any
legal or other fees or expenses reasonably incurred by such party in connection
with investigating or defending any action or claim.
Public and the Holders agree that it would not be just and equitable if
contribution pursuant to this Section 6(d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 6(d), no Holder shall
be required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities sold by such Holder and distributed
to the public were offered to the public exceeds the amount of any damages
which such Holder has otherwise been required to pay by reason of such untrue
or alleged untrue statement or omission or alleged omission. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
(e) Other Indemnification. Indemnification similar to that specified in
Sections 6(a) and 6(b) (with appropriate modifications) shall be given by
Public and each Holder with respect to any required registration or other
qualification of securities under any law or with any governmental authority
other than as required by the Securities Act.
(f) Non-Exclusivity. The obligations of the parties under this Section 6
shall be in addition to any liability which any party may otherwise have to any
other party.
(g) Indemnification Payments. The indemnification and contribution required
by Sections 6(a), 6(b) and 6(d) shall be made by periodic payments of the
amount thereof during the course of the investigation or defense, as and when
bills are received or expense, loss, damage or liability is incurred.
7. Information to be Furnished by the Holders. Each Holder shall furnish to
Public such information as Public may reasonably request and as shall be
required in connection with the registration and related proceedings referred
to herein.
8. Miscellaneous.
(a) Remedies. Public and each Holder acknowledge and agree that in the event
of any breach of this Agreement by any of them, the Holders and Public would be
irreparably harmed and could not be made whole by monetary damages. Each party
accordingly agrees to waive the defense in any action for specific performance
that a remedy at law would be adequate and that the parties, in addition to any
other remedy to which they may be entitled at law or in equity, shall be
entitled to compel specific performance of this Agreement.
(b) Entire Agreement. This Agreement and the Stockholders Agreement, dated
as of the date hereof, among Public and the Holders (the "Stockholders
Agreement") constitutes the entire agreement and understanding of the parties
hereto in respect of the subject matter contained herein, and there are no
restrictions, promises, representations, warranties, covenants, or undertakings
with respect to the subject matter hereof, other than those expressly set forth
or referred to herein. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof (other than the Stockholders Agreement).
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(c) Notices. Any notice, request, instruction or other document to be given
hereunder by any party hereto to another party hereto shall be in writing,
shall be delivered personally or sent by certified or registered mail, postage
prepaid, return receipt requested, or by Federal Express or other delivery
service, to the address of the party set forth below or to such other address
as the party to whom notice is to be given may provide in a written notice to
Public, a copy of which written notice shall be maintained on file with the
Secretary of Public.
(i) If to Public, to:
AirGate PCS, Inc.
Harris Tower
233 Peachtree Street, Suite 1700
Atlanta, Georgia 30303
Facsimile: (404) 832-2237
Attention: Barbara L. Blackford
With a copy to:
Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601
Phone: (312) 558-5699
Facsimile: (312) 558-5700
Attention: Robert F. Wall
R. Cabell Morris, Jr.
(ii) If to Blackstone, to:
c/o The Blackstone Group
345 Park Avenue, 31st Floor
New York, NY 10154
Facsimile: (212) 583-5722
Attention: Michael S. Chae
With a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Facsimile: (212) 455-2502
Attention: Wilson S. Neely
and
TCW/Crescent Mezzanine, LLC
11100 Santa Monica Boulevard, Suite 2000
Los Angeles, CA 90025
Facsimile: (310) 235-5967
Attention: John C. Rocchio
With a copy to:
O'Melveny & Myers LLP
400 South Hope Street
Los Angeles, CA 90072-2899
Facsimile: (213) 430-6407
Attention: Kathryn Sanders
C-14
If to any of the Holders, to:
c/o Alan Anderson
111 E. First Street
Geneseo, Illinois 61254
Facsimile: (309) 944-4406
With a copy to:
Mayer Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
Facsimile: (312) 701-7711
Attention: Paul Theiss
Robert J. Wild
(d) Governing Law. This Agreement shall be governed by, construed and
enforced in accordance with the laws of the State of Delaware, without giving
effect to any choice or conflict of law provision or rule (whether of the State
of Delaware or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of Delaware. Each of the parties
hereto hereby irrevocably and unconditionally consents to submit to the
exclusive jurisdiction of the courts of the State of Delaware and of the United
States of America located in Wilmington, Delaware (the "Delaware Courts"), for
any litigation arising out of or relating to this Agreement (and agrees not to
commence any litigation relating thereto except in such Delaware Courts),
consents to service of process by notice as provided in Section 9(c) of this
Agreement, waives any objection to the laying of venue of any such litigation
in the Delaware Courts and agrees not to plead or claim in any Delaware Court
that such litigation brought therein has been brought in an inconvenient forum.
(e) MUTUAL WAIVER OF JURY TRIAL. THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL
BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY
RIGHTS OR REMEDIES UNDER THIS AGREEMENT.
(f) Severability. The invalidity, illegality or unenforceability of one or
more of the provisions of this Agreement in any jurisdiction shall not affect
the validity, legality or enforceability of the remainder of this Agreement in
such jurisdiction or the validity, legality or enforceability of this
Agreement, including any such provision, in any other jurisdiction, it being
intended that all rights and obligations of the parties hereunder shall be
enforceable to the fullest extent permitted by law.
(g) Other Agreements. Nothing contained in this Agreement shall be deemed to
be a waiver of, or release from, any obligations any party hereto may have
under, or any restrictions on the transfer of Registrable Securities or other
securities of Public imposed by, any other agreement.
(h) Successors; Assigns; Transferees. The provisions of this Agreement shall
be binding upon and accrue to the benefit of the parties hereto and their
respective heirs, successors and permitted assigns. In addition, and whether or
not any express assignment shall have been made, the provisions of this
Agreement which are for the benefit of the Holders shall also be for the
benefit of and enforceable by any Transferee or subsequent holder of
Registrable Securities, subject to the provisions contained herein.
(i) Amendments, Waivers. This Agreement may not be amended, modified or
supplemented and no waivers of or consents to departures from the provisions
hereof may be given unless consented to in writing by Public and each of the
Holders.
(j) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same Agreement.
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(k) Limited Liability. Notwithstanding any other provision of this
Agreement, neither the members, general partners, limited partners or managing
directors, or any directors or officers of any members, general or limited
partner, advisory director, nor any future members, general partners, limited
partners, advisory director, or managing directors, if any, of any such Holder
shall have any personal liability for performance of any obligation of such
Holder under this Agreement in excess of the respective capital contributions
of such members, general partners, limited partners or managing directors to
such Holder.
(l) Adjustments Affecting Registrable Securities. Public will not take any
action, or permit any change to occur, with respect to the Registrable
Securities which would (i) adversely affect the ability of any Holder to
include such Registrable Securities in a registration undertaken pursuant to
this Agreement or (ii) adversely affect the marketability of such Registrable
Securities in any such registration.
(m) Rule 144. If Public is subject to the requirements of Section 13, 14 or
15(d) of the Exchange Act, Public covenants that it will file any reports
required to be filed by it under the Securities Act and the Exchange Act (or,
if Public is not required to file such reports, it will, upon the request of
Blackstone, make publicly available such information) and it will take such
further action as any Holder may reasonably request, so as to enable such
Holder to sell Registrable Securities without registration under the Securities
Act within the limitation of the exemptions provided by (a) Rule 144 under the
Securities Act, as such Rule may be amended from time to time, or (b) any
similar rule or regulation hereafter adopted by the SEC. Upon the request of
any Holder, Public will deliver to such Holder a written statement as to
whether it has complied with such requirements.
(n) Other Registration Rights.
(i) Public covenants that it will not grant any right of registration
under the Securities Act relating to any of its shares of Public Common
Stock or Public Common Stock Equivalents or other equity securities to any
person unless the Holders shall be entitled to have included in any
registration effected (A) pursuant to Section 2 hereof, all Registrable
Securities requested by it to be so included prior to the inclusion of any
securities requested to be registered by the persons entitled to any such
other registration rights pursuant to any provision providing registration
rights comparable to those contained in Section 3 hereof and (B) pursuant
to Section 3 hereof, all Registrable Securities requested by such Holder to
be so included (I) prior to the inclusion of any securities requested to be
registered by the persons entitled to any such other registration rights
pursuant to any provision providing incidental registration rights
comparable to those contained in Section 3 hereof and (II) with respect to
any Requesting Holder, pro rata with the inclusion of any securities
requested to be registered by such Requesting Holder as provided for in
Section 3(b)(ii).
(ii) If Public at any time grants to any other holders of Public Common
Stock, Public Common Stock Equivalents or other equity securities of Public
any rights to request Public to effect the registration (whether requested
or incidental) under the Securities Act of any such securities on any terms
more favorable to such holders than the terms set forth in this Agreement,
the terms of this Agreement shall, at the request of any Holder, be deemed
amended or supplemented to the extent necessary to provide the Holders such
more favorable rights and benefits.
(iii) Public covenants that it will not enter into, or cause or permit
any of its Subsidiaries to enter into, any agreement which conflicts with
or limits or prohibits the exercise of the rights granted to the Holders in
this Agreement.
(iv) Public covenants that it will not grant any right of registration
under the Securities Act relating to any of its shares of Public Common
Stock or Public Common Stock Equivalents or other equity securities to any
Person pursuant to any provision providing registration rights comparable
to those contained in Section 2 hereof without providing that the exercise
of such rights will only be permitted following the consummation of an
underwritten public offering by Blackstone.
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(v) Each Holder acknowledges that, in connection with Public's issuance
of warrants to Lucent Technologies, Inc. ("Lucent"), Public and Lucent
entered into the Warrant Registration Rights Agreement, dated as of August
16, 1999, which provides for, among other things, the right of Lucent to
register up to 90,578 shares issued to it upon exercise of the Warrant. The
Holders acknowledge that such registration rights may, among other things,
entitle Lucent to participate in an offering requested hereby and affect
the priority of registration as set forth herein.
(o) Headings. The headings and captions contained herein are for convenience
of reference only and shall not control or affect the meaning or construction
of any provision hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Registration
Rights Agreement as of the date first written above.
AIRGATE PCS, INC.
By: _________________________________
Name:
Title:
GENESEO COMMUNICATIONS, INC.
By: _________________________________
Name:
Title:
CAMBRIDGE TELCOM, INC.
By: _________________________________
Name:
Title:
CASS COMMUNICATIONS, INC.
By: _________________________________
Name:
Title:
TECHNOLOGY GROUP, LLC
By: _________________________________
Name:
Title:
MONTROSE MUTUAL PCS, INC.
By: _________________________________
Name:
Title:
C-17
GRIDLEY ENTERPRISES, INC.
By: _________________________________
Name:
Title:
-------------------------------------
Timothy M. Yager
-------------------------------------
Kelly M. Yager
BLACKSTONE ices CAPITAL PARTNERS
L.P.
By: Blackstone Media Management
Associates III, L.L.C., as its
General Partner
By: _________________________________
Name:
Title:
BLACKSTONE/iPCS L.L.C.
By: _________________________________
Name:
Title:
BLACKSTONE COMMUNICATIONS PARTNERS I
L.P.
By: Blackstone Communications
Management Associates I L.L.C.,
as its General Partner
By: _________________________________
Name:
Title:
TCW/CRESCENT MEZZANINE PARTNERS II,
L.P., TCW/CRESCENT MEZZANINE
TRUST II
By: TCW/Crescent Mezzanine II L.P.,
as its General Partner or
Managing Owner
By: TCW/Crescent Mezzanine L.L.C.,
as its General Partner
By: _________________________________
Name:
Title:
C-18
TCW SHARED OPPORTUNITY FUND II, L.P.
By: TCW Investment Management
Company, as its Investment
Manager
By: _________________________________
Name:
Title:
By: _________________________________
Name:
Title:
SHARED OPPORTUNITY ILB, L.L.C.
By: TCW Asset Management Company, as
its Investment Adviser
By: _________________________________
Name:
Title:
By: _________________________________
Name:
Title:
TCW SHARED OPPORTUNITY FUND III,
L.P.
By: TCW Asset Management Company, as
its Investment Adviser
By: _________________________________
Name:
Title:
By: _________________________________
Name:
Title:
C-19
TCW LEVERAGED INCOME TRUST, L.P.
By: TCW Advisers (Bermuda), Ltd., as
its General Partner
By: _________________________________
Name:
Title:
By: TCW Investment Management
Company, as its Investment
Adviser
By: _________________________________
Name:
Title:
TCW LEVERAGED INCOME TRUST II, L.P.
By: TCW (LINC II), L.P. as its
General Partner
By: TCW Advisers (Bermuda), Ltd., as
its General Partner
By: _________________________________
Name:
Title:
By: TCW Investment Management
Company, as its Investment
Adviser
By: _________________________________
Name:
Title:
TCW LEVERAGED INCOME TRUST IV, L.P.
By: TCW Asset Management Company, as
its Investment Adviser
By: _________________________________
Name:
Title:
By: TCW (LINC IV), L.L.C., as its
General Partner
By: TCW Asset Management Company, as
its Managing Partner
By: _________________________________
Name:
Title:
By: _________________________________
Name:
Title:
C-20
ANNEX D
OPINION OF UBS WARBURG LLC
STRICTLY PRIVATE AND CONFIDENTIAL
August 28, 2001
The Board of Directors
AirGate PCS Inc.
Harris Tower
233 Peachtree Street NE, Ste. 1700
Atlanta, GA 30303
Dear Members of the Board:
We understand that AirGate PCS Inc., a Delaware corporation ("Airgate" or
the "Company"), is considering a transaction whereby the Company will acquire
iPCS, Inc., a Delaware corporation ("iPCS" or the "Target"). Pursuant to the
terms of the Agreement and Plan of Merger to be dated August 28, 2001 (the
"Purchase Agreement"), the Company will undertake a series of transactions
whereby Target will become a wholly owned subsidiary of the Company (the
"Transaction").
Pursuant to the terms of the Purchase Agreement, (a) immediately prior to
the closing, each outstanding share of Series A-1 Preferred Stock and Series A-
2 Preferred Stock will be converted into shares of the common stock of Target,
par value of $.01 per share ("iPCS Common Stock") and (b) at the closing, (i)
each issued and outstanding share of iPCS Common Stock, will be converted into
the right to receive 0.1594 shares of common stock, par value of $.01 per share
("Company Common Stock"), of the Company (the "Exchange Ratio") and (ii) all
outstanding options and warrants to purchase iPCS Common Stock will be
converted into the right to receive options and warrants to purchase Company
Common Stock at the Exchange Ratio with the exercise prices adjusted in
accordance with the Exchange Ratio; provided, that, in no event shall the
aggregate number of shares of Company Common Stock issued in accordance with
the Purchase Agreement exceed 13,500,000 shares of Company Common Stock. The
terms and conditions of the Transaction are more fully set forth in the
Purchase Agreement.
You have requested our opinion as to the fairness from a financial point of
view of the Exchange Ratio to the holders of Company Common Stock.
UBS Warburg LLC ("UBSW") has acted as financial advisor to the Board of
Directors of the Company in connection with the Transaction and will receive a
fee for its services. UBSW will also receive a fee upon delivery of this
opinion. In the ordinary course of business, UBSW, its successors and
affiliates may trade securities of the Company or iPCS for their own accounts
and the accounts of their customers, and accordingly, may at any time hold a
long or short position in such securities.
Our opinion does not address the Company's underlying business decision to
effect the Transaction or constitute a recommendation to any stockholder of the
Company as to how such stockholder should vote with respect to the Transaction.
At your direction, we have not been asked to, nor do we, offer any opinion as
to the material terms of the Purchase Agreement or the form of the Transaction.
We express no opinion as to what the value of Company Common Stock will be when
issued pursuant to the Transaction or the prices at which it will trade in the
future. In rendering this opinion, we have assumed, with your consent, that the
final executed form of the Purchase Agreement does not differ in any material
respect from the draft that we have examined, and that the Company and the
Target will comply with all the material terms of the Purchase Agreement. In
arriving at our opinion, we have, among other things: (i) reviewed certain
publicly available business and historical financial information relating to
the Company and Target, (ii) reviewed certain internal financial information
and other data relating to the business and financial prospects of the Company,
including estimates
D-1
and financial forecasts prepared by management of the Company, that were
provided to us by the Company and not publicly available, (iii) reviewed
certain internal financial information and other data relating to the business
and financial prospects of the Target, including estimates and financial
forecasts prepared by the managements of the Company and the Target and not
publicly available, (iv) conducted discussions with members of the senior
managements of the Company and the Target concerning the businesses and
financial prospects of the Company and the Target, (v) reviewed publicly
available financial and stock market data with respect to certain other
companies in lines of business we believe to be generally comparable to those
of the Company, (vi) compared the financial terms of the Transaction with the
publicly available financial terms of certain other transactions which we
believe to be generally relevant, (vii) considered the financial impact of
certain pro forma effects of the Transaction on the Company's financial
statements and on the financial forecasts referred to above, (viii) reviewed a
draft of the Purchase Agreement dated August 26, 2001, and (ix) conducted such
other financial studies, analyses, and investigations, and considered such
other information as we deemed necessary or appropriate.
In connection with our review, at your direction, we have not assumed any
responsibility for independent verification for any of the information reviewed
by us for the purpose of this opinion and have, with your consent, relied on
such information being complete and accurate in all material respects. In
addition, at your direction, we have not made any independent evaluation or
appraisal of any of the assets or liabilities (contingent or otherwise) of the
Company or Target, nor have we been furnished with any such evaluation or
appraisal. With respect to the financial forecasts, estimates and pro forma
effects referred to above, we have assumed, at your direction, that they have
been reasonably prepared on a basis reflecting the best currently available
estimates and judgments of the management of each company as to the future
performance of their respective companies. In addition, we have assumed with
your approval that the future financial results referred to above will be
achieved at the times and in the amounts projected by management. We have also
assumed, with your consent, that the Transaction will qualify as a tax-free
reorganization for U.S. federal income tax purposes. We have also assumed that
all governmental, regulatory or other consents and approvals necessary for the
consummation of the Transaction will be obtained without any material adverse
effect on the Company and/or the Target and the Transaction. Our opinion is
necessarily based on economic, monetary, market and other conditions as in
effect on, and the information made available to us as of, the date hereof.
Based upon and subject to the foregoing, it is our opinion that, as the date
hereof, the Exchange Ratio is fair, from a financial point of view, to the
holders of Company Common Stock.
Very truly yours,
UBS Warburg LLC
/s/ Stanley Holtz
By: _________________________________
Stanley Holtz
Managing Director
/s/ James Neissa
By: _________________________________
James Neissa
Managing Director
D-2
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 20. Indemnification of Officers and Directors
In accordance with the General Corporation Law of the State of Delaware
(being chapter 1 of Title 8 of the Delaware code), the registrant's Certificate
of Incorporation provides as follows:
The registrant shall indemnify any person who was or is a party or is
threatened to be made a party to, or is otherwise involved in, any action, suit
or proceeding by reason of the fact that such person is or was a director or an
officer of the registrant, whether the basis for such action or proceeding is
an alleged action in an official capacity as an officer or director or in any
other capacity while such person was serving as a director or officer of the
registrant The registrant shall indemnify such person to the fullest extent
allowed by the Delaware law against all expense, liability and loss (including
attorney's fees, judgments, fines, ERISA excise tax, or penalties and amounts
paid in settlement) reasonably incurred or suffered by the indemnitee in
connection with such action or suit. The registrant's Certificate of
Incorporation also empowers the indemnitee to recover unpaid amounts of a claim
for indemnification by bringing suit against the registrant to recover any
unpaid amount of a claim.
The right to indemnification includes the right of the indemnitee to be paid
by the registrant for the expenses incurred in defending any such proceeding in
advance of its final disposition; provided, however, that, if the Delaware law
requires, an advancement of expenses incurred by an indemnitee in his or her
capacity as a director or officer will be made only upon delivery to the
registrant of an undertaking, by or on behalf of such indemnitee, to repay all
amounts advanced if it shall ultimately be determined by final judicial
decision, from which there is no further right to appeal, that such indemnitee
is not entitled to be indemnified for such expenses.
The right to indemnification and to the advancement of expenses provided for
by the Certificate of Incorporation is not exclusive of any other right to
which the indemnitee may have or hereinafter acquire. Moreover, the registrant
may purchase and maintain insurance, at its expense, to protect itself and any
director or officer of the registrant against any liability asserted against
him or her in any such capacity, or arising out of such person's status as
such, whether or not the registrant would have the power to indemnify him
against such liabilities under the laws of Delaware.
In addition to indemnification provided to the registrant's officers and
directors in the Certificate of Incorporation and under the laws of Delaware,
the registrant has entered into indemnification agreements with certain
officers and directors to provide them with further assurances and protection
from liability that they may incur in their respective positions and duties in
connection with any public offering to any fiduciary obligation owed with
respect to the registrant and its stockholders. The registrant has agreed to
indemnify and hold harmless, to the extent permitted under Delaware law, each
person and affiliated person (generally, any director, officer, employee,
controlling person, agent, or fiduciary of the indemnified person), provided
that the indemnified person was acting or serving at the registrant's request
in his capacity as either an officer, director, employee, controlling person,
fiduciary or other agent or affiliate of the registrant. Under the
indemnification agreements, each person is indemnified against any and all
liabilities (described below) that occur in connection with any threatened,
pending or completed action, suit, proceeding, alternative dispute resolution
mechanism or hearing, inquiry or investigation that such indemnitee in good
faith believes may lead to the institution of any such action whether civil,
criminal, administrative or other. As a condition to receiving indemnification,
indemnitees are required to give notice in writing to the registrant of any
claim for which indemnification may be sought under such agreement.
The agreement provides that an indemnitee may receive indemnification
against any and all (1) expenses (including attorney's fees and other costs,
expenses and obligations incurred), judgments, fines and penalties; (2) amounts
paid in settlement (if such settlement is approved by the registrant); (3) any
federal, state, local or
II-1
foreign taxes imposed on an indemnitee as a result of the receipt of any
payments under the indemnification agreement; and (4) all interest, assessments
and other charges paid or payable in connection with such expenses. An
indemnified person will be indemnified against expenses to the extent that he
is successful on the merits or otherwise, including dismissal of an action
without prejudice, in defense of any action, suit, proceeding, inquiry or
investigation. Expenses that the indemnified person have or will incur in
connection with a suit or other proceeding may be received in advance within 10
days of written demand to the registrant
Prior to receiving indemnification or being advanced expenses, a committee,
consisting of either members of the board of directors or any person appointed
by the board of directors, must not have determined the indemnified person
would not be permitted to indemnification under Delaware law and, in the case
of advanced expenses, that the registrant will be entitled to be reimbursed by
the indemnitee. If there is a change in control (as defined in the
indemnification agreement) that occurs without majority approval of the board
of directors, then the committee will consist of independent legal counsel
selected by the indemnified person and approved by the registrant to render a
written opinion as to whether and to what extent the indemnitee would be
permitted to indemnification under applicable law. Under the indemnification
agreement, an indemnified person may appeal a determination by the committee's
determination not to grant indemnification or advance expenses by commencing a
legal proceeding. Failure of the committee to make an indemnification
determination or the termination of any claim by judgment, order, settlement,
plea of nolo contendere, or conviction does not create a presumption that
either (1) the indemnified person did not meet a particular standard of conduct
or belief or (2) that the court has determined that indemnification is not
available.
Under the indemnification agreement, an indemnitee is entitled to
contribution from the registrant for losses, claims, damages, expenses or
liabilities as well as other equitable considerations upon the determination of
a court of competent jurisdiction that indemnification provided for under the
agreement is not available. The amount contributed by the registrant will be in
proportion, as appropriate, to reflect the relative benefits received by the
registrant and the indemnitee or, if such contribution is not permitted under
Delaware law, then the relative benefit will be considered with the relative
fault of both parties in the action or inaction which resulted in such
liability. In connection with the registration of AirGate PCS, Inc.'s
securities, the relative benefits received by the registrant and indemnified
person will be deemed to be in the same respective proportions of the net
proceeds from the offering (less expenses) received by the registrant and the
indemnified person. The relative fault of the registrant and the indemnified
person is determined by reference to whether the untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a
material fact relates to information supplied by the registrant or the
indemnified person and their relative intent, knowledge, access to information
and opportunity to correct such statement or omission.
Contribution paid takes into account the equitable considerations, if any,
instead of a pro rata or per capital allocation. In connection with the
offering of the registrant securities, an indemnified person will not be
required to contribute any amount in excess of the lesser of (1) the proportion
of the total of such losses, claims, damages, or liabilities indemnified
against equal to the proportion of the total securities sold under the
registration statement sold by the indemnified person or (2) the proceeds
received by the indemnified person from the sale of securities under the
registration statement. No person found guilty of fraudulent misrepresentation,
as defined in the agreement, shall be entitled to contribution from any person
who was not found guilty of such fraudulent representation.
In the event that the registrant is obligated to pay the expenses of a claim
and upon written notice to the indemnified person, the registrant is entitled
to assume defense of the claim and select counsel which is approved by the
indemnified person. Upon receipt of the indemnitee's approval, the registrant
will directly incur the legal expenses and as a result will have the right to
conduct the defense as it sees fit in its sole discretion, including the right
to settle any claim against any indemnified party, without consent of the
indemnified person.
II-2
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
Exhibit
Number Description
------- -----------
2.1 Agreement and Plan of Merger, dated as of August 28, 2001, by and
between the registrant and iPCS, Inc. (included as Annex A to the
proxy statement/prospectus contained as part of this registration
statement).
3.1 Amended and Restated Certificate of Incorporation of AirGate PCS, Inc.
(incorporated by reference to Exhibit 3.1 to the quarterly report on
Form 10-Q filed by the registrant with the SEC on August 14, 2000 for
the quarter ended June 30, 2000 (SEC File No. 000-27455)).
3.2 Amended and Restated Bylaws of AirGate PCS, Inc. (incorporated by
reference to Exhibit 3.2 to the Registration Statement on Form S-1/A
filed by the registrant with the SEC on June 15, 1999 (SEC File Nos.
333-79189-02 and 333-79189-01)).
4.1 Specimen of common stock certificate of AirGate PCS, Inc.
(incorporated by reference to Exhibit 4.1 to the Registration
Statement on Form S-1/A filed by the registrant with the SEC on June
15, 1999 (SEC File Nos. 333-79189-02 and 333-79189-01)).
4.2 Form of warrant issued in units offering (incorporated by reference to
Exhibit 10.15 to the Registration Statement on Form S-1/A filed by the
registrant with the SEC on September 23, 1999 (SEC File Nos. 333-
79189-02 and 333-79189-01)).
4.3.1 Form of Lucent Warrants (incorporated by reference to Exhibit 4.4 to
the Registration Statement on Form S-1/A filed by the registrant with
the SEC on September 17, 1999 (SEC File Nos. 333-79189-02 and 333-
79189-01)).
4.3.2 Form of Indenture for senior subordinated discount notes (including
form of pledge agreement) (incorporated by reference to Exhibit 4.5 to
the Registration Statement on Form S-1/A filed by the registrant with
the SEC on September 23, 1999 (SEC File Nos. 333-79189-02 and 333-
79189-01)).
4.4 Form of unit (incorporated by reference to Exhibit 10.15 to the
Registration Statement on Form S-1/A filed by the registrant with the
SEC on September 23, 1999 (SEC File Nos. 333-79189-02 and 333-79189-
01)).
5.1 Opinion of Winston & Strawn regarding the validity of the common stock
issued in the merger.
8.1 Opinion of Winston & Strawn regarding the federal income tax
consequences of the merger.
8.2 Opinion of Mayer, Brown & Platt regarding the federal income tax
consequences of the merger.
10.1 Form of Support Agreement, dated as of August 28, 2001, by and among
the registrant and each of Blackstone/iPCS L.L.C., Blackstone iPCS
Capital Partners L.P., Blackstone Communications Partners I, L.P.,
TCW/Crescent Mezzanine Partners II, L.P., TCW/Crescent Mezzanine Trust
II, TCW Leveraged Income Trust, L.P., TCW Leveraged Income Trust II,
L.P., TCW Leveraged Income Trust IV, L.P., TCW Shared Opportunity Fund
II, L.P., Shared Opportunity Fund IIB, L.L.C., TCW Shared Opportunity
Fund III, L.P., Geneseo Communications, Inc., Cambridge Telcom, Inc.
and Gridley Enterprises, Inc. (included as Annex B to the proxy
statement/prospectus contained as part of this registration
statement).
10.2 Form of Registration Rights Agreement to be entered into by and among
the registrant and Blackstone/iPCS, L.L.C., Blackstone iPCS Capital
Partners L.P., Blackstone Communications Partners I L.P. TCW/Crescent
Mezzanine Partners II, L.P., TCW/Crescent Mezzanine Trust II, TCW
Leveraged Income Trust., L.P., TCW Leveraged Income Trust II, L.P.,
TWC Leveraged Income Trust IV, TCW Shared Opportunity Fund II, Shared
Opportunity Fund IIB, L.L.C., TCW Shared
II-3
Exhibit
Number Description
------- -----------
Opportunity Fund III, L.P., Geneseo Communications, Inc., Cambridge
Telcom, Inc., Cass Communications, Inc., Technology Group, LLC,
Montrose Mutual PCS, Inc., Gridley Enterprises, Inc., Timothy M. Yager
and Kelly M. Yager. (included as Annex C to the proxy
statement/prospectus contained as part of this registration
statement).
21.1 Subsidiaries of registrant (incorporated by reference to Exhibit 21.1
to the Registration Statement on Form S-1/A filed by the registrant
with the SEC on June 15, 1999 (SEC File Nos. 333-79189-02 and 333-
79189-01)).
23.1 Consent of KPMG LLP.
23.2 Consent of Winston & Strawn (included in Exhibit 5.1).
23.3 Consent of Deloitte & Touche LLP.
23.4 Consent of Winston & Strawn (included in Exhibit 8.1).
23.5 Consent of Mayer, Brown & Platt (included in Exhibit 8.2).
23.6 Consent of UBS Warburg LLC.
24.1 Power of Attorney.*
99.1 Form of Proxy Card.
99.2 Opinion of UBS Warburg LLC (included as Annex D to the proxy
statement/prospectus contained as part of this registration
statement).
--------
*Previously filed.
(b) Financial Statement Schedules
No financial statement schedules are filed because the required information
is not applicable or is included in the consolidated financial statements or
related notes.
Item 22. Undertakings
The registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(a) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(b) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
2. That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-4
3. To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
4. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or Section 15(d)
of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of
the Securities Exchange Act of 1934) that is incorporated by reference in
this registration statement shall be deemed to be a new registration
statement relating to the securities offered herein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
5. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
6. (a) The undersigned registrant hereby undertakes as follows: That
prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this registration statement,
by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items
of the applicable form.
(b) The registrant undertakes that every prospectus (i) that is filed
pursuant to the immediately preceding paragraph, or (ii) that purports to
meet the requirements of section 10(a)(3) of the Securities Act and is used
in connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will not
be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act, each such post-
effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
7. The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus
pursuant to items 4, 10(b), 11 or 13 of this Form, within one business day
of receipt of such request, and to send the incorporated documents by first
class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
8. The undersigned hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in this registration statement when it became effective.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Pre-Effective Amendment No. 1 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Atlanta, State of Georgia, on the 16th day of October, 2001.
Airgate PCS, Inc.
/s/ Barbara L. Blackford
By: _________________________________
Barbara L. Blackford
Vice President, General Counsel
and Corporate Secretary
Pursuant to the requirements of the Securities Act of 1933, this Pre-
Effective Amendment No. 1 to Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
* President, Chief Executive October 16, 2001
______________________________________ Officer and Director
Thomas M. Dougherty (Principal Executive
Officer)
* Chief Financial Officer October 16, 2001
______________________________________ (Principal Financial and
Alan B. Catherall Accounting Officer)
* Director October 16, 2001
______________________________________
Bernard A. Bianchino
* Director October 16, 2001
______________________________________
John R. Dillon
* Director October 16, 2001
______________________________________
Robert A. Ferchat
* Director October 16, 2001
______________________________________
Sidney E. Harris
* Chairman October 16, 2001
______________________________________
Barry J. Schiffman
/s/ Barbara L. Blackford
*By: _______________________
Barbara L. Blackford
Attorney-in-fact
II-6
INDEX TO EXHIBITS
Exhibit
Number Description
------- -----------
2.1 Agreement and Plan of Merger, dated as of August 28, 2001, by and
between the registrant and iPCS, Inc. (included as Annex A to the
proxy statement/prospectus contained as part of this registration
statement).
3.1 Amended and Restated Certificate of Incorporation of AirGate PCS, Inc.
(incorporated by reference to Exhibit 3.1 to the quarterly report on
Form 10-Q filed by the registrant with the SEC on August 14, 2000 for
the quarter ended June 30, 2000 (SEC File No. 000-27455)).
3.2 Amended and Restated Bylaws of AirGate PCS, Inc. (incorporated by
reference to Exhibit 3.2 to the Registration Statement on Form S-1/A
filed by the registrant with the SEC on June 15, 1999 (SEC File Nos.
333-79189-02 and 333-79189-01)).
4.1 Specimen of common stock certificate of AirGate PCS, Inc.
(incorporated by reference to Exhibit 4.1 to the Registration
Statement on Form S-1/A filed by the registrant with the SEC on June
15, 1999 (SEC File Nos. 333-79189-02 and 333-79189-01)).
4.2 Form of warrant issued in units offering (incorporated by reference to
Exhibit 10.15 to the Registration Statement on Form S-1/A filed by the
registrant with the SEC on September 23, 1999 (SEC File Nos. 333-
79189-02 and 333-79189-01)).
4.3.1 Form of Lucent Warrants (incorporated by reference to Exhibit 4.4 to
the Registration Statement on Form S-1/A filed by the registrant with
the SEC on September 17, 1999 (SEC File Nos. 333-79189-02 and 333-
79189-01)).
4.3.2 Form of Indenture for senior subordinated discount notes (including
form of pledge agreement) (incorporated by reference to Exhibit 4.5 to
the Registration Statement on Form S-1/A filed by the registrant with
the SEC on September 23, 1999 (SEC File Nos. 333-79189-02 and 333-
79189-01)).
4.4 Form of unit (incorporated by reference to Exhibit 10.15 to the
Registration Statement on Form S-1/A filed by the registrant with the
SEC on September 23, 1999 (SEC File Nos. 333-79189-02 and 333-79189-
01)).
5.1 Opinion of Winston & Strawn regarding the validity of the common stock
issued in the merger.
8.1 Opinion of Winston & Strawn regarding the federal income tax
consequences of the merger.
8.2 Opinion of Mayer, Brown & Platt regarding the federal income tax
consequences of the merger.
10.1 Form of Support Agreement, dated as of August 28, 2001, by and among
the registrant and each of Blackstone/iPCS L.L.C., Blackstone iPCS
Capital Partners L.P., Blackstone Communications Partners I, L.P.,
TCW/Crescent Mezzanine Partners II, L.P., TCW/Crescent Mezzanine Trust
II, TCW Leveraged Income Trust, L.P., TCW Leveraged Income Trust II,
L.P., TCW Leveraged Income Trust IV, L.P., TCW Shared Opportunity Fund
II, L.P., Shared Opportunity Fund IIB, L.L.C., TCW Shared Opportunity
Fund III, L.P., Geneseo Communications, Inc., Cambridge Telcom, Inc.
and Gridley Enterprises, Inc. (included as Annex B to the proxy
statement/prospectus contained as part of this registration
statement).
10.2 Form of Registration Rights Agreement to be entered into by and among
the registrant and Blackstone/iPCS, L.L.C., Blackstone iPCS Capital
Partners L.P., Blackstone Communications Partners I L.P. TCW/Crescent
Mezzanine Partners II, L.P., TCW/Crescent Mezzanine Trust II, TCW
Leveraged Income Trust., L.P., TCW Leveraged Income Trust II, L.P.,
TWC Leveraged Income Trust IV, TCW Shared Opportunity Fund II, Shared
Opportunity Fund IIB, L.L.C., TCW Shared Opportunity Fund III, L.P.,
Geneseo Communications, Inc., Cambridge Telcom, Inc., Cass
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Exhibit
Number Description
------- -----------
Communications, Inc., Technology Group, LLC, Montrose Mutual PCS,
Inc., Gridley Enterprises, Inc., Timothy M. Yager and Kelly M. Yager.
(included as Annex C to the proxy statement/prospectus contained as
part of this registration statement).
21.1 Subsidiaries of registrant (incorporated by reference to Exhibit 21.1
to the Registration Statement Form S-1/A filed by the registrant with
the SEC on June 15, 1999 (SEC File Nos. 333-79189-02 and 333-79189-
01)).
23.1 Consent of KPMG LLP.
23.2 Consent of Winston & Strawn (included in Exhibit 5.1).
23.3 Consent of Deloitte & Touche LLP.
23.4 Consent of Winston & Strawn (included in Exhibit 8.1).
23.5 Consent of Mayer, Brown & Platt (included in Exhibit 8.2).
23.6 Consent of UBS Warburg LLC.
24.1 Power of Attorney.*
99.1 Form of Proxy Card.
99.2 Opinion of UBS Warburg LLC (included as Annex D to the proxy
statement/prospectus contained as part of this registration
statement).
--------
*Previously filed.
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