##### Table of Contents



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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-K

For Annual and Transition Reports Pursuant to
Section 13 or 15(d) of the Securities Act of 1934

(Mark One)

x
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Fiscal Year Ended September 30, 2003.


OR

o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934


Commission File Number: 027455

AirGate PCS, Inc.

(Exact name of registrant as specified in its charter)


Delaware
(State other jurisdiction of
incorporation or organization)
    
    58-2422929
(I.R.S. Employer
Identification Number)Harris Tower, 233
Peachtree St. NE, Suite 1700,
Atlanta, Georgia
(Address of principal executive offices)
    
    30303
(Zip
code)


(404) 525-7272
Registrants telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act: None.

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $.01 per share
(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. o

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes o No x

The aggregate market value of the voting stock held by non-affiliates of
the registrant computed by reference to the closing sale price on the OTC
Bulletin Board on March 31, 2003, the last business day of the registrants
most recently completed second fiscal quarter, was approximately $6,484,959.
(For purposes of determination of the foregoing amount, only our directors and
executive officers have been deemed affiliates).

As of December 8, 2003, there were 25,961,191 shares of common stock,
$0.01 par value per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Definitive Proxy Statement to be filed within 120 days
after September 30, 2003 for the Registrants Annual Shareholder Meeting are
incorporated into Part III of this Report on Form 10-K.



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TABLE OF CONTENTS



|                                                                                     |                                                                                                          |  |  |  |  |  |  | 
|------------------------------------------------------------------------------------ | -------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                                                              
|                                                                                     | ITEM 1. Business                                                                                        
|                                                                                     | ITEM 2. Properties                                                                                      
|                                                                                     | ITEM 3. Legal Proceedings                                                                               
|                                                                                     | ITEM 4. Submission Of Matters To A Vote Of Security Holders                                             
|PART II                                                                             
|                                                                                     | ITEM 5. Market For Registrants Common Equity And Related Stockholder Matters                           
|                                                                                     | ITEM 6. Selected Financial Data                                                                         
|                                                                                     | ITEM 7. Managements Discussion And Analysis Of Financial Condition And Results Of Operations           
|                                                                                     | ITEM 7A. Quantitative And Qualitative Disclosure About Market Risk                                      
|                                                                                     | ITEM 8. Financial Statements and Supplementary Data                                                     
|                                                                                     | ITEM 9. Changes In And Disagreements With Accountants On Accounting And Financial Disclosure            
|                                                                                     | ITEM 9A. Controls and Procedures                                                                        
|PART III                                                                            
|                                                                                     | ITEM 10. Directors and Executive Officers of the Registrant.                                            
|                                                                                     | ITEM 11. Executive Compensation.                                                                        
|                                                                                     | ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
|                                                                                     | ITEM 13. Certain Relationships and Related Transactions.                                                
|                                                                                     | ITEM 14. Principal Accounting Fees and Services.                                                        
|INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF AIRGATE PCS, INC. AND ITS SUBSIDIARIES
|First Amendment to Credit Agreement                                                 
|Amendment No. 2 to the Credit Agreement                                             
|Computation of Ratio of Earnings to Fixed Charges                                   
|Consent of KPMG LLP Powers of Attorney                                              
|Certification                                                                       
|Certification                                                                       
|Certification                                                                       
|Certification                                                                       



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##### Table of Contents



AIRGATE PCS, INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS

ITEM NO.
    
    
    
    
    PAGE NO.PART I
    
    
    
    
    1ITEM 1.
    
    Business
    
    
    1ITEM 2.
    
    Properties
    
    
    50ITEM 3.
    
    Legal Proceedings
    
    
    50ITEM 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    51PART II
    
    
    
    
    51ITEM 5.
    
    Market for Registrants Common Equity and Related Stockholder Matters
    
    
    51ITEM 6.
    
    Selected Financial Data
    
    
    52ITEM 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    53ITEM 7A.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    77ITEM 8.
    
    Financial Statements and Supplementary Data
    
    
    78ITEM 9.
    
    Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    78ITEM 9A.
    
    Controls and Procedures
    
    
    78PART III
    
    
    
    
    80ITEM 10.
    
    Directors and Executive Officers of the Registrant
    
    
    80ITEM 11.
    
    Executive Compensation
    
    
    80ITEM 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Stockholder Matters
    
    
    80ITEM 13.
    
    Certain Relationship and Related Transactions
    
    
    81ITEM 14.
    
    Principal Accounting Fees and Services
    
    
    81PART IV
    
    
    
    
    F-1ITEM 15.
    
    Exhibits, Financial Statement Schedules and Reports on Form 8-K
    
    
    F-1


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PART I




ITEM 1.Business

Special Caution Regarding Forward-Looking Statements

This annual report on Form 10-K and other documents we file with the Securities
and Exchange Commission (SEC) contain forward-looking statements that are
based on current expectations, estimates, forecasts and projections about us,
our future performance, our liquidity, the wireless industry, our beliefs and
our managements assumptions. In addition, other written or oral statements
that constitute forward-looking statements may be made by or on our behalf.
Words such as anticipate, believe, estimate, expect, goal, intend,
plan, project, seek, target, variations of such words and similar
expressions are intended to identify such forward-looking statements. These
statements are not guarantees of future performance and involve certain risks,
uncertainties and assumptions that are difficult to predict. Therefore, actual
outcomes and results may differ materially from what is expressed or forecasted
in such forward-looking statements. Except as required under the federal
securities laws and the rules and regulations of the SEC, we do not have any
intention or obligation to update publicly any forward-looking statements after
the distribution of this annual report on Form 10-K, whether as a result of new
information, future events, changes in assumptions, or otherwise.

Important factors that could cause our actual results to differ materially from
the results contemplated by the forward-looking statements are contained in the
Risk Factors section in this Item 1, in Item 7. Managements Discussion and
Analysis of Financial Condition and Results of Operations and elsewhere in
this report.

Certain Definitions

In this annual report on Form 10-K, we refer to AirGate PCS, Inc. and its
subsidiaries, other than iPCS, Inc. and its subsidiaries, as AirGate. We
refer to iPCS, Inc. and its subsidiaries as iPCS. Unless the context
otherwise requires, the use of the Company, refers to AirGate and its
consolidated subsidiaries, including iPCS. AirGate has three other
wholly-owned, unrestricted subsidiaries, AGW Leasing Company, Inc., AirGate
Network Services, LLC and AirGate Service Company, Inc.

Sprint PCS refers to Sprint Communications Company, L.P., Sprint Spectrum
L.P. and WirelessCo, L.P. In this annual report on Form 10-K, we refer to
Sprint Corporation and its affiliates, including Sprint PCS, as Sprint.
Statements in this report regarding Sprint are derived from information
contained in our agreements with Sprint, periodic reports and other documents
filed by Sprint with the Securities and Exchange Commission or press releases
issued by Sprint.

BUSINESS OVERVIEW

Background

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

Sprint operates a 100% digital PCS wireless network in the United States and
holds the licenses to provide PCS nationwide using a single frequency band and
a single technology. Sprint, directly and indirectly through network partners
such as us, provides wireless services in more than 4,000 cities and
communities across the country. Sprint directly operates its PCS network in
major metropolitan markets throughout the United States. Sprint has also
entered into independent agreements with various network partners, such as us,
under which the network partners have agreed to construct and manage PCS
networks in smaller metropolitan areas and along major highways.

As of September 30, 2003, AirGate had 359,460 subscribers and total network
coverage of approximately 6.1 million residents, representing approximately 83%
of the residents in its territory. For the fiscal year ended September 30,
2003, AirGate generated revenue of approximately $331.3 million.

On November 30, 2001, we acquired iPCS, Inc., another Sprint network partner,
in a merger. In light of consolidation in the wireless communications industry
in general and among Sprint PCS network partners in particular, our board of
directors believed that the merger represented a strategic opportunity to
significantly expand the size and scope of our operations, attain access to
attractive markets and provide greater operational efficiencies and growth
potential than we would have had on our own. In connection with the iPCS
acquisition, we issued 12.4 million shares of our common stock valued at $57.16
per share on November 30, 2001, which totaled $706.6 million. We reserved an
additional 1.1 million shares for issuance upon exercise of outstanding iPCS
options and warrants valued at $47.7 million using a Black-Scholes option
pricing model. The transaction was

1



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accounted for under the purchase method of accounting. Subsequently, certain
former stockholders of iPCS sold 4.0 million shares of our common stock in an
underwritten offering on December 18, 2001.

iPCS entered into agreements with Sprint that are substantially similar to
ours. Through iPCSs management agreement with Sprint, it has the right to
market and provide Sprint PCS products and services in a territory that covers
mid-sized cities and rural areas in parts of Illinois, Michigan, Iowa and
eastern Nebraska. This territory includes markets that are adjacent to several
major metropolitan operational markets, including Chicago, Detroit, Des Moines,
Indianapolis, Omaha and St. Louis.

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

Current Operating Environment and its Impact on Us

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



| |  |  | lower rates of subscriber growth in the United States as overall
rates of penetration in the wireless industry approached and then
exceeded 50%, which decline may have been exacerbated by a widespread
economic slowdown;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | concerns that these declines, coupled with intense competition among
wireless service providers in the United States, will continue to lead
to service offerings of increasingly large bundles of minutes at lower
prices;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | higher rates of churn resulting from intense competition and programs
for sub-prime credit quality subscribers, which may be exacerbated by
the implementation of wireless number portability; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the highly leveraged capital structures of many wireless providers
and a lack of viable financing alternatives.
| | - |  | ---------------------------------------------------------------------------------------------------------------

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



| |  |  | Sprint offered a program that attracted sub-prime credit quality
subscribers, which contributed to high rates of churn and reduced our
liquidity. The introduction of this program was required under our
agreements with Sprint until late February, 2002 (See  Marketing
Strategy  Pricing for a description of the program and  Sprint
Relationship and Agreements);
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | in 2002 and early 2003, Sprint took a number of actions which
resulted in unanticipated charges or increases in charges to us. Some of
these charges resulted from errors by Sprint, while others were charges
to which we had little or no advance notice. The effect of these actions
was to reduce our liquidity and interject a greater degree of
uncertainty to our business and financial planning (See Risk Factors 
Risks Related to Our Relationship with Sprint). As of September 30,
2003, we have disputed approximately $8.9 million in invoices for such
increases and additional charges, but those issues have not been
resolved;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our current dependence on Sprint to provide customer care limits our
ability to improve the quality of customer care, which we believe
contributes to higher churn, and to reduce the costs of customer care;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| |  |  | a more limited control of our own working capital.
| | - |  | --------------------------------------------------

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

Effect on iPCS

iPCSs business plan projected that historic high rates of growth in the
wireless industry would continue through 2009 as penetration rates in the
United States grew to above 70%, which would in turn support pricing levels for
wireless products and services. As a result, we believed that iPCS would have
sufficient cash flow to service its high level of debt. iPCSs growth rates
through March 2002 met or exceeded expectations, despite slower subscriber
growth in the industry in 2001 than in prior years.

2



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The re-imposition and increase of the deposit for sub-prime credit customers,
the continued slowdown in growth in the wireless industry and increased
competition slowed iPCSs rate of growth significantly in 2002. iPCSs
dependence on Sprint also created the same additional challenges faced by
AirGate.

In addition to these factors, iPCSs problems were compounded because it was
earlier in its business lifecycle when growth slowed, had approximately
one-third fewer subscribers than AirGate and a less complete network.

AirGates results of operations similarly declined in this period due to many
of the same factors, but not to the same degree. We were significantly further
along in our business lifecycle and thus had built out more of our area and had
a larger subscriber base. As a result, we had significantly less build-out
expenses and a higher level of consistent revenue than iPCS during the same
period.

On February 23, 2003, iPCS filed a voluntary petition for relief under Chapter
11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the Northern
District of Georgia in order to reorganize.

The issuance of common stock in the recapitalization plan described below, will
result in an ownership change of AirGate for federal income tax purposes. This
would also cause an ownership change of iPCS, Inc. and could have a detrimental
effect on the use of certain of its net operating losses (NOLs).
Consequently, this could have subjected our restructuring to the automatic stay
protection of the iPCS bankruptcy court. To prevent this, on October 17, 2003,
we transferred all of our shares of iPCS common stock to a trust organized
under Delaware law. Our stockholders on the date of transfer to the trust are
the trusts sole beneficiaries, whose interest in the trust is equal to their
current percentage ownership of AirGate. The bankruptcy court overseeing iPCSs
bankruptcy approved



| |  |  | the transfer of the iPCS shares to the trust,
| | - |  | ---------------------------------------------



| |  |  | the documentation governing the trust; and
| | - |  | ------------------------------------------



| |  |  | upon confirmation of iPCSs plan of reorganization by the bankruptcy
court, the distribution to the trusts beneficiaries of the iPCS shares
if the plan of reorganization for iPCS approved by the iPCS bankruptcy
court provides for such distribution.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

It is likely that the iPCS bankruptcy court will ascribe little to no value to
the iPCS stock. Under the documentation governing the trust, the trustee will
administer the trust and we will have no ability to direct the trustee in its
administration of the trust.

The trust agreement also provides that iPCS board of directors will retain
complete control over iPCS. As a result, as of October 17, 2003, we have no
interest in iPCS or any of its assets and under no circumstances will the iPCS
stock transferred to the trust revert to or vest with us after the termination
of the trust.

AirGate Business Strategy

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



| |  |  | continue to maximize free cash flow by constraining our capital spending and operating costs;
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | restructuring our debt to reduce debt service payments and improve cash flow;
| | - |  | -----------------------------------------------------------------------------



| |  |  | seek to reduce churn and bad debt expense by focusing on the credit
quality of our new subscribers and our subscriber base;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



| |  |  | seek to reduce churn and operating costs by exploring ways to improve
the quality and cost of customer care and similar services provided by
Sprint and other actions;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | capitalize on Sprint wireless products and services;
| | - |  | ----------------------------------------------------



| |  |  | improve the predictability, accuracy and amount of financial information provided through Sprint; and
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | in the longer term, take advantage of the Sprint brand recognition to
capitalize on new growth initiatives, including data services and
wireline-to-wireless migration opportunities.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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We may be required to change our smart growth strategy to adapt to changes in
Sprints business strategy and targeted customers that result in new program
requirements or service offerings from Sprint. For example, if Sprint were to
re-introduce programs to attract sub-prime credit customers or introduce a
one-rate plan where roaming charges are included in a single monthly fee,
Sprint could seek to require us to implement such programs. Implementing or
supporting such programs would require us to re-evaluate our business plan.

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



| |  |  | restructuring the AirGate organization and eliminating more than 150
positions to operate in the most cost efficient manner possible, which
includes the following changes:
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | moving the accounting function to Atlanta, Georgia from
Geneseo, Illinois and reducing the overall accounting staff;
| | - |  | --------------------------------------------------------------------------------------------------------------------



| |  |  | restructuring management in our retail channel and closing our least productive retail stores,
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | a reduction in support to our indirect distribution channels and
| | - |  | ----------------------------------------------------------------



| |  |  | a reduction in support to our business distribution channel;
| | - |  | ------------------------------------------------------------



| |  |  | significantly reducing capital expenditures (from $41.3 million in fiscal 2002 to $16.0 million in fiscal 2003);
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | reducing spending for selling and marketing (from $79.1 million in fiscal 2002 to $51.8 million in fiscal 2003); and
| | - |  | --------------------------------------------------------------------------------------------------------------------



| |  |  | tightening management of vendors, including re-negotiating contracts
for backhaul and other telecommunications services.
| | - |  | ------------------------------------------------------------------------------------------------------------------------

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

Restructuring our debt.For the fiscal year ended September 30, 2003, AirGate
has produced $46.8 million of EBITDA. As of September 30, 2003, AirGate had
working capital of $12.5 million and cash and cash equivalents of approximately
$54.1 million. After drawing the remaining $9.0 million available under our
$153.5 million senior secured credit facility in August 2003, AirGate is
completely dependent on available cash and operating cash flow to operate our
business and fund our capital needs. In November 2003, AirGate entered into an
amendment to its credit facility. Some of the changes will assist us in
complying with key financial covenants for the next twelve months. Based on
our current business plan, our compliance with the financial covenants under
our credit facility is not assured and after March 2005, our ability to
generated operating cash flow to pay debt service, meet our other capital
needs, and meet the financial covenants in our credit facility is significantly
uncertain. After that time, our ability to generate operating cash flow to pay
debt service and meet our other capital needs is significantly uncertain. In
addition, there is substantial risk under our current business plan that we
would not have sufficient liquidity to meet our cash interest obligations on
our old notes beginning in 2006.

We also have significant cash principal and interest payments under our
indebtedness coming due during the period from 2005 through 2009. Unless the
financial restructuring described below under The Financial Restructuring
occurs, we will be required to make the following approximate principal and
interest payments on our credit facility and old notes:

Fiscal Year
    
    Principal
    
    Interest(In millions)2004
    
    $
    17.8
    
    
    $
    8.02005
    
    
    23.7
    
    
    
    47.32006
    
    
    30.1
    
    
    
    45.82007
    
    
    39.9
    
    
    
    43.92008
    
    
    40.0
    
    
    
    41.72009
    
    
    300.0
    
    
    
    40.5


This assumes an interest rate on our credit facility of 5.5%. As of September
30, 2003, the weighted average interest rate on our credit facility was 5.05%.

4



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If the financial restructuring is completed, the principal amount at maturity
of the debt represented by our old notes is expected to decrease by $140
million and annual interest payments are expected to decrease by $25.5 million
per year after 2004. As a result, after 2004 the restructuring would provide
cumulative cash savings from operations of $255 million more than otherwise
would have been the case without the proposed financial restructuring.

Seek to reduce churn and bad debt expense by focusing on the credit quality of
our new subscribers and our subscriber base.We believe it is important to
maintain the appropriate balance of prime and sub-prime credit subscribers to
reduce churn and bad debt expense. Currently, rates of churn, or customer
turnover, are highest among sub-prime credit quality customers. During fiscal
2003, we increased the deposit required to be paid by sub-prime credit
customers to use our services. As a result of these actions, we have increased
our customer base by 8% while increasing our prime credit quality customers to
72% of our customer base from 62% at June 30, 2002. Despite these measures,
churn for the quarter ended September 30, 2003 was 3.41%.

Seek to reduce operating costs and churn by improving the quality and cost of
customer service and related services and other actions.A number of factors,
including the quality of customer care, contribute to churn. Two surveys
conducted in 2003 ranked Sprint last in customer service among national
wireless carriers. Sprint currently provides these services on behalf of
AirGate pursuant to services agreement. In an effort to reduce the cost of
providing customer care and to improve the quality of the services and reduce
churn, we are exploring the possibility of terminating Sprint and outsourcing
these services to another service provider or ways to improve the services as
provided by Sprint. See AirGate  Customer Care and Billing. We are also
exploring other ways to reduce churn.

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



| |  |  | strong brand name recognition,
| | - |  | ------------------------------



| |  |  | all-digital nationwide coverage,
| | - |  | --------------------------------



| |  |  | quality products and services,
| | - |  | ------------------------------



| |  |  | advanced technology, including Sprint PCS Vision products, and
| | - |  | --------------------------------------------------------------



| |  |  | established distribution channels.
| | - |  | ----------------------------------

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

Increase the predictability and accuracy of financial information provided
through Sprint.64% of cost of service and roaming in our financial statements
is paid to or through Sprint as service, affiliation, roaming, long-distance
and other fees and expenses under our agreements. Many of these are charges
passed along from third parties. We have been working with Sprint to increase
the financial data provided to AirGate regarding its subscribers, and we have
been developing tools to better analyze this data.

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

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

5



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The Financial Restructuring

AirGate has proposed a financial restructuring to improve its capital structure
and reduce the financial risk in its business plan by substantially reducing
the required payments under its outstanding indebtedness. AirGate may achieve
the financial restructuring through one of two alternative plans: (1) a
recapitalization or (2) a prepackaged plan of reorganization under Chapter 11
of the U.S. Bankruptcy Code.

The recapitalization plan consists of



| |  |  | an exchange offer, in which AirGate is offering to exchange all
$300 million of its outstanding 13.5% Senior Subordinated Discount
Notes due 2009 (the old notes or the old AirGate notes) for an
aggregate of
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 33,041,834 shares of its common stock, representing 56%
of its outstanding common stock to be issued and outstanding
immediately after the financial restructuring; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | $160 million of newly-issued 9 3/8% Senior Subordinated
Secured Notes due 2009 (the new notes or the new AirGate
notes);
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



| |  |  | a consent solicitation, in which AirGate is soliciting the
consent of each holder of old notes to
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | amend the old notes indenture to eliminate substantially
all of the restrictive covenants contained in the old notes
indenture and release all collateral securing AirGates
obligations under the old notes indenture; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | waive any defaults and events of default under the old
notes indenture that may occur in connection with the
recapitalization plan;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------



| |  |  | an amendment of AirGates credit facility; and
| | - |  | ----------------------------------------------



| |  |  | stockholder approval of certain aspects of the recapitalization plan.
| | - |  | ---------------------------------------------------------------------

The prepackaged plan consists of a plan of reorganization under Chapter 11 of
the Bankruptcy Code that would effect the same transactions contemplated by the
recapitalization plan.

In connection with the financial restructuring, AirGate has filed a
registration statement with the SEC to register the issuance of its common
stock and new notes in the exchange offer.

Recent Developments

Two recent surveys ranked Sprint last among national wireless carriers in terms
of customer satisfaction with customer care. We believe actual or perceived
poor customer care contributes to higher churn. AirGate is examining a change
in its billing and customer care provider from Sprint to another provider.
Whether we change providers depends on a number of factors, including the costs
of the providers compared to Sprint, the costs Sprint may charge to accommodate
the transition to a new provider, the costs Sprint may charge for services that
remain with Sprint, either through our choice or because Sprint requires us to
accept these services, and the resolution of other issues with Sprint. Sprint
has proposed changes in our underlying economic relationship on terms similar
to those accepted by other Sprint network partners. Under this modified
arrangement, Sprint would provide fixed service costs for up to three years,
subject to certain exceptions and would agree to fix the reciprocal roaming
rate charged among Sprint and its network partners at $0.058 per minute for at
least three years. We are evaluating all of these alternatives. See
Outsourced Services. If we decide the best alternative for AirGate is to
terminate Sprint customer care and billing, we would be required to incur costs
to connect to the Sprint system and satisfy appropriate Sprint program
requirements with regard to these services. A termination of these services,
would not, in and of itself, terminate other services provided by Sprint, nor
change the fundamental nature of our Sprint affiliate relationship. We would
continue as a Sprint network partner and our Sprint subscribers would have
access to the national Sprint network and its products and services.

Sprint has unilaterally reduced the reciprocal roaming rate among Sprint and
its PCS network partners, including the Company, over time, from $0.20 per
minute of use prior to June 1, 2001, to $0.10 per minute of use in calendar
2002 to $0.058 per minute of use in 2003. On December 4, 2003, Sprint
notified us that it intends to reduce the reciprocal roaming rate to $0.041 per
minute of use in 2004. If this reduction had been in effect in fiscal year
2003, it would have reduced our roaming revenue by $20.7 million and our
roaming expense by $16.4 million, and increased our net loss by $4.3 million.

6



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Sprint Relationship and Agreements

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

Advantages and Disadvantages of Our Relationship with Sprint

An underlying premise of our business plan is to continue as a Sprint PCS
network partner. Our relationship with, and dependence on Sprint, provide both
advantages and disadvantages, which are summarized below.

Advantages

We believe our relationship with Sprint provides us with significant advantages
over other regional wireless providers. These advantages include:



| |  |  | our right to sell Sprint PCS products and services (See The Management Agreement  Exclusivity);
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | subscribers access to Sprints all-digital nationwide network (See  Products and Services);
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | Sprints brand name recognition (See  Marketing Strategy);
| | - |  | -------------------------------------------------------------



| |  |  | Sprints national marketing programs (See  Marketing Strategy);
| | - |  | ------------------------------------------------------------------



| |  |  | Sprints data PCS products and services (See  Products and Services);
| | - |  | ------------------------------------------------------------------------



| |  |  | our ability to take advantage of Sprints research and development
(See  Technology  Research and Development);
| | - |  | -------------------------------------------------------------------------------------------------------------------



| |  |  | discounted purchasing arrangements with many of Sprints vendors for
network equipment and handsets, as described herein under The
Management Agreement  Products and Services and  Suppliers and
Equipment Vendors); and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Sprints established national distribution channels in our territory
(See  Sales and Distribution).
| | - |  | ------------------------------------------------------------------------------------------------------

Disadvantages

Our relationship with, and dependence on, Sprint also has certain disadvantages
(See Risk Factors  Risks Related to Our Business  Risks Related to Our
Relationship with Sprint). Some of these disadvantages are that:



| |  |  | If Sprints business plan does not succeed, we are likely to
experience many of the negative consequences experienced by Sprint, some
of which may be worse for us. If Sprints business plan fails, our
business plan is also likely to fail. For example, if Sprints products
and services are not sufficiently competitive in the marketplace and
that results in loss of market share and lower subscriber growth for
Sprint, we are likely to experience lower subscriber growth and
similarly negative effects in our territory.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We do not currently engage in independent product development, but
depend on Sprint for continuing research and development of wireless
products and services.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Sprint requires us to offer and support its PCS products, services
and programs, even if these products and services adversely impact our
business (See The Management Agreement  Products and Services and 
Service pricing, roaming and fees). See  Marketing Strategy 
Pricing for a description of the Clear Pay program and the PCS to PCS
offering.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Pursuant to the terms of our services agreement, Sprint provides a
number of services, such as billing and customer care, that affect
subscribers in our territory. Sprints customer care has been ranked
lowest among national carriers, which we believe contributes to higher
rates of customer turnover, or churn. (See Risk Factors  Risk
Related to Our Business  Risks Related to Our Relationship with Sprint
 The inability of Sprint to provide high quality back office services
could lead to subscriber dissatisfaction, increased churn or otherwise
increase our costs.)
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  |  | We believe Sprint charges us above market rates for customer care,
billing and related services. As a result, our costs may be higher than
those of many or our competitors. Our ability to terminate Sprint as the
provider of some or all of these services and to provide them directly
or through another service provider may be hindered or prevented
altogether by Sprint if it imposes requirements and/or charges high
start-up costs in connection with any transition to a new service
provider. While we believe that Sprints rights are limited in this
regard, there can be no assurance that any resulting disputes would be
resolved in our favor. In addition, actions we might take to improve
customer care or other services could increase our expenses (See 
Current Operating Environment and its Impact on Us).
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Sprint has taken the position that it can, unilaterally at any time
and with little notice, increase charges, impose new program
requirements and decrease the per minute rate (known as the reciprocal
roaming rate or the travel rate) that Sprint and its network partners
are paid for subscribers in their territory who use the network of
Sprint or another network partner (and vice versa). For example, Sprint
reduced the travel rate from $0.20 a minute in June, 2001 to $0.058 a
minute in 2003 and has notified us of its intent to reduce the travel
rate to $0.041 a minute in 2004.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | AirGate was required to upgrade our network to first generation data
technology or 1XRTT at a cost of more than $15 million.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



| |  |  | In 2002, we agreed to a new $4 logistics fee for each 3G enabled
handset to avoid a prolonged dispute with Sprint over certain charges.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Sprint charged a $15 per month fee per 3G subscriber in 2002 and more
than $3.00 per 3G subscriber in 2003 for 3G-related research and
development costs.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Sprint PCS sought to recoup $4.9 million in long-distance access
revenues previously paid by Sprint PCS to AirGate, of which $1.2 million
has been invoiced.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Future increases in charges, new program requirements and reductions
in the travel rate may adversely affect our results of operations and
our ability to satisfy financial covenants contained in our credit
facility. (See Risk Factors  Risks Related to Our Business  Risks
Related to Our Relationship with Sprint  Sprint may make business
decisions that are not in our best interests, which may adversely affect
our relationship with subscribers in our territory, increase our
expenses and/or decrease our revenues.)
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We depend on Sprint for information needed to determine and verify
our revenues and many of our expenses. On more than one occasion, we
have determined that the data provided by Sprint has been inaccurate.
For some charges, the information provided by Sprint is not sufficiently
detailed to allow us to effectively verify the information to the source
data. As a result, we must dedicate substantial resources to analyze,
verify and substantiate information provided, and charges made, by
Sprint. Further, because of Sprints control over this data, our ability
to recognize, analyze and react to trends affecting our operations and
business are less than if we had ready access to all data affecting our
business. Finally, if Sprint financial data provided to us has
inaccuracies that we cannot, or do not, detect in a timely manner, we
may experience unanticipated charges or losses. (See Risk Factors 
Risks Related to Our Business  Risks Related to Our Relationship with
Sprint  Inaccuracies in data provided by Sprint could understate our
expenses or overstate our revenues and result in out-of-pocket
adjustments that may materially adversely affect our financial
results.)
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We are currently engaged in discussions with Sprint regarding
historical disputes and other issues affecting our relationship,
including the potential to outsource customer care, billing and related
services. Our inability to resolve some or all of those issues could
have a negative impact on our business and our future financial
performance. (See Risk Factors  Risks Related to Our Relationship with
Sprint  Our disputes with Sprint may adversely affect our relationship
with Sprint.)
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Recently, Sprint has announced that it will re-align its resources to focus on
two market segments: businesses and consumers. This represents a shift away
from the current organizational focus on assets groups and products: local
telecommunications, global wireline voice and data services and wireless. This
initiative is often referred to as One Sprint  One Solution. This
realignment is designed to facilitate Sprints cross-selling and bundling of
products across these product lines. This shift could divert marketing,
advertising and internal Sprint resources once dedicated to wireless to bundled
or non-PCS Sprint products and services, could increase the risk that Sprint
will design wireless products and services in a manner that is not profitable
for AirGate or other network partners and could reduce the significance of
Sprints wireless network partners.

8



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Overview of Sprint Relationship and Agreements

Under our long-term agreements with Sprint, we market PCS products and services
under the Sprint brand names in our territory. The agreements with Sprint
require us to build-out our systems, platforms, products and services to
seamlessly interface with the Sprint PCS wireless network. The Sprint
agreements also provide us with:



| |  |  | the right to receive Sprints equipment discounts in making purchases from equipment vendors;
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | roaming revenue from Sprint PCS and its PCS network partner subscribers traveling into our territory;
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | national marketing and advertising; and
| | - |  | ---------------------------------------



| |  |  | various other back office services provided by Sprint.
| | - |  | ------------------------------------------------------

Our relationship and agreements with Sprint are structured to provide us with
certain advantages such as avoiding the up-front costs of acquiring spectrum in
our territory and being able to offer high quality products as part of a
nationwide network. The Sprint agreements have an initial term of 20 years with
three 10-year renewals which can lengthen the contracts to a total term of 50
years. Our Sprint agreements will automatically renew for the first 10-year
renewal period unless we are in material default on our obligations under the
agreements. The Sprint agreements will automatically renew for two additional
10-year terms unless either we on the one hand, or Sprint on the other hand,
provides the other with two years prior written notice to terminate the
agreements.

We have four major agreements with Sprint:



| |  |  | the management agreement;
| | - |  | -------------------------



| |  |  | the services agreement; and
| | - |  | ---------------------------



| |  |  | two separate trademark and service mark license agreements.
| | - |  | -----------------------------------------------------------

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

The Management Agreement

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



| |  |  | construct and manage a network in our territory in compliance with
Sprints PCS licenses and the terms of the management agreement;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------



| |  |  | distribute during the term of the management agreement Sprint PCS products and services;
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | use Sprints and our own distribution channels in our territory;
| | - |  | ----------------------------------------------------------------



| |  |  | conduct advertising and promotion activities in our territory; and
| | - |  | ------------------------------------------------------------------



| |  |  | manage that portion of Sprints subscriber base assigned to our territory.
| | - |  | --------------------------------------------------------------------------

Exclusivity.We are designated as the only person or entity that can manage or
operate a PCS network for Sprint in our territory. Sprint is prohibited from
owning, operating, building or managing another wireless mobility
communications network in our territory while our management agreement is in
place and no event has occurred that would permit the agreement to terminate.
Our agreement does not limit the definition of a wireless mobility
communications network to a specific spectrum. Sprint is permitted under the
agreement to make national sales to companies in the covered territories and,
as required by the FCC, to permit resale of the Sprint PCS products and
services in the covered territory.

Network build-out.The management agreement specifies the terms of the Sprint
affiliation, including the required network build-out plan. We agreed to cover
a specified percentage of the population at coverage levels ranging from 39% to
86% within each of the 21 markets which make up our territory by specified
dates. We have satisfied these network build-out requirements. We have agreed
to operate our PCS network, if technically feasible and commercially
reasonable, to provide for a seamless handoff of a

9



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call initiated in our territory to a neighboring Sprint PCS network. If Sprint
decides to expand coverage within our territory, Sprint must provide us with
written notice of the proposed expansion. We have 90 days to determine whether
we will build out the proposed area. If we do not exercise this right, Sprint
can build out the territory or permit another third-party to do so. Any new
area that Sprint or a third-party builds out is removed from our territory.

Products and services.The management agreement identifies the wireless
products and services that we can offer in our territory. We may offer
non-Sprint PCS products and services in our territory under limited
circumstances. We may not offer products and services that are confusingly
similar to Sprint PCS products and services. We may cross-sell services such as
Internet access, subscriber premises equipment and prepaid phone cards with
Sprint and other Sprint network partners. If we decide to resell such services
of third parties, we must give Sprint an opportunity to provide the services on
the same terms and conditions. We cannot offer wireless local loop services
specifically designed for the competitive local exchange market in areas where
Sprint owns the local exchange carrier without Sprints consent, unless we name
the Sprint-owned local exchange carrier as the exclusive distributor.

We are required to participate in the Sprint sales programs for national sales
to subscribers, and to pay the expenses related to sales from national accounts
located in our territory.

Long distance service.We must use Sprints long distance service which we 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.

Service pricing, roaming and fees.We must offer Sprint subscriber pricing
plans designated for regional or national offerings. We are to be paid 92% of
collected revenues received by Sprint for Sprint PCS products and services from
subscribers in our territory. Collected revenues exclude, among other things,
outbound roaming revenues and related charges, roaming revenues from Sprint PCS
and its PCS network partner subscribers, sales of handsets and accessories,
proceeds from sales not in the ordinary course of business and amounts
collected with respect to taxes. Except in the case of taxes, we retain 100% of
these revenues. Although many Sprint subscribers purchase a bundled pricing
plan that allows roaming anywhere on Sprints and its network partners
networks without incremental roaming charges, we earn roaming revenues from
every minute that a Sprint subscriber from outside our territory is carried on
our PCS networks. We earn revenues from Sprint based on an established per
minute rate for Sprints subscribers roaming in our territory. Similarly, we
pay for every minute subscribers from our territory use the Sprint PCS
nationwide network outside such territory. On April 27, 2001, we and Sprint
announced an agreement in principle to reduce the reciprocal roaming rate
exchanged between Sprint and us for PCS subscribers who roam into the other
partys, or another network partners, territory. The rate was reduced from
$0.20 per minute of use to $0.15 per minute of use beginning June 1, 2001, and
to $0.12 per minute of use beginning October 1, 2001. Under the agreement in
principle, the roaming rate for us with respect to calendar year 2002 was $0.10
per minute. Sprint unilaterally decreased the reciprocal roaming rate to $0.058
per minute in 2003 and has notified us that it intends to decrease the
reciprocal roaming rate to $0.041 per minute in 2004. We believe these
decreases were in breach of our agreements with Sprint, including the agreement
in principle. However, our remedies against Sprint with respect to these
breaches may be limited.

On August 2, 2002, we entered into an agreement with Sprint, pursuant to which
we agreed to pay Sprint an additional $4.00 logistics fee for each 3G handset
that we purchased either directly from Sprint or from a Sprint authorized
distributor. We agreed to pay this fee starting with purchases on July 1, 2002
and ending on the earlier of December 31, 2004 or the date on which the
cumulative 3G handset fees received by Sprint from all Sprint network partners
equal $25,000,000. We further agreed to purchase 3G handsets only from Sprint
or a Sprint authorized distributor during this period.

Advertising and promotions.Sprint is responsible for all national advertising
and promotion of the Sprint PCS products and services. We are responsible for
advertising and promotion in our territory, including a portion of certain
costs of promotions or advertising done by third-party retailers in our
territory pursuant to cooperative advertising agreements with Sprint based on
per unit handset sales.

Program requirements.We are required to comply with Sprints program
requirements for technical standards, subscriber service standards, national
and regional distribution and national accounts programs. Sprint can adjust the
program requirements from time to time under the conditions provided in the
management agreement. In addition, we have the right to appeal Sprints
adjustments to the program requirements, if the adjustment:



| |  |  | causes us to spend more than 5% of the sum of our equity and long term debt, or
| | - |  | -------------------------------------------------------------------------------



| |  |  | causes our operating expenses to increase by more than 10% on a net present value basis.
| | - |  | ----------------------------------------------------------------------------------------

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If Sprint denies our appeal, then we have 10 days after the denial to submit
the matter to arbitration. If we do not submit the matter to arbitration within
the 10-day period or comply with the program adjustment, Sprint has the
termination rights described below.

Non-competition.We may not offer Sprint PCS products and services outside our
territory without the prior written approval of Sprint. Within our territory,
we may offer, market or promote telecommunications products and services only
under the Sprint brands, our own brands, brands of related parties or other
products and services approved under the management agreement, except that no
brand of a significant competitor of Sprint or its related parties may be used
for those products and services. To the extent we have or obtain licenses to
provide PCS services outside our territory, we may not use the spectrum to
offer Sprint PCS products and services without prior written consent from
Sprint.

Inability to use non-Sprint brand.We may not market, promote, advertise,
distribute, lease or sell any of the Sprint PCS products and services on a
non-branded, private label basis or under any brand, trademark or trade name
other than the Sprint brand, except for sales to resellers approved by Sprint
or required by law or as otherwise permitted under the trademark and service
mark license agreements.

Rights of first refusal.Sprint has certain rights of first refusal to buy our
assets upon a proposed sale of all or substantially all of our assets.

Termination of management agreement.The management agreement can be
terminated as a result of:



| |  |  | termination of Sprints PCS licenses in our territory;
| | - |  | ------------------------------------------------------



| |  |  | uncured failure by a party to pay any amount due under the management
agreement or any other agreement between the parties or their respective
related parties;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | any other uncured breach under the management agreement;
| | - |  | --------------------------------------------------------



| |  |  | bankruptcy of a party to the management agreement;
| | - |  | --------------------------------------------------



| |  |  | subject to the limitations in the management agreement, such
management agreement not complying with any applicable law in any
material respect; or
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the termination of either of the related trademark and service mark
license agreements.
| | - |  | ---------------------------------------------------------------------------------------

The termination or non-renewal of the management agreement triggers certain of
our rights and those of Sprint.

If we have the right to terminate our management agreement because of an event
of termination caused by Sprint, generally we may:



| |  |  | require Sprint to purchase all of our operating assets used in
connection with our PCS networks for an amount equal to at least 88% of
our entire business value as described below, unless
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Sprint becomes the licensee for 20 MHz of spectrum in our
territory and has licensed at least 20 MHz of spectrum to us for use
in our territory or
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we have acquired or have the right to use any other spectrum,
in which case the purchase price will be an amount equal to 80% of
our entire business value;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | if Sprint is the licensee for 20 MHz or more of the spectrum on the
date we terminate the management agreement, require Sprint to sell to
us, subject to governmental approval, up to 10 MHz of licensed spectrum
for an amount equal to the greater of
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the original cost to Sprint of the license plus any microwave relocation costs paid by Sprint or
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | 9% of our entire business value; or
| | - |  | -----------------------------------



| |  |  | sue Sprint for damages or submit the matter to arbitration and not terminate the management agreement.
| | - |  | ------------------------------------------------------------------------------------------------------

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If Sprint has the right to terminate a management agreement because of an event
of termination caused by us, generally Sprint may:



| |  |  | require us to sell our operating assets to Sprint for an amount equal
to 72% of our entire business value;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | require us to purchase, subject to governmental approval, the
licensed spectrum in our territory for an amount equal to the greater of
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the original cost to Sprint of the license plus any microwave relocation costs paid by Sprint or
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | 10% of our entire business value;
| | - |  | ---------------------------------



| |  |  | take any action as Sprint deems necessary to cure our breach of our
management agreement, including assuming responsibility for, and
operating, the related PCS network; or
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | sue us for damages or submit the matter to arbitration and not
terminate the management agreement.
| | - |  | --------------------------------------------------------------------------------------------------

Non-renewal.If Sprint gives us timely notice that it does not intend to renew
our management agreement, we may:



| |  |  | require Sprint to purchase all of our operating assets used in
connection with the PCS network for an amount equal to at least 80% of
our entire business value; or
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | if Sprint is the licensee for 20 MHz or more of the spectrum on the
date we terminate the management agreement, require Sprint to assign to
us, subject to governmental approval, up to 10 MHz of licensed spectrum
for an amount equal to the greater of
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the original cost to Sprint of the license plus any microwave relocation costs paid by Sprint or
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | 10% of our entire business value.
| | - |  | ---------------------------------

If we give Sprint timely notice of non-renewal of the management agreement, or
we and Sprint both give notice of non-renewal, or the management agreement can
be terminated for failure to comply with legal requirements or regulatory
considerations, Sprint may:



| |  |  | purchase all of our operating assets for an amount equal to 80% of our entire business value; or
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | require us to purchase, subject to governmental approval, the licensed spectrum for an amount equal to the greater of
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | the original cost to Sprint of the license plus any microwave relocation costs paid by Sprint or
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | 10% of our entire business value.
| | - |  | ---------------------------------

Determination of Entire Business Value.If the entire business value is to be
determined, we and Sprint 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 brands and the related Sprint agreements;
| | - |  | ------------------------------------------------------------------------------------



| |  |  | that we own the spectrum and frequencies presently owned by Sprint
and subject to the related Sprint 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 outlined in the management agreement
resulting from an event of termination of the management agreement have been
materially amended by the related consent and agreement as discussed below.

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Insurance.We are required to obtain and maintain with financially reputable
insurers, who are licensed to do business in all jurisdictions where any work
is performed under the management agreement and who are reasonably acceptable
to Sprint, workers compensation insurance, commercial general liability
insurance, business automobile insurance, umbrella excess liability insurance
and all risk property insurance.

Indemnification.We have agreed to indemnify Sprint and its directors,
employees and agents and related parties of Sprint and their directors,
employees and agents against any and all claims against any of the foregoing
arising from our violation of any law, a breach by us of any representation,
warranty or covenant contained in our management agreement or any other
agreement between us or either of our related parties and Sprint, our ownership
of the operating assets or the actions or the failure to act of anyone employed
or hired by us in the performance of any work under the management agreement,
except we will not indemnify Sprint for any claims arising solely from the
negligence or willful misconduct of Sprint. Sprint has agreed to indemnify us
and our directors, employees and agents against all claims against any of the
foregoing arising from Sprints violation of any law and from Sprints breach
of any representation, warranty or covenant contained in the management
agreement or any other agreement between Sprint and its related parties and us
or our related parties, except Sprint will not indemnify us for any claims
arising solely from our negligence or willful misconduct.

The Services Agreement

The services agreement outlines various back office services provided by Sprint
and available to us at rates established by Sprint. Sprint can change any or
all of the service rates one time in each 12-month period. Some of the
available services include:



| |  |  | billing,
| | - |  | --------



| |  |  | subscriber 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 may contract with third parties to provide expertise and services
identical or similar to those to be made available or provided to us. We have
agreed not to use the services received under our services agreement in
connection with any other business or outside our territory. However, we
currently are exploring the possibility of outsourcing some of these services.
We may discontinue use of selected services upon three months prior written
notice. Sprint may discontinue a service upon nine months prior written
notice. The services agreement automatically terminates upon termination of the
management agreement. The services agreement may not be terminated for any
reason other than the termination of the management agreement.

We on the one hand and Sprint 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

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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

We have non-transferable, royalty-free licenses to use the following trademarks
and service marks of Sprint: Sprint, together with the related Diamond
logo, Sprint PCS and Sprint Personal Communications Services. In addition,
we have licenses to use the following trademarks and service marks of Sprint:
The Clear Alternative to Cellular, Experience the Clear Alternative to
Cellular Today, and such other marks as may be adopted in the future. We
believe that the Sprint brand names and symbols enjoy a very high degree of
awareness, providing us an immediate benefit in the market place. Our use of
the licensed marks is subject to our adherence to quality standards determined
by Sprint and use of the licensed marks in a manner which would not reflect
adversely on the image of quality symbolized by the licensed marks. We have
agreed to promptly notify Sprint of any infringement of any of the licensed
marks within our territory of which we become aware and to provide assistance
to Sprint in connection with Sprints enforcement of its respective rights. We
have agreed with Sprint to indemnify each other for losses incurred in
connection with a material breach of the trademark license agreements. In
addition, we have agreed to indemnify Sprint from any loss suffered by reason
of our use of the licensed marks or marketing, promotion, advertisement,
distribution, lease or sale of any Sprint PCS products and services other than
losses arising solely out of our use of the licensed marks in compliance with
certain guidelines.

Sprint can terminate the trademark and service mark license agreement if we
file for bankruptcy, materially breach the agreements or our management
agreement is terminated. We can terminate our trademark and service mark
license agreements upon Sprints abandonment of the licensed marks or if Sprint
files for bankruptcy, or the management agreement is terminated.

Consent and Agreement in Connection with Our Credit Facility

Sprint has entered into a consent and agreement with the administrative agent
under our credit facility, which we have acknowledged, that modifies Sprints
rights and remedies under our management agreement for the benefit of our
senior lenders and any refinancing of our credit facility. Lehman Commercial
Paper, Inc., a subsidiary of Lehman Brothers, Inc., is the administrative agent
under our credit facility.

The consent generally provides, among other things, the following:



| |  |  | Sprints consent to the pledge of our subsidiary stock and the grant
of a security interest in all of our assets including the Sprint
agreements;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | that our Sprint agreements may not be terminated by Sprint until the
credit facility is satisfied in full pursuant to the terms of the
consent, unless our assets, including stock or equity interests, 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 is at the discretion
of the administrative agent;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a prohibition on competing Sprint PCS networks in our territory;
| | - |  | ----------------------------------------------------------------



| |  |  | for Sprint to maintain at least 10 MHz of PCS spectrum in all of our markets, except in specified circumstances;
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | for redirection of payments from Sprint to the administrative agent under specified circumstances;
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | for Sprint and the administrative agent to provide to each other notices of default;
| | - |  | ------------------------------------------------------------------------------------



| |  |  | the ability to appoint an interim replacement, including Sprint, to
operate our PCS network under the Sprint agreements after an event of
default of the credit facility or an event of termination under the
Sprint agreements;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the ability of the administrative agent or Sprint to assign the
Sprint agreements and sell our assets to a qualified purchaser other
than a major competitor of Sprint after an event of default under our
credit facility;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the ability to purchase spectrum from Sprint and sell our assets to
any qualified purchaser after an event of default under our credit
facility; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the ability of Sprint to purchase our assets or debt after an event
of default under our credit facility.
| | - |  | ---------------------------------------------------------------------------------------------------------

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Consent to security interest and pledge of stock.Sprint has consented to the
grant of a first priority security interest in and lien on all of our assets
and property, including our Sprint agreements and the capital stock and equity
interests of our subsidiaries and future subsidiaries.

Agreement not to terminate Sprint agreements until the obligations under the
facility are repaid.Sprint has agreed not to exercise its rights or remedies
under the Sprint agreements, except its right to cure certain defaults,
including its right to terminate the Sprint agreements and withhold payments,
other than rights of setoff, until the financing is satisfied in full pursuant
to the terms of the consent. Sprint has also agreed that until such obligations
are satisfied, a failure to pay any amount by any related party of ours under
any agreement with Sprint or with any of Sprints related parties (other than
our respective Sprint agreements) would not constitute a default under our
management agreement.

No competition until obligations under the credit facility are repaid.Sprint
has agreed that it will not permit any person other than us or a successor
manager to be a manager or operator for Sprint in our territory, until our
credit facility is satisfied in full pursuant to the terms of the consent.
Consistent with the management agreement, while the credit facility is
outstanding, Sprint can sell PCS services through its national accounts, permit
resellers and build new geographical areas within our territory for which we
have chosen not to exercise our rights of first refusal. Similarly, Sprint has
agreed that it will not own, operate, build or manage another wireless mobility
communications network in our territory unless it is permitted under the
management agreement or such management agreement is terminated in accordance
with the consent, and, in each case, the credit facility is satisfied in full
pursuant to the terms of the consent.

Maintain 10 MHz of spectrum.Sprint has agreed to own at least 10 MHz of PCS
spectrum in our territory until the first of the following events occurs:



| |  |  | the obligations under the credit facility are satisfied in full;
| | - |  | ----------------------------------------------------------------



| |  |  | the sale of spectrum is completed under the consent, as discussed below;
| | - |  | ------------------------------------------------------------------------



| |  |  | the sale of operating assets is completed under the consent, as discussed below; or
| | - |  | -----------------------------------------------------------------------------------



| |  |  | the termination of our management agreement.
| | - |  | --------------------------------------------

Restrictions on assignment and change of control do not apply to lenders and
the administrative agent.Sprint has agreed not to apply the restrictions on
assignment of the Sprint agreements and changes in control of AirGates
ownership to the lenders under the credit facility or the administrative agent.
The assignment and change of control provisions in the Sprint agreements will
apply if the assignment or change of control is to someone other than the
administrative agent or a lender under the credit facility, or is not permitted
under the consents.

Redirection of payments from Sprint PCS to the administrative agent.Sprint
has agreed to make all payments due from Sprint to us under the Sprint
agreements directly to the administrative agent if the administrative agent
provides Sprint with notice that an event of default has occurred and is
continuing under the credit facility. Payments to such administrative agent
would cease upon the cure of the event of default.

Notice of defaults.Sprint has agreed to provide to the administrative agent a
copy of any written notice it sends to us regarding an event of termination or
an event that if not cured, or if notice is provided, would be an event of
termination under the Sprint agreements. Sprint also has acknowledged that an
event of termination under the Sprint agreements constitutes an event of
default under the credit facility. The administrative agent has agreed to
provide Sprint a copy of any written notice sent to us regarding an event of
default or default under the credit facility instruments.

Right to cure.Sprint and the administrative agent have the right, but not the
obligation, to cure a default under the Sprint agreements. During the first six
months as interim manager Sprints 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 consent, of the obligations under the credit
facility.

Modification of termination rights.The consent modifies the rights and
remedies under the management agreement provided in an event of termination and
grants the provider of the credit facility certain rights in the event of a
default under the instruments governing the senior debt. The rights and
remedies of the administrative agent under the credit facility vary based on
whether we have:



| |  |  | defaulted under our debt obligations but no event of termination has occurred under the management agreement; or
| | - |  | ----------------------------------------------------------------------------------------------------------------

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| |  |  | breached the management agreement.
| | - |  | ----------------------------------

The consent generally permits the appointment of a person to run our business
under the Sprint agreements on an interim basis and establishes 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 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 shall collect its fee by setoff against the
amounts owed to us under the Sprint agreements. In the event of an acceleration
of obligations under the credit facility and for up to two years thereafter,
Sprint may retain only one-half of the 8% of collected revenues that it would
otherwise be entitled to retain under the Sprint agreements. Sprint may retain
the full 8% after the first anniversary of the date of acceleration if Sprint
has not been appointed to run such business on an interim basis or earlier if
such business is sold to a third-party, or after the second anniversary if
Sprint is running such business. We or the administrative agent, as the case
may be, is entitled to receive the remaining one-half of the collected revenues
that Sprint would otherwise have retained. The amount advanced to us or the
administrative agent is to be evidenced by an interest- bearing promissory
note. The promissory note will mature on the earlier of



| |  |  | the date on which a successor manager is qualified and assumes our
rights and obligations, as the case may be, under the Sprint agreements
or
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the date on which our operating assets or equity are purchased by a
third-party.
| | - |  | --------------------------------------------------------------------------------

Default under the credit facility without a management agreement breach.If we
default on our obligations under the credit facility and there is no existing
default under the management agreement with Sprint, Sprint has agreed to permit
the administrative agent to elect to take any of the following actions:



| |  |  | allow us to continue to operate our business under the Sprint agreements;
| | - |  | -------------------------------------------------------------------------



| |  |  | appoint Sprint to operate such business on an interim basis; or
| | - |  | ---------------------------------------------------------------



| |  |  | appoint a person other than Sprint to operate such business on an interim basis.
| | - |  | --------------------------------------------------------------------------------

Appointment of Sprint or third-party designee by administrative agent to
operate business.If the administrative agent appoints Sprint to operate our
business, Sprint must accept the appointment within 14 days or designate to
operate such business another person who also is a network partner of Sprint or
is acceptable to such administrative agent. Sprint 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s network partners is less than 40 million. If the term
is extended beyond the initial six-month period, the administrative agent has
agreed that Sprint or its designated persons right to be reimbursed by us for
amounts previously expended and to be incurred as interim manager to cure a
default up to an aggregate amount that is equal to 5% of the sum of our
stockholders equity value plus the outstanding amount of our long term debt
will no longer be subordinated to our obligations under our senior credit
facility. Sprint or its designated person is not required to incur expenses
beyond this 5% limit. At the end of the initial six-month interim term, the
administrative agent has the right to appoint a successor to us 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 to operate our
business on an interim basis, the third-party must:



| |  |  | agree to serve for six months unless terminated by Sprint for cause
or such administrative agent in its discretion;
| | - |  | -------------------------------------------------------------------------------------------------------------------



| |  |  | meet the requirements for a successor to an affiliate and not be
challenged by Sprint for failing to meet these requirements within 20
days after the administrative agent provides Sprint with information on
the third-party; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | agree to comply with the terms of the applicable Sprint agreements.
| | - |  | -------------------------------------------------------------------

The third-party is required to operate the Sprint network in our territory but
is not required to assume our existing liabilities. If the third-party
materially breaches our Sprint agreements, this breach will be treated as an
event of default under the management agreement with Sprint.

Management agreement breach.If we breach the Sprint agreements and such
breach causes a default under our credit facility, Sprint has the right to
designate who will operate our business on an interim basis. Sprint has the
right to:

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| |  |  | allow us to continue to operate such business under our Sprint agreements if approved by the administrative agent;
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | operate such business on an interim basis; or
| | - |  | ---------------------------------------------



| |  |  | appoint a person other than Sprint that is acceptable to the
administrative agent, which acceptance cannot be unreasonably withheld
and must be given for another Sprint network partner, to operate such
business on an interim basis.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

When a debt default is caused by a breach of our management agreement with
Sprint, the administrative agent only has a right to designate who will operate
such business on an interim basis if Sprint elects not to operate such business
or designate a third-party to operate such business on an interim basis.

Election of Sprint to serve as interim manager or designate a third-party to
operate business.If Sprint elects to operate such business on an interim
basis or designate a third-party to operate such business on an interim basis,
Sprint or the third-party may operate such business for up to six months at the
discretion of Sprint. At the end of the six months, Sprint or the third-party
will agree to serve as interim manager for the extension period until the
administrative agent gives Sprint or the third-party at least 30 days written
notice of its desire to terminate the relationship. If the term is extended
beyond the initial six-month period, the administrative agent has agreed that
Sprint or its designees right to be reimbursed by us for amounts previously
expended and to be incurred as interim manager to cure a default up to an
aggregate amount that is equal to 5% of the sum of our stockholders equity
value plus the outstanding amount of our long term debt will no longer be
subordinated by our obligations under the senior credit facility. Sprint 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, subject to the approval
of the administrative agent, has the right to appoint a successor interim
manager to operate such business.

Appointment of third-party by administrative agent to operate business.If
Sprint gives the administrative agent notice of a breach of our management
agreement, the debt repayment is accelerated, and Sprint 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 or the third-party designated by Sprint
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 for cause
or by such administrative agent;
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | meet the requirements for a successor to a network partner and not be
challenged by Sprint for failing to meet the requirements within 20 days
after such administrative agent provides Sprint with information on the
third-party; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | agree to comply with the terms of the Sprint agreements.
| | - |  | --------------------------------------------------------

The third-party may continue to operate the business after the six month period
at the administrative agents discretion, so long as the third-party continues
to satisfy the requirements to be a successor to a network partner and is in
material compliance with the terms of the Sprint agreements.

Purchase and sale of operating assets.The consent establishes a process for
the sale of our operating assets in the event of a default and acceleration
under the credit facility. Our stockholders have approved the sale of our
operating assets pursuant to the terms of the consent.

Sprints right to purchase on acceleration of amounts outstanding under the
credit facility.Subject to the requirements of applicable law, Sprint has the
right to purchase our operating assets upon notice of an acceleration of our
senior credit facility under the following terms:



| |  |  | Sprint may acquire our operating assets for a purchase price equal to
the greater of (i) 72% of our entire business value (as determined in
accordance with the management agreement), and (ii) the aggregate amount
outstanding under our credit facility;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Sprint must notify the 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 rescinds its intention to
purchase from enforcing its security interest if Sprint has given notice
of its intention to exercise the purchase right;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  |  | if we receive a written offer that is acceptable to us to purchase
our operating assets within a specified period after the acceleration,
Sprint has the right to purchase, subject to the administrative agents
consent, such operating assets on terms and conditions at least as
favorable to us as the offer we receive. Sprint 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
us; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | upon completion of the sale to Sprint, such administrative agent must
release the security interests upon satisfaction in full pursuant to the
terms of the consent of the obligations under the credit facility.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

If the administrative agent acquires our operating assets, Sprint 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 credit facility for such operating assets plus an
aggregate amount sufficient to satisfy in full the obligations under such
credit facility pursuant to the terms of the consent. If Sprint purchases such
operating assets under these provisions, the administrative agent must release
the security interests securing such senior credit facility. In the event that
a bankruptcy petition is filed by or with respect to us, Sprint has the right
to purchase our operating assets from the administrative agent by repaying the
obligations in full. Such right may be exercised by giving the administrative
agent notice of Sprints intent to exercise such purchase right no later than
60 days following the date of filing of the bankruptcy petition.

If such administrative agent receives an offer to purchase our operating
assets, Sprint 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s receipt of notice of the offer, and so long as
the conditions of Sprints 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 does not purchase our
operating assets, following an acceleration of the obligations under the senior
credit facility, the administrative agent may sell our operating assets.
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 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 administrative agent may sell the operating assets and
assign the agreements to entities that meet the following requirements to
succeed us:



| |  |  | the person has not materially breached a material agreement with
Sprint 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 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 Sprint agreements.
| | - |  | -------------------------------------------------------

Such administrative agent is required to provide Sprint with information
necessary to determine if a buyer meets the requirements to succeed us. Sprint
has 20 days after its receipt of this information to object to the
qualifications of the buyer to succeed us. If Sprint does not object to the
buyers qualifications, subject to the requirements of applicable law, the
buyer can purchase the assets and assume our rights and responsibilities under
the Sprint agreements. The consent will remain in full force and effect for the
benefit of the buyer and its lenders. The buyer also has a period to cure any
defaults under the Sprint agreements.

Sale of assets to non-successor.Subject to the requirements of applicable
law, the administrative agent may sell our assets to a party that does not meet
the requirements to succeed us. If such a sale is made:



| |  |  | Sprint may terminate the Sprint agreements;
| | - |  | -------------------------------------------



| |  |  | the buyer may purchase from Sprint 5, 7.5 or 10 MHz of the PCS
spectrum licensed to Sprint in our territory under specified terms;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------

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| |  |  | 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, the buyer may only buy
5MHz of spectrum;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the price to purchase the spectrum is equal to the sum of the
original cost of the license to Sprint pro rated on a population and a
spectrum basis, plus the cost paid by Sprint 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 the subscribers with the MIN
assigned to the market area covered by the purchased spectrum except for
subscribers of national accounts and resellers;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | with limited exceptions, Sprint will not solicit for six months the
subscribers transferred to the buyer with the MIN assigned to the market
area;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the buyer and Sprint 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 to third parties; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Sprint 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 our senior
credit facility and until the 60-day anniversary of the filing of a petition of
bankruptcy, Sprint has the right to purchase our obligations under the credit
facility at a purchase price equal to the amount of the obligations under such
credit facility. In the event that Sprint purchases the obligations within 60
days following the earlier of acceleration or the date of the filing of a
bankruptcy petition, the purchase price for the obligations will be reduced by
accrued interest and any fees and expenses that are unreasonable.

Modification and amendment of consent.If Sprint modifies or amends the form
of consent and agreement it enters into with a lender to another Sprint network
partner that serves an area with population exceeding 5.0 million, then Sprint
agrees to give the administrative agent written notice of the amendments and to
amend the consent in the same manner at the administrative agents request;
provided, however, that Sprint is not required to amend the consent to:



| |  |  | incorporate selected changes designated by the administrative agent
unless Sprint 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 network partner other than
us.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------

The following circumstances would not be considered related to a particular
Sprint network partner and, subject to the provisions described in the
preceding sentence, could result in amendment of the consent (if the 5.0
million population threshold is met as described above):



| |  |  | any form of recourse to Sprint or similar form of credit enhancement;
| | - |  | ---------------------------------------------------------------------



| |  |  | any change in Sprints right to purchase our operating assets or
capital stock, as applicable, under the management agreement or Sprints
right to purchase the obligations under the credit facility;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | any change to our right of or the right of the administrative agent
or the lenders under the credit facility to sell the collateral or
purchase spectrum from Sprint;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | any change in the ownership status, terms of usage or the amount of
spectrum that may be purchased by us from Sprint;
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | any material change in the flow of certain revenues between Sprint
and us;
| | - |  | --------------------------------------------------------------------------



| |  |  | any changes to the obligations required to be assumed by, or
qualifications for, or appointment of, anyone other than us 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;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | any changes to the consent and agreement terms on confidentiality, non-compete or eligible buyers of the business;
| | - |  | ------------------------------------------------------------------------------------------------------------------

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| |  |  | any clarifications of FCC compliance issues;
| | - |  | --------------------------------------------



| |  |  | any issuance of legal opinions; and
| | - |  | -----------------------------------



| |  |  | any changes to the requirements described in this section.
| | - |  | ----------------------------------------------------------

Termination of consent.The consent will terminate upon the first to occur of:



| |  |  | repayment in full of all obligations under the credit facility and termination of such credit facility; and
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | termination of the Sprint agreements.
| | - |  | -------------------------------------

Markets

We believe that connecting Sprints existing PCS markets with our PCS markets
is an important part of Sprints on-going strategy to provide seamless,
nationwide PCS service to its subscribers. We believe our territories, with 7.4
million residents, have attractive demographic characteristics. AirGates
territory has many vacation destinations, covers substantial highway mileage
and includes a large student population, with at least 60 colleges and
universities. The following table sets forth the location and estimated
population in our territory:

AirGate Basic Trading Areas (1)
    
    Population(2)Greenville-Spartanburg, SC
    
    
    935,800Savannah, GA
    
    
    775,800Charleston, SC
    
    
    690,200Columbia, SC
    
    
    685,100Asheville-Hendersonville, NC
    
    
    625,000Augusta, GA
    
    
    601,900Anderson, SC
    
    
    354,500Hickory-Lenoir-Morganton, NC
    
    
    350,300Wilmington, NC
    
    
    342,800Florence, SC
    
    
    262,800Greenville-Washington, NC
    
    
    252,900Goldsboro-Kinston, NC
    
    
    245,100Rocky Mount-Wilson, NC
    
    
    219,900Myrtle Beach, SC
    
    
    205,500New Bern, NC
    
    
    177,400Sumter, SC
    
    
    158,600Jacksonville, NC
    
    
    150,500Orangeburg, SC
    
    
    124,900The Outer Banks, NC(3)
    
    
    93,400Roanoke Rapids, NC
    
    
    79,900Greenwood, SC
    
    
    77,600Total
    
    
    7,409,900




|(1) |  | Each of the AirGate markets contains 10 MHz of spectrum.
|--- |  | --------------------------------------------------------



|(2) |  | Based on 2002 estimates compiled by Kagans Wireless Telecom Atlas &
Databook, 2002 Edition, as reported per individual basic trading area.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------



|(3) |  | Territory covered by our Sprint PCS management agreement do not comprise
a complete basic trading area.
|--- |  | -------------------------------------------------------------------------------------------------------

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

Products and Services

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

100% Digital Wireless Network with Service Across the Country.Our primary
service is wireless mobility coverage. As Sprint network partners, our existing
PCS network is part of the largest 100% digital wireless PCS network in the
United States.

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Subscribers in our territory may use Sprint PCS services throughout our
contiguous markets and seamlessly throughout the Sprint PCS network.

PCS Vision Service.In the third calendar quarter of 2002, Sprint launched PCS
Vision, a third generation technology. Vision-enabled PCS devices take and
receive pictures, check personal and corporate e-mail, play games with
full-color graphics and polyphonic sounds and browse the Internet wirelessly
with speeds that equal or exceed a home computers dial-up connection. At the
same time, Sprint began to roll out a broad portfolio of Vision-enabled devices
that incorporate voice and data functionality, expanded memory, high-resolution
and larger color screens that allow greater mobility, convenience and
productivity. We support and offer PCS Vision services and phones in the
majority of our territory.

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

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

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

Marketing Strategy

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

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

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

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

In late 2002, Sprint implemented a new PCS to PCS product offering under which
subscribers receive unlimited buckets of minutes for little or no additional
cost, for any calls made from one Sprint PCS subscriber to another. Our ARPU
and minutes over subscribed usage plans declined after the implementation of
this product, while PCS to PCS minutes increased from 6 million to over 60
million minutes per month.

Advertising and promotions.Sprint uses national as well as regional
television, radio, print, outdoor and other advertising campaigns to promote
its products. We benefit from this national advertising in our territory at no
additional cost to us. Sprint

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also runs numerous promotional campaigns that provide subscribers with benefits
such as additional features at the same rate, free minutes of use for limited
time periods or special prices on handsets and other accessories.

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

Sales and Distribution

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

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

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

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

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

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

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

For the fiscal year ended September 30, 2003, the following table sets forth
the percentage of gross activations that certain of our distribution channels
generated for us:

AirGateRetail Sprint Stores
    
    
    40
    %Radio Shack
    
    
    18Other National Third-Party
    
    
    13Local Third-Party
    
    
    5National Accounts
    
    
    9Sprint
    
    
    15100
    %


Suppliers and Equipment Vendors

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

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

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equal $25,000,000. We further agreed to purchase 3G handsets only from Sprint
or a Sprint authorized distributor during this period.

Outsourced Services

We outsource a number of services to Sprint. These services include



| |  |  | billing and collections,
| | - |  | ------------------------



| |  |  | customer care, including activations of new subscribers and customer call center activities, and
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | national support of the Sprint network, such as its national network operating control center.
| | - |  | ----------------------------------------------------------------------------------------------

Sprint also requires us to purchase certain services, such as so-called 3G
research and development, many of which we have disputed. In the past, Sprint
also provided certain customer retention efforts, which we terminated in
mid-2003.

Billing and customer care are important to our ability to maintain and grow our
subscriber base and to collect monies owed to us by subscribers. We believe
actual or perceived poor customer care contributes to higher churn. Two recent
surveys ranked Sprint last among national wireless carriers in terms of
customer satisfaction with customer care. We also believe that collection rates
for late payment and termination fees and older receivables are unacceptably
low.

AirGate is examining a change in its billing and customer care provider from
Sprint to another provider. In June, 2003 we issued a request for proposals and
received responses from four prospective outsourcing vendors. Whether we change
providers depends on a number of factors, including our estimates of
improvements to our business which may result from a change in providers, the
costs of alternative providers compared to Sprint, the costs Sprint may charge
to accommodate the transition to a new provider, the costs Sprint may charge
for services that remain with Sprint, either through our choice or because
Sprint requires us to accept these services, and the resolution of other issues
with Sprint.

Any transition to another service provider will necessarily involve the
continued cooperation of Sprint. While we dispute its right to do so, Sprint
might contest our right terminate the services and/or demand that we pay high
start-up costs for activities related to the transition of these services and
allow for an interface with its systems. Resolving these issues could increase
the costs of outsourcing and delay the benefits that we might receive as a
result of changing service providers.

A termination of these services, would not, in and of itself, terminate
other services provided by Sprint, nor change the fundamental nature of our
Sprint affiliate relationship. We would continue as a Sprint network partner
and our Sprint subscribers would have access to the national Sprint network and
its products and services.

Seasonality

Our business has been subject to seasonality because of the importance of
fourth calendar quarter results. Among other things, we have relied on higher
subscriber additions and handset sales in the fourth calendar quarter when
compared to the other three calendar quarters. For calendar years 2001 and
2002, the fourth calendar quarter accounted for 32.4% and 25.3% of annual gross
subscriber additions. A number of factors contribute to this trend, including:



| |  |  | the increasing use of retail distribution, which is heavily dependent upon the year-end holiday shopping season;
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | the timing of new product and service announcements and introductions;
| | - |  | ----------------------------------------------------------------------



| |  |  | competitive pricing pressures; and
| | - |  | ----------------------------------



| |  |  | aggressive marketing and promotions.
| | - |  | ------------------------------------

The increased level of activity requires a greater use of our available
financial resources during this period. We expect, however, that fourth
calendar quarter seasonality will continue to have less impact in the future.

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Employees and Labor Relations

As of September 30, 2003, we employed approximately 420 full-time employees and
41 part-time employees. None of our employees are represented by a labor union.
We believe that we have good relations with our employees.

Competition

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

Many of our competitors have access to more licensed spectrum than the 10 MHz
licensed to Sprint in our territory. In addition, certain of our competitors
may be able to offer coverage in areas not served by our PCS network, or,
because of their calling volumes or their affiliations with, or ownership of,
wireless providers, may be able to offer roaming rates that are lower than
those we offer. Wireless providers compete with us in providing some or all of
the services available through the Sprint PCS network and may provide services
that we do not.

Our ability to compete effectively with these other providers will depend on a
number of factors, including:



| |  |  | the continued success of CDMA technology in providing competitive call clarity and quality;
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | our ability to provide quality network service in a limited capital environment;
| | - |  | --------------------------------------------------------------------------------



| |  |  | the competitiveness of the Sprint brand;
| | - |  | ----------------------------------------



| |  |  | the competitiveness of Sprints pricing plans;
| | - |  | ----------------------------------------------



| |  |  | our spending on marketing and promotions compared to our competitors;
| | - |  | ---------------------------------------------------------------------



| |  |  | liquidity and capital resources;
| | - |  | --------------------------------



| |  |  | our ability to upgrade our network to accommodate new technologies;
| | - |  | -------------------------------------------------------------------



| |  |  | the continued expansion and improvement of the Sprint PCS nationwide network;
| | - |  | -----------------------------------------------------------------------------



| |  |  | the quality of our customer care systems; and
| | - |  | ---------------------------------------------



| |  |  | our selection of handset options.
| | - |  | ---------------------------------

Our ability to compete successfully will also depend, in part, on the ability
of Sprint and us to anticipate and respond to various competitive factors
affecting the industry, including:



| |  |  | new services that may be introduced;
| | - |  | ------------------------------------



| |  |  | changes in consumer preferences;
| | - |  | --------------------------------



| |  |  | demographic trends;
| | - |  | -------------------



| |  |  | economic conditions; and
| | - |  | ------------------------



| |  |  | discount pricing strategies by competitors.
| | - |  | -------------------------------------------

Network Operations

General

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

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| |  |  | public switched and long distance interconnection;
| | - |  | --------------------------------------------------



| |  |  | the implementation of roaming arrangements; and
| | - |  | -----------------------------------------------



| |  |  | the development of network monitoring systems.
| | - |  | ----------------------------------------------

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

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

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

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

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

Technology

General

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

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

CDMA Technology

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

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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. We have upgraded our entire network to the next
generation of technology known as one times radio transmission technology or
1XRTT. This technology offers data speeds of up to 144 kilobits per second,
voice capacity improvements of over 50% and improved battery life in the
handset. Further standards are being developed for CDMA that will offer data
speeds in excess of 2,000 kilo bits per second and additional improvements in
voice capacity.

Competing Digital Technologies

TDMA builds on frequency division multiple access (FDMA), a protocol
exclusively used on analog cellular systems. TDMA divides conversations by
timeslots and frequency channels, fitting three digital conversations into a
single FDMA channel. Each user of a TDMA channel takes turn transmitting and
receiving in a round-robin fashion. A single user uses the channel in short
bursts; the user then momentarily relinquishes the channel to allow other users
their turn.

GSM is primarily a European system. GSM uses a modified and more efficient
version of TDMA. Like TDMA, GSM divides conversations by timeslots and
frequency channels. However, calls shift between channels and timeslots to
maximize the GSM cellular systems usage.

Integrated Dispatch Enhanced Network (iDEN), also a modified version of TDMA,
is a proprietary Motorola technology. Motorola is the sole manufacturer of iDEN
cellular telephones and iDEN infrastructure equipment and Nextel is the only
competitor using this technology.

Of our competitors, AT&T and Cingular use TDMA nationally, adding a GSM
overlay. In our territory, Cingular is primarily using GSM. T-Mobile uses GSM
and Verizon and Alltel use CDMA technology.

AirGate estimates for each of these technologies deployed using 10MHz of
spectrum on a per cell basis, CDMA can support 297 conversations, TDMA
can support 72 conversations, GSM can support 45 conversations and iDEN can
support 86 conversations.

Compared to these technologies, CDMA offers the following advantages:



| |  |  | greater capacity by accommodating more subscribers per MHz of
bandwidth, which allows a greater number of calls within one allocated
frequency;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | enhanced security and privacy; and
| | - |  | ----------------------------------



| |  |  | soft hand-off, which greatly reduces dropped calls and interruptions during the hand-off process.
| | - |  | -------------------------------------------------------------------------------------------------

However, CDMAs primary disadvantage is channel pollution. Channel pollution
occurs when signals from too many cellular sites are present at a subscribers
phone, but none are dominant. This causes audio quality to decline rapidly.
Channel pollution occurs frequently in densely populated urban environments.

We did not choose CDMA technology as our primary technology based on these
advantages and disadvantages. Rather, it is the technology used by Sprint.

Research and Development

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

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

Intellectual Property

Other than our corporate names, we do not own any intellectual property that is
material to our business. Sprint, the Sprint diamond design logo, Sprint
PCS, Sprint Personal Communication Services, The Clear Alternative to
Cellular and Experience the Clear Alternative to Cellular Today are service
marks registered with the United States Patent and Trademark

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Office and owned by Sprint or its affiliates. Pursuant to our management
agreement with Sprint, we have the right to use, royalty-free, the Sprint and
Sprint PCS brand names and the Sprint diamond design logo and certain other
service marks of Sprint in connection with marketing, offering and providing
licensed services to end-users and resellers, solely within our territory.

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

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

Regulation of the Wireless Telecommunications Industry

Federal Regulation

Federal Communications Commission Regulation.The FCC regulates the licensing,
construction, operation, acquisition and interconnection arrangements of
wireless telecommunications systems in the United States. Specifically, we 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, our 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 our operations. Penalties
for violating the FCCs rules and policies can range from monetary forfeitures
to license revocation or non-renewal of licenses. The FCC Title II regulations
applicable to our 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 subscribers 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.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------

We do not hold any radio licenses, but rather operate using spectrum licensed
to Sprint under the Sprint management agreements. Nonetheless, we 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 Policy Act of 1969, including restrictions on emissions of
radio frequency 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, our 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 55 MHz in a given market (while these
limitations expired on January 1, 2003, the FCC continues to consider
competitive factors when licensees seek to aggregate large amounts of
spectrum that exceed these thresholds in a certain geographical area);
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  |  | 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, 2003 of local number
portability, as discussed further below, including the ability to
deliver calls from the companys networks to ported numbers anywhere in
the country.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The FCC has divided the 120 MHz of spectrum allocated to broadband PCS into six
frequency blocks, A through F. Through Sprint, we operate under blocks B, D and
E. PCS specific regulations that affect our 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 and, in some cases, by the end of the license term;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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;
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, we benefit from interconnection
agreements negotiated by Sprint for our network with BellSouth and Verizon and
with 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 residents of the United States of America. Sprint PCS is required to
contribute to the federal universal service program as well as existing state
programs. The FCC has determined that the contribution to the federal universal
service program is a variable percentage of interstate end-user
telecommunications revenues, which was approximately 9.0% for the second
quarter of 2003 and 9.5% for the third quarter of 2003. The proposed
contribution factor for the fourth quarter of 2003 is 9.2%. 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 our total federal and state universal service assessments
or our ability to recover costs associated with 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, the
FCC 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, we have agreed with Sprint PCS under the terms of
our Sprint PCS agreements to use our best efforts to modify the agreements as
necessary to cause the agreements to comply with applicable law and to preserve
to the extent possible the economic arrangements set forth in the agreements.
If the agreements cannot be modified, the agreements may be terminated pursuant
to their terms. In addition to revoking the licenses, the FCC could also impose
monetary penalties on us.

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Enhanced 911

In June 1996, the FCC adopted rules requiring broadband PCS and other CMRS
providers to implement Phase I enhanced emergency 911 calling capabilities by
October 1, 2001 to requesting public safety answering points. In addition, the
FCC required implementation of Phase II enhanced 911 capabilities by October 1,
2002, including the ability to provide automatic location identification (or
ALI) of subscribers by latitude and longitude with a specified accuracy.
Sprint PCS has obtained waivers of the relevant ALI enhanced 911 requirements
based on a modified deployment plan, which includes a number of interim
benchmarks and other conditions, and would provide for completing Phase II
enhanced 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 us, to modify
their equipment, facilities, and services to allow for authorized electronic
surveillance based on either industry or FCC standards. Following adoption of
interim standards and a lengthy rulemaking proceeding, including an appeal and
remand proceeding, as of June 30, 2002, all carriers were required to be in
compliance with the CALEA requirements. We are currently in compliance with the
CALEA requirements.

Wireless Local Number Portability

Effective November 24, 2003, all covered CMRS providers, including us, are
required to allow customers to retain, subject to certain geographical
limitations, their existing telephone number when switching from one
telecommunications carrier to another. These rules are generally referred to
local number portability (LNP). Covered CMRS providers must provide LNP in
the 100 largest metropolitan statistical areas, in compliance with certain FCC
performance criteria, upon request from another carrier (CMRS provider or local
exchange carrier). For metropolitan statistical areas outside the top 100
markets, CMRS providers that receive a request to allow an end user to port
their number must be capable of doing so within six months of receiving the
request or within six months after November 24, 2003, whichever is later.
Porting is currently mandated in approximately 35% of our markets. We currently
plan to implement WLNP in the remainder of our markets on May 24, 2004. The
wireless LNP mandate may impose increased operating costs on all CMRS
providers, including us, and may result in higher subscriber churn rates and
subscriber acquisition and retention costs.

Number Pooling

The FCC regulates the use of telephone numbers by wireless and other
telecommunications carriers to preserve numbering resources. Effective November
26, 2000, the FCC requires CMRS providers in the top 100 markets to be capable
of sharing blocks of 10,000 numbers among themselves in subsets of 1,000
numbers (1000s-block number pooling). In addition, all CMRS carriers,
including those operating outside the top 100 markets, must be able to support
roaming calls on their network placed by users with pooled numbers. Wireless
carriers must also maintain detailed records of the numbers they have used,
subject to audit. The pooling requirements may impose additional costs and
increase operating expenses on us and limit our access to numbering resources.

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

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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 we use in the provision of services, must comply with
certain FCC and FAA regulations regarding the siting, marking, lighting and
construction of transmitter towers and antennas. The FCC also requires that
aggregate radio wave emissions from every site location meet certain standards.
Although we believe that our existing network meets these standards, a site
audit may reveal the need to reduce or modify emissions at one or more sites.
This would increase our costs and could have a material adverse affect on our
operations. In addition, these regulations will also affect site selection for
new network build-outs and may increase the costs of improving our network. The
increased costs and delays from these regulations may have a material adverse
affect on our operations. In addition, the FCCs decision to license a proposed
tower may be subject to environmental review pursuant to the National
Environmental Policy Act of 1969, or NEPA, which requires federal agencies to
evaluate the environmental impacts of their decisions under certain
circumstances. FCC regulations implementing NEPA place responsibility on each
applicant to investigate any potential environmental effects, including health
effects relating to radio frequency emissions, of a proposed operation and to
disclose any significant effects on the environment to the agency prior to
commencing construction. In the event that the FCC determines that a proposed
tower would have a significant environmental impact, the FCC would require
preparation of an environmental impact statement. This process could
significantly delay or prevent the registration or construction of a particular
tower or make tower construction more costly. In certain jurisdictions, local
laws or regulations may impose similar requirements.

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. State and
localities are, however, permitted to engage in other forms of regulation,
including zoning regulation, that impacts the Companys ability to select and
modify sites. The FCC is considering numerous requests for preemption of local
actions affecting wireless facilities siting.

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 we provide fixed
wireless service in the future, we may be subject to additional state
regulation.

RISK FACTORS

We strongly encourage you to read the discussions under Risk Factors,
Managements Discussion and Analysis of Financial Condition and Results of
OperationsLiquidity and Capital Resources and elsewhere in this report for a
discussion of factors which could cause our results to differ materially from
our expectations.

Risks Related to Our Common Stock

We may not succeed in relisting our common stock on The Nasdaq National Market
and, even if we do, we cannot predict the price at which our common stock will
trade after the restructuring.

The Nasdaq National Market delisted our common stock as of April 8, 2003,
because, among other matters, our bid price remained below the required minimum
price of $1.00 per share for more than 30 days. As of December 12, 2003, the
closing price of our common stock was $ , and there were 25,961,191
shares of our common stock issued and outstanding.

If we successfully consummate the financial restructuring, we anticipate that
we will apply for relisting of our common stock on The Nasdaq National Market.
While we believe that consummation of the recapitalization plan, including the
proposed reverse

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stock split, will have the effect of increasing the minimum bid price of our
common stock above the $5.00 relisting minimum, the minimum bid price may not
increase at all or for any period of time and we may fail in our attempt to
re-list our common stock on The Nasdaq National Market.

We cannot predict



| |  |  | what the demand for our stock will be after the restructuring;
| | - |  | --------------------------------------------------------------



| |  |  | how many shares of our common stock will be offered for sale or be
sold after the restructuring; or
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | the price at which our common stock will trade after the
restructuring.
| | - |  | -----------------------------------------------------------------------

Immediately after the restructuring our common stock may experience price
volatility because there are no agreements or other restrictions that prevent
the sale of a large number of our shares of common stock. In addition, the
issuance of the shares of common stock in the exchange offer may further
increase price volatility because such issuance has been registered with the
SEC, which means that, those shares will, in general, be freely tradeable. Such
sales, or the potential for such sales, could adversely affect the price of our
stock and create greater volatility in the price of our common stock.

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

We have a limited operating history. Our ability to achieve and sustain
operating profitability will depend on many factors, including the
attractiveness and competitiveness of Sprint PCS products and services and our
ability to:



| |  |  | increase our subscriber base,
| | - |  | -----------------------------



| |  |  | reduce churn,
| | - |  | -------------



| |  |  | sustain monthly average revenues per user, and
| | - |  | ----------------------------------------------



| |  |  | reduce operating expenses and maintain a moderate level of capital
expenditures.
| | - |  | --------------------------------------------------------------------------------

We have experienced slowing net subscriber growth, higher rates of churn than
industry averages and increased costs to acquire new subscribers and as a
result, have had to revise our business plan. If we do not achieve and maintain
positive cash flows from operations as projected, our stock price may be
materially adversely affected.

Our stock price has suffered significant declines and remains volatile.

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



| |  |  | quarterly variations in our operating results;
| | - |  | ----------------------------------------------



| |  |  | concerns about liquidity;
| | - |  | -------------------------



| |  |  | the delisting of our common stock;
| | - |  | ----------------------------------



| |  |  | operating results that vary from the expectations of securities
analysts and investors;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | changes in expectations as to our future financial performance,
including financial estimates by securities analysts and investors;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in the market perception about the prospects and results of
operations and market valuations of other companies in the
telecommunications industry in general and the wireless industry in
particular, including Sprint and its PCS network partners and our
competitors;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in our relationship with Sprint, including the impact of our
efforts to more closely examine Sprint charges and amounts paid by
Sprint, and our disputes with Sprint;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | litigation between other Sprint network partners and Sprint;
| | - |  | ------------------------------------------------------------

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| |  |  | announcements by Sprint concerning developments or changes in its
business, financial condition or results of operations, or in its
expectations as to future financial performance;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | actual or potential defaults by us under any of our agreements;
| | - |  | ---------------------------------------------------------------



| |  |  | actual or potential defaults in bank covenants by Sprint or Sprint
PCS network partners, which may result in a perception that we are
unable to comply with our bank covenants;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | announcements by Sprint or our competitors of technological
innovations, new products and services or changes to existing products
and services;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in law and regulation;
| | - |  | ------------------------------



| |  |  | announcements by third parties of significant claims or proceedings
against us;
| | - |  | -------------------------------------------------------------------------------



| |  |  | announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | general economic and competitive conditions.
| | - |  | --------------------------------------------

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

We were notified by the Nasdaq Stock Market, Inc. that because we had failed to
regain compliance with the minimum $1.00 bid price per share requirement, and
also failed to comply with the minimum stockholders equity, market value of
publicly held shares and minimum bid requirements for continued listing on the
Nasdaq National Market, the Nasdaq Stock Market, Inc. was delisting our stock
from the Nasdaq National Market. This delisting occurred on April 8, 2003. In
addition, we did not meet the listing requirements to be transferred to the
Nasdaq Small Cap Market.

Our common stock currently trades on the Over-The-Counter Bulletin Board
maintained by The Nasdaq Stock Market, Inc., under the symbol PCSA.OB, and is
subject to an SEC rule that imposes special sales practice requirements upon
broker-dealers who sell such Over-The-Counter Bulletin Board securities to
persons other than established customers or accredited investors. For purposes
of the rule, the phrase accredited investors means, in general terms,



| |  |  | institutions with assets in excess of $5,000,000, or
| | - |  | ----------------------------------------------------



| |  |  | individuals having a net worth in excess of $1,000,000 or having an
annual income that exceeds $200,000 (or that, when combined with a
spouses income, exceeds $300,000).
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

For transactions covered by the rule, the broker-dealer must make a special
suitability determination for the purchaser and receive the purchasers written
agreement to the transaction prior to the sale. Consequently, the rule may
affect the ability of broker-dealers to sell our common stock and also may
affect the ability of our current stockholders to sell their securities in any
market that might develop. In addition, the SEC has adopted a number of rules
to regulate penny stocks. Such rules include Rules 3a51-1, 15-g1, 15-g2,
15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Securities Exchange Act
of 1934, as amended. Our common stock may constitute penny stocks within the
meaning of the rules. These rules may further affect the ability of owners of
our common stock to sell our securities in any market that might develop for
them.

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

If we complete the restructuring, our common stock may be concentrated in a few
holders.

If the restructuring is completed, the holders of old notes will receive shares
of our common stock representing 56% of our common stock, assuming all
outstanding old notes are tendered in the exchange offer. Before the
restructuring, the majority of our outstanding old notes were held by a few
investors. Consequently, these investors individually will hold high
concentrations of our common stock immediately after the restructuring. The
largest percentage of our common stock held by any single

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noteholder as a result of the consummation of the financial restructuring is
expected to be approximately 12.5%. This noteholder has requested, and we have
agreed, to provide certain registration rights to permit such noteholders
re-sale of our common stock and new AirGate notes.

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

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

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

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

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

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



| |  |  | a classified board, with each board member serving a three-year term;
| | - |  | ---------------------------------------------------------------------



| |  |  | no authorization for stockholders to call a special meeting;
| | - |  | ------------------------------------------------------------



| |  |  | no ability of stockholders to remove directors without cause;
| | - |  | -------------------------------------------------------------



| |  |  | prohibition of action by written consent of stockholders; and
| | - |  | -------------------------------------------------------------



| |  |  | advance notice for nomination of directors and for stockholder
proposals.
| | - |  | -------------------------------------------------------------------------

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

Risks Related to Our Indebtedness

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

We have a substantial amount of indebtedness, and will continue to have a
substantial amount of indebtedness even if we complete the restructuring. In
addition, the indenture for the new notes will permit us to incur additional
indebtedness, subject to specified restrictions.

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



| |  |  | limiting our ability to fund working capital, capital expenditures,
acquisitions or other general corporate purposes;
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | requiring us to use a substantial portion of our cash flow from
operations to pay interest and principal on the credit facility, the new
notes and other indebtedness, which will reduce the funds available to
us for purposes such as capital expenditures, marketing, development,
potential acquisitions and other general corporate purposes;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  |  | exposing us to fluctuations in interest rates, to the extent our
borrowings bear variable rates of interest, including through interest
rate swap agreements;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | placing us at a competitive disadvantage compared to our competitors
that have less debt;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | reducing our flexibility in planning for, or responding to, changing
conditions in our industry, including increased competition; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------



| |  |  | making us more vulnerable to general economic downturns and adverse
developments in our business.
| | - |  | -------------------------------------------------------------------------------------------------

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

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



| |  |  | incur or guarantee additional indebtedness;
| | - |  | -------------------------------------------



| |  |  | issue redeemable preferred stock and non-guarantor subsidiary
preferred stock;
| | - |  | ------------------------------------------------------------------------------



| |  |  | pay dividends or make other distributions;
| | - |  | ------------------------------------------



| |  |  | repurchase our stock;
| | - |  | ---------------------



| |  |  | make investments in other businesses or entities, including entering
into and funding joint ventures with third parties;
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | sell or otherwise dispose of assets, including capital stock of
subsidiaries;
| | - |  | -----------------------------------------------------------------------------



| |  |  | create liens;
| | - |  | -------------



| |  |  | prepay, redeem or repurchase debt;
| | - |  | ----------------------------------



| |  |  | enter into agreements restricting our subsidiaries ability to pay
dividends;
| | - |  | -----------------------------------------------------------------------------



| |  |  | enter into transactions with affiliates;
| | - |  | ----------------------------------------



| |  |  | enter into sale and leaseback transactions; and
| | - |  | -----------------------------------------------



| |  |  | consolidate, merge or sell all of our assets.
| | - |  | ---------------------------------------------

In addition, our credit facility requires us to maintain specified financial
ratios and satisfy other financial condition tests. These covenants may
adversely affect our ability to finance our future operations or capital needs
or to pursue available business opportunities or limit our ability to plan for
or react to market conditions or meet capital needs or otherwise restrict our
activities or business plans. A breach of any of those covenants or our
inability to maintain the required financial ratios could result in a default
in respect of the related indebtedness. If a default occurs, the relevant
lenders could elect to declare the indebtedness, together with accrued interest
and other fees, to be immediately due and payable and proceed against any
collateral securing that indebtedness.

Variable interest rates may increase substantially.

As of September 30, 2003, we had $151.5 million outstanding debt under our
credit facility. The rate of interest on the credit facility is based on a
margin above either the alternate bank rate (the prime lending rate in the
United States) or the London Interbank Offer Rate (LIBOR). At September 30,
2003, the weighted average interest rate under variable rate borrowings was
5.05% under our credit facility. If interest rates increase, we may not have
the ability to service the interest requirements on our credit facility.
Furthermore, if we were to default in our payments under our credit facility,
our rate of interest would increase by 2.5% over the alternate bank rate.

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

Our credit facility contains covenants specifying



| |  |  | the maintenance of certain financial ratios,
| | - |  | --------------------------------------------



| |  |  | reaching defined subscriber growth and network covered population
goals,
| | - |  | ------------------------------------------------------------------------



| |  |  | minimum service revenues,
| | - |  | -------------------------



| |  |  | maximum capital expenditures, and
| | - |  | ---------------------------------



| |  |  | the maintenance of a ratio of total and senior debt to annualized
EBITDA, as defined in the credit facility. The definition of EBITDA in
our credit facility is not the same as EBITDA used by us in this report.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

If we are unable to operate our business within the covenants specified in our
credit facility, our ability to use our cash could be restricted or terminated
and our payment obligations may be accelerated. Such a restriction, termination
or acceleration could have a material adverse affect on our liquidity and
capital resources.

Our compliance with the financial covenants our credit facility is not assured
and, after March, 2005 our ability to generate operating cash flow to pay debt
service and meet our other capital needs and met our financial covenants is
significantly uncertain. Further, without further changes to our current
business plan, we believe that we will not be in compliance with our total debt
to EBITDA covenants under our credit facility at April 1, 2005. We believe we
will need to generate approximately $14 million more in EBITDA over the
preceding 12 months to be in compliance with this covenant at April 1, 2005.

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

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

Risks Related to the Restructuring

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

At September 30, 2003, we had working capital of $12.5 million and
approximately $54.1 million of available cash and cash equivalents. After
drawing the remaining $9.0 million available under our credit facility in
August 2003, we are completely dependent on available cash and operating cash
flow to operate our business and fund our capital needs.

If we do not consummate the restructuring, one alternative we could consider
would be seeking protection under Chapter 11 of the Bankruptcy Code. The
expenses of any such bankruptcy case would reduce the assets available for
payment or distribution to our creditors.

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

Our actual funding requirements could vary materially from our current
estimates. We base our financial projections on assumptions that we believe
are reasonable but which contain significant uncertainties that could affect
our business, our future performance and our liquidity. Our ability to achieve
and sustain operating profitability will depend on many factors, including
Sprints success, our ability to market Sprint PCS products and services,
manage churn, sustain monthly average revenues per user, and reduce operating
expenses and maintain a moderate level of capital expenditures. In addition,
our business, our future performance and our liquidity would be affected by
general industry and market conditions and growth rates and general economic
and political conditions, including the global economy and other future events.

Consequently, we may have to raise additional funds, which may be costly, to
operate our business and provide other needed capital and we may be unable to
do so. If we would be unable to raise such needed additional funds, we could
have insufficient

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capital to meet our expenses and operate our business.

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

Under the terms of the support agreement, we have agreed not to effect a
restructuring unless it is in accordance with the terms of the support
agreement and the related restructuring term sheet. A material alteration of
any economic terms would release any noteholders not consenting to such
alteration from their obligations under the support agreement. As a result,
some or all of the noteholders could take the position that they are not bound
by an amended support agreement or term sheet. If we are unable to reach
agreement on a modified support agreement, and some or all of the noteholders
do not support the proposed restructuring, we may need to pursue an alternative
plan of restructuring. In addition, a change in the terms of the restructuring
may require further amendments to the credit facility.

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

The consummation of the transactions contemplated by the recapitalization plan
is conditioned upon our receiving the approval of our existing stockholders to



| |  |  | the issuance of our common stock in the exchange offer, and
| | - |  | -----------------------------------------------------------



| |  |  | an amendment and restatement of our certificate of incorporation to
implement a reverse stock split.
| | - |  | ----------------------------------------------------------------------------------------------------

Therefore, even if the minimum tender condition and each of the other
conditions to the exchange offer are met or waived, the failure to obtain such
stockholder approval will prevent us from consummating the recapitalization
plan.

If we fail to implement the recapitalization plan, we may seek confirmation of
the prepackaged plan. If we cannot find an out-of-court solution, the
prepackaged plan may be the best means of effecting the goals of the
recapitalization plan.

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

The consummation of the exchange offer is conditioned upon, among other things,
our receipt of valid tenders from not less than 98% of our old notes
outstanding immediately before the expiration of the exchange offer, unless
such condition is waived. Absent the cram-down procedure, to obtain
confirmation of the prepackaged plan, however, we need to receive from



| |  |  | each impaired class of claims, the affirmative votes of holders of
| | - |  | ------------------------------------------------------------------



| |  |  | two-thirds in terms of dollar amount and
| | - |  | ----------------------------------------



| |  |  | more than one-half in terms of the number of holders of such class
who actually cast ballots, and
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | each impaired class of equity interests entitled to vote on the plan,
the affirmative votes of holders of two-thirds in amount of the equity
interests of such class who actually cast ballots.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

If we cannot complete the recapitalization plan for any reason, including a
failure to meet the minimum tender condition, but we receive the required votes
from each impaired class of claims or interests to accept the prepackaged plan,
we may seek confirmation of the prepackaged plan in the bankruptcy court. If
the prepackaged plan is confirmed by the bankruptcy court, it will bind all of
our creditors, noteholders and equity security holders regardless of whether
they voted for, against or not at all on the prepackaged plan. Therefore,
assuming the prepackaged plan satisfies the other requirements of the
Bankruptcy Code, a significantly smaller number of equity security holders can
bind other equity security holders to the terms of the prepackaged plan.
Additionally, since claims and equity interests are grouped in classes for the
purpose of voting on the prepackaged plan, holders of claims and interests may
be bound by the decisions of other claim or interest holders in a way that they
otherwise would not be bound outside of bankruptcy.

Furthermore, if at least one class of impaired claims, such as the noteholders,
accept the prepackaged plan, and we determine to seek confirmation of the
prepackaged plan in the bankruptcy court, we may pursue confirmation of the
prepackaged plan under the cram down provisions of the Bankruptcy Code. If
the prepackaged plan is confirmed under the cram down provisions of

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the Bankruptcy Code, all classes of claims and interests will be bound by the
terms of the plan (as modified, if appropriate) regardless of whether such
class voted to accept the prepackaged plan.

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

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

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

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

Alternatively, if the discharge of the old notes occurs in a Chapter 11
bankruptcy case or if we are considered insolvent, we will not recognize any
COD income as a result of such discharge although certain of our tax attributes
will be reduced. In addition, we may be eligible to apply for a bankruptcy
exception under Section 382 to avoid triggering an ownership change.

Even if we successfully complete the restructuring, we may have substantial tax
liability if we experience an ownership change for tax purposes prior to our
completion of the restructuring.

Since our inception in 1998, we have generated significant net operating
losses, or NOLs. We expect to use these NOLs to offset the cancellation of
indebtedness income that we will realize as a result of the restructuring.
However, if we were to experience an ownership change for tax purposes prior to
our completion of the restructuring, such ownership change would severely
restrict our use of the NOLs to offset the COD income. As a result, we would
have insufficient NOLs to fully offset our realization of COD income upon
completion of the restructuring and, therefore, could be subject to material
federal income taxes. Because we will not know if we have experienced an
ownership change for tax purposes until our 5% stockholders file their
Schedules 13D or 13G (which may be as late as February 14, 2004), we cannot
assure you that we will not be subject to tax on the COD income. If we are
required to pay tax on significant COD income, we may not have sufficient funds
to pay the tax or meet our other obligations. As of November 1, 2003, and based
on information available to us, we estimate that we have experienced a 30%
change in ownership.

Risks Related to Our Business

Risks Related to Our Business, Strategy and Operations

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

Our business plan and estimated future operating results are based on estimates
of key operating metrics, including



| |  |  | subscriber growth,
| | - |  | ------------------



| |  |  | subscriber churn,
| | - |  | -----------------



| |  |  | capital expenditures,
| | - |  | ---------------------



| |  |  | ARPU,
| | - |  | -----



| |  |  | losses on sales of handsets and other subscriber acquisition costs,
and
| | - |  | -----------------------------------------------------------------------



| |  |  | other operating costs.
| | - |  | ----------------------

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The following factors have created a level of uncertainty that may
adversely affect our ability to predict key operating metrics:



| |  |  | the unsettled nature of the wireless market,
| | - |  | --------------------------------------------



| |  |  | the current economic slowdown,
| | - |  | ------------------------------



| |  |  | the problems in our relationship with Sprint (see  Risks Related to
Our Relationship with Sprint),
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | increased competition in the wireless telecommunications industry,
| | - |  | ------------------------------------------------------------------



| |  |  | new service offerings of increasingly large bundles of minutes of use
at lower prices by wireless carriers, and
| | - |  | ---------------------------------------------------------------------------------------------------------------



| |  |  | other issues facing the wireless telecommunications industry in
general.
| | - |  | ------------------------------------------------------------------------

Another factor that may affect our operating results, liquidity and capital
resources is the fact that we have limited funding options. On August 8, 2003
we drew the $9.0 million remaining available under our credit facility. We
currently have no additional sources of working capital other than cash on
hand, which was $54.1 million at September 30, 2003, and operating cash flow.
If our actual revenues are less than we expect or operating or capital costs
are more than we expect, our financial condition and liquidity may be
materially adversely affected. In such event, there is substantial risk that we
could not access the capital or credit markets for additional capital.

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

Revenue growth is primarily dependent on



| |  |  | the size of our subscriber base,
| | - |  | --------------------------------



| |  |  | average monthly revenues per user and
| | - |  | -------------------------------------



| |  |  | roaming revenue.
| | - |  | ----------------

During the year ended September 30, 2002, we experienced slower net subscriber
growth rates than planned. In addition, subscriber growth in fiscal 2003 has
been slower than in prior years, and actually declined slightly in the quarter
ending September 30, 2003. We believe slower growth is due in large part to



| |  |  | increased churn,
| | - |  | ----------------



| |  |  | increased competition and Sprints loss of market share,
| | - |  | --------------------------------------------------------



| |  |  | declining rates of wireless subscriber growth in general,
| | - |  | ---------------------------------------------------------



| |  |  | the re-imposition and increase in deposits for most sub-prime credit
subscribers, and
| | - |  | -------------------------------------------------------------------------------------



| |  |  | the current economic slowdown.
| | - |  | ------------------------------

We have seen a continuation of competitive pressures in the wireless
telecommunications market causing carriers to offer plans with increasingly
large bundles of minutes of use at lower prices which may compete with the
calling plans we offer, including the Sprint calling plans we support. There is
no assurance that subscriber growth will not be less than we project or that
average revenue per user will not be lower than we project. Increased price
competition may lead to lower average monthly revenues per user than we
anticipate. See  Risks Related to our Business  Risks Related to Our
Relationship with Sprint. In addition, the lower reciprocal roaming rate that
Sprint has implemented will reduce our roaming revenue, which may not be offset
by the reduction in our roaming expense. If our revenues are less than we
anticipate, it could materially adversely affect our liquidity, financial
condition and results of operation. We estimate that, based on our projections
for fiscal 2004, every $1 reduction in monthly ARPU will increase our annual
operating loss by approximately $3.9 million. In addition, based on our
projections for fiscal year 2004, we estimate that every 1,000 reduction in
monthly gross subscriber activations will increase our annual operating loss by
approximately $800,000.

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

Our business plan anticipates that we will be able to maintain lower operating
and capital costs, including costs per gross addition and cash cost per user.
Increased competition may lead to higher promotional costs, losses on sales of
handset and other costs to acquire subscribers. Further, as described below
under Risks Related to Our Relationship With Sprint, a substantial portion of
costs of service and roaming are attributable to fees and charges we pay Sprint
for billing and collections, customer care and other back-office support. Our
ability to manage costs charged by or through Sprint is limited. If our costs
are more than we anticipate, the actual amount of funds needed to implement our
strategy and business plan may exceed our estimates, which could have a
material adverse affect on our liquidity, financial condition and results of
operations. We estimate, based on our projections for fiscal year 2004, that
for every 1% that aggregate Sprint fees exceed our planned expectations, it
will increase our annual operating loss by approximately $400,000.

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

The wireless personal communications services industry in general, and Sprint
and its network partners in particular, have experienced a higher rate of
subscriber turnover, commonly known as churn, as compared to cellular industry
averages. We believe this churn rate was driven higher in 2002 due to the NDASL
and Clear Pay programs required by Sprint and the removal of deposit
requirements as described elsewhere in this report. Our business plan assumes
that churn will be relatively constant in fiscal 2004, but will decline
significantly thereafter. Although churn declined in the first nine months of
fiscal 2003, churn rates increased in the quarter ended September 30, 2003. Due
to significant competition in our industry and general economic conditions,
among other things, churn may increase and our future rate of subscriber
turnover may be higher than projected or our historical rate. Factors that may
contribute to higher churn include:



| |  |  | the pricing and attractiveness of our competitors products and
services;
| | - |  | -------------------------------------------------------------------------



| |  |  | wireless local number portability;
| | - |  | ----------------------------------



| |  |  | quality of customer service;
| | - |  | ----------------------------



| |  |  | network performance and coverage relative to our competitors;
| | - |  | -------------------------------------------------------------



| |  |  | inability or unwillingness of subscribers to pay which results in
involuntary deactivations, which accounted for 52% of our deactivations
in the quarter ended September 30, 2003;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | subscriber mix and credit class, particularly sub-prime credit
subscribers which account for approximately 28% of our subscriber base
as of September 30, 2003;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Sprints announced billing system conversion and/or outsourcing
services now provided by Sprint, including billing, collections and
customer care; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | any future changes by us in the products and services we offer,
especially to the Clear Pay Program.
| | - |  | ----------------------------------------------------------------------------------------------------

A high rate of subscriber turnover could adversely affect our competitive
position, liquidity, financial position, results of operations and our costs
of, or losses incurred in, obtaining new subscribers, especially because we
subsidize some of the costs of initial purchases of handsets by subscribers. We
estimate that, based on our projections for fiscal year 2004, a 0.1% increase
in monthly churn will increase our annual operating loss by approximately
$900,000.

Implementation of wireless local number portability requirements may increase
churn, lower revenues and result in higher subscriber acquisition and retention
costs.

Implementation of the Federal Communications Commissions (FCC) wireless
local number portability (LNP) requirement will enable wireless subscribers
to keep their telephone numbers when switching to another carrier. As of
November 24, 2003, all covered CMRS providers, including broadband PCS,
cellular and SMR licensees, were required to allow customers to retain, subject
to geographical limitations, their existing telephone number when switching
from one telecommunications carrier to another. Current rules require that
covered CMRS providers have to provide LNP in the 100 largest metropolitan
statistical areas, in compliance with certain FCC performance criteria, upon
request from another carrier (CMRS provider or local exchange carrier). For
metropolitan statistical areas outside the largest 100, CMRS providers that
receive a request to allow an end user to port their number must be capable of
doing so within six months of receiving the request or within six months after
November 24, 2003, whichever is later. Porting is currently mandated in
approximately 35% of our markets. We currently plan to implement

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WLNP in the remainder of our markets on May 24, 2004. The overall impact of
this mandate is uncertain. We anticipate that the wireless LNP mandate will
impose increased operating costs on all CMRS providers, including us, and may
result in lower revenues, higher churn and higher subscriber acquisition and
retention costs.

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

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



| |  |  | our churn rate may exceed our estimates;
| | - |  | ----------------------------------------



| |  |  | bad debt as a percentage of service revenues may not decline as we
assume in our business plan;
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | adverse changes in the economy; or
| | - |  | ----------------------------------



| |  |  | changes in Sprints PCS products and services.
| | - |  | ----------------------------------------------

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

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

Sprint reduced the reciprocal roaming rate from $0.10 per minute to $0.058 per
minute for the calendar year 2003 and has announced a reduction to $0.041 for
calendar year 2004. Based upon historical twelve months ending September 30,
2003 roaming minutes of use by Sprint and other affiliate customers, a
reduction in the roaming rate to $0.041 per minute would have reduced our
roaming revenue by approximately $20.7 million and reduced our roaming expense
by approximately $16.4 million, and increased our net loss by $4.3 million.

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

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

As a result of the current business environment, we have revised our business
plan and are seeking to manage expenses to improve our liquidity position. We
have significantly reduced projected capital expenditures, advertising and
promotion costs and other operating costs. Reduced capital expenditures could,
among other things, have forced us to delay improvements to our network, which
could adversely affect the quality of service to subscribers. These actions
could reduce subscriber growth and increase churn, which could materially
adversely affect our financial condition and results of operation. We estimate
that, based on our projections for fiscal year 2004, a 0.1% increase in monthly
churn will increase our annual operating loss by approximately $900,000.

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

As our subscriber base matures, and technological innovations occur, more
existing subscribers will upgrade to new wireless handsets. We subsidize a
portion of the price of wireless handsets and incur sales commissions, even for
handset upgrades. Excluding sales commissions, we experienced approximately
$4.8 million associated with wireless handset upgrade costs for the fiscal year
ended September 30, 2002 and $7.8 million for the fiscal year ended September
30, 2003. We have limited historical experience regarding the adoption rate for
wireless handset upgrades. If more subscribers upgrade to new wireless handsets
than we project, our results of operations would be adversely affected.

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

Our business is managed by a small number of executive officers. We believe
that our future success depends in part on our continued ability to attract and
retain highly qualified technical and management personnel. We may not be
successful in retaining our key personnel or in attracting and retaining other
highly qualified technical and management personnel. Our ability

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to attract and retain such persons may be negatively impacted if our liquidity
position does not improve. The loss of our officers and skilled employees could
materially adversely affect our results of operation.

In addition, we grant stock options and other equity incentives as a method of
attracting and retaining employees, to motivate performance and to align the
interests of management with those of our stockholders. Due to the decline in
the trading price of our common stock, a substantial majority of the stock
options held by employees have an exercise price that is higher than the
current trading price of our common stock, and therefore these stock options
may not be effective in helping us to retain valuable employees. Our named
executive officers other than the Chief Financial Officer, have returned,
without consideration, below market options held by such officers. If our
shareholders do not authorize additional shares for our 2002 Long-Term
Incentive Plan, we may have insufficient equity awards available to attract and
retain qualified technical and management personnel. We currently have key
man life insurance for our Chief Executive Officer.

Our territory has limited amounts of licensed spectrum, which may adversely
affect the quality of our service and our results of operations.

Sprint has licenses covering 10 MHz of spectrum in our territory. As the number
of subscribers in our territory increases, this limited amount of licensed
spectrum may not be able to accommodate increases in call volume, may lead to
increased dropped and blocked calls and may limit our ability to offer enhanced
services, all of which could result in increased subscriber turnover and
adversely affect our financial condition and results of operations.

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

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

Most of our cell sites are co-located on leased tower facilities shared with
one or more wireless providers. A few tower companies own a large portion of
these leased tower sites. Approximately 75% of the towers leased by us are
owned by four tower companies (and their affiliates). If a master co-location
agreement with one of these tower companies were to terminate, or if one of
these tower companies were unable to support our use of its tower sites, we
would have to find new sites or we may be required to rebuild that portion of
our network. In addition, because of this concentration of ownership of our
cell sites, our financial condition and results of operations could be
materially and adversely affected if we are unable to renew expiring leases
with such tower companies on favorable terms, or in the event of a disruption
in any of their business operations. For example, if our agreement with our
largest tower company were to expire without successful renegotiation, we would
be required to relocate approximately 34% of our cell site locations, causing
disruption to our network operations.

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

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

Our business is subject to seasonal trends.

The wireless industry historically has been heavily dependent on fourth
calendar quarter results. Among other things, the industry relies on
significantly higher subscriber additions and handset sales in the fourth
calendar quarter as compared to the other three

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calendar quarters. A number of factors contribute to this trend, including:



| |  |  | the increasing use of retail distribution, which is heavily dependent
upon the year-end holiday shopping season;
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | the timing of new product and service announcements and
introductions;
| | - |  | ----------------------------------------------------------------------



| |  |  | competitive pricing pressures; and
| | - |  | ----------------------------------



| |  |  | aggressive marketing and promotions.
| | - |  | ------------------------------------

The increased level of activity requires a greater use of available
financial resources during this period.

Risks Related to Our Relationship with Sprint

Our business experiences certain risks related to Sprint.

Over time, Sprint has increased fees charged to AirGate and other network
partners and has added fees that were not anticipated when the agreements with
Sprint were entered into. Sprint also sought to collect money from us that we
believe is not authorized under the agreements. In addition, Sprint has also
imposed additional programs, requirements and conditions that have adversely
affected our financial performance. If these increases, additional charges and
changes continue, our operating results, liquidity and capital resources could
be adversely affected. As of September 30, 2003, we have disputed approximately
$8.9 million in invoices for such increases and additional charges, but those
issues have not been resolved. While we believe that we have adequately
reserved for these disputed amounts, if they are resolved in favor of Sprint
and against AirGate, the payment of this amount money could adversely affect
our liquidity and capital resources. The resolution of all disputes in favor of
Sprint and payment of disputed amounts will reduce our cash position at
September 30, 2003 of $54.1 million by approximately $8.9 million.

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

Each month we pay Sprint expenses described in greater detail in Note 4 to the
consolidated financial statements for the fiscal year ended September 30, 2003
set forth in this report. An increase in the amounts we owe Sprint may result
in less use of cash for working capital purposes than the business plan
currently projects.

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

We do not own the licenses to operate our wireless network. Our ability to
offer Sprint PCS products and services and operate a PCS network is dependent
on our Sprint agreements remaining in effect and not being terminated. All of
our subscribers have purchased Sprint PCS products and services to date, and we
do not anticipate any change in the near future. The agreements between Sprint
and us are not perpetual. Our management agreement automatically renews at the
expiration of the 20-year initial term (July 22, 2018) for an additional
10-year period unless we are in material default. Sprint can choose not to
renew our management agreement at the expiration of the ten-year renewal term
or any subsequent ten-year renewal term. In any event, our management agreement
terminates in 50 years.

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

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

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

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

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| |  |  | Sprint could price its national plans based on its own objectives and
could set price levels or other terms that may not be economically
sufficient for our business;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Sprint could develop products and services, such as a one-rate plan
where subscribers are not required to pay roaming charges on its PCS to
PCS plan, or establish credit policies, such as the NDASL program, which
could adversely affect our results of operations;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Sprint has raised and could continue to raise the costs to perform
back office services or maintain the costs above those expected, reduce
levels of services or expenses or otherwise seek to increase expenses
and other amounts charged;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Sprint can seek to further reduce the reciprocal roaming rate charged
when Sprints or other Sprint network partners PCS subscribers use our
network;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Sprint may elect with little or no notification, to upgrade or
convert its financial reporting, billing or inventory software or change
third party service organizations that can adversely affect our ability
to determine or report our operating results, adversely affect our
ability to obtain handsets or adversely affect our subscriber
relationships;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Sprint, subject to limitations in our Sprint Agreements, could limit
our ability to develop local and other promotional plans to enable us to
attract sufficient subscribers;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Sprint could, subject to limitations under our Sprint agreements,
alter its network and technical requirements;
| | - |  | ---------------------------------------------------------------------------------------------------------------



| |  |  | Sprint introduced a payment method for subscribers to pay the cost of
service with us. This payment method initially did not have adequate
controls or limitations, and fraudulent payments were made to accounts
using this payment method. If other types of fraud become widespread, it
could have a material adverse impact on our results of operations and
financial condition;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Sprint could make decisions which could adversely affect the Sprint
brand names, products or services; and
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | Sprint could decide not to renew the Sprint agreements or to no
longer perform its obligations, which would severely restrict our
ability to conduct business.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------

Recently, Sprint has announced that it will re-align its resources to focus on
two market segments: businesses and consumers. This represents a shift away
from the current organizational focus on assets groups and products: local
telecommunications, global wireline voice and data services and wireless. This
initiative is often referred to as One Sprint-One Solution. This realignment
is designed to facilitate Sprints cross-selling and bundling of products
across these product lines. This shift could



| |  |  | divert marketing, advertising and internal Sprint resources once
dedicated to wireless to bundled or non-PCS Sprint products and
services,
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | increase the risk that Sprint will design wireless products and
services in a manner that is not profitable for AirGate or other network
partners, and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | reduce the significance of Sprints wireless network partners.
| | - |  | --------------------------------------------------------------

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

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

In late 2002, Sprint implemented a new PCS to PCS product offering under which
subscribers receive unlimited buckets of minutes for little or no additional
cost, for any calls made from one Sprint PCS subscriber to another. Pursuant to
our Sprint agreements, we are required to support this program in our
territory. The number of minutes-over-plan (MOPs) used and associated
revenues of our subscribers has dropped. AirGates ARPU has declined from $61
for the fiscal year ended September 30, 2002 to $60 for the fiscal year ended
September 30, 2003, while the number of minutes used for PCS to PCS calls
increased from 6 million to over 60 million minutes per month. In addition, the
program had the effect of switching current subscribers to the product
offering, rather than resulting in a meaningful increase in new subscribers. In
addition to the lost revenue the PCS to PCS plan causes, it is also generating
a large amount of incremental traffic on our network, which may increase our
capital needs beyond what we have planned.

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

Approximately 64% of cost of service and roaming in our financial statements
relate to charges from or through Sprint. As a result, a substantial portion of
our cost of service and roaming is outside our control. There can be no
assurance that Sprint will lower its operating costs, or, if these costs are
lowered, that Sprint will pass along savings to its PCS network partners. If
these costs are more than we anticipate in our business plan, it could
materially adversely affect our liquidity, financial condition and results of
operations and as noted below, our ability to replace Sprint with lower cost
providers may be limited. We estimate that for every 1% that aggregate Sprint
fees exceed our planned expectations, it will increase our annual operating
loss by approximately $400,000.

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

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



| |  |  | we agreed to a new $4 logistics fee for each 3G enabled handset to
avoid a prolonged dispute over upgrade handset subsidy charges for which
Sprint sought reimbursement;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Sprint PCS sought to recoup $3.9 million in long-distance access
revenues previously paid by Sprint PCS to AirGate and has invoiced us
$1.2 million of this amount;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Sprint has charged us $0.4 million and $1.3 million to reimburse
Sprint for 3G product- and network-related development expenses with
respect to fiscal year end 2002 and 2003, respectively;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Sprint informed us on December 23, 2002 that it had miscalculated
software maintenance fees for 2002 and future years, which would result
in an annualized increase from $1.0 million to $1.7 million if owed by
AirGate; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Sprint reduced the reciprocal roaming rate charged by Sprint and its
network partners for use of our respective networks from $0.10 per
minute of use to $0.058 per minute of use in 2003 and has notified us
that the rate will decline to $0.041 in 2004.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Other ongoing disputes are described herein under Item 7, Related Party
Transaction and Transactions Between AirGate and iPCS  Transactions with
Sprint. We have questioned whether these and other charges and actions are
appropriate and authorized under our Sprint agreements. We expect that it will
take time to resolve these issues, the ultimate outcome is uncertain and
litigation may be required to resolve these issues. Unanticipated expenses and
reductions in revenue have had and, if they occur in the future, will have a
negative impact on our liquidity and make it more difficult to predict with
reliability our future performance.

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

Approximately 64% of cost of service and roaming in our financial statements
relate to charges from or through Sprint. In addition, because Sprint provides
billing and collection services for us, Sprint remits approximately 95% of our
revenues to us. The data provided by Sprint is the primary source for our
recognition of service revenue and a significant portion of our selling and
marketing and cost of service and operating expenses. As a result, we rely on
Sprint to provide accurate, timely and sufficient data and information to
properly record our revenues, expenses and accounts receivables, which underlie
a substantial portion of our periodic financial statements and other financial
disclosures.

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We and Sprint have discovered billing and other errors or inaccuracies. If we
are required in the future to make additional adjustments or charges as a
result of errors or inaccuracies in data provided to us by Sprint that we do
not detect, such adjustments or charges may have a material adverse effect on
our financial results in the period that the adjustments or charges are made,
on our ability to satisfy covenants contained in our credit facility, and on
our ability to make fully informed business decisions.

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

We currently rely on Sprints internal support systems, including customer
care, billing and back office support. Our operations could be disrupted if
Sprint is unable to provide internal support systems in a high quality manner,
or to efficiently outsource those services and systems through third-party
vendors. Cost pressures are expected to continue to pose a significant
challenge to Sprints internal support systems. Additionally, Sprint has made
reductions in its customer service support structure and may continue to do so
in the future, which may have an adverse effect on our churn rate. Further,
Sprint has relied on third-party vendors for a significant number of important
functions and components of its internal support systems and may continue to
rely on these vendors in the future. We currently depend on Sprints
willingness to continue to offer these services and to provide these services
effectively and at competitive costs. These costs were approximately $40.0
million for AirGate for the fiscal year ended September 30, 2003. Our Sprint
agreements provide that, upon nine months prior written notice, Sprint may
elect to terminate any of these services. The inability of Sprint to provide
high quality back office services, or our inability to use Sprint back office
services and third-party vendors back office systems, could lead to subscriber
dissatisfaction, increase churn or otherwise increase our costs.

If Sprint elects to significantly increase the amount it charges us for any of
these services, our operating expenses will increase, and our liquidity,
financial condition and results of operation could be adversely affected.

Two recent independent surveys have ranked Sprint last among national carriers
in customer service. We believe that poor customer care is an important cause
of increased churn. To date, Sprint has been unable to provide a level of
service equal to or better than industry averages under the services agreement.
Consequently, outsourcing these services may be the only alternative to
significantly improve churn. We are exploring ways to outsource billing,
collections and customer care services now provided by Sprint. While the
services agreement allows us to use third-party vendors to provide certain of
these services instead of Sprint, Sprint may seek to require us to pay high
start-up costs to interface with Sprints system and may otherwise seek to
delay any such outsourcing, which could make an outsourcing cost prohibitive,
increase the costs of any such outsourcing and delay the benefits of any
outsourcing. This could limit our ability to lower our operating costs and
reduce churn.

If Sprints business plan does not succeed, our business may not succeed.

As a network partner of Sprint, we have the right to provide PCS products and
services under the Sprint brand names in our territory in the southeastern
United States. In addition, we feature exclusively and prominently the
nationally recognized Sprint brand in our marketing effort. Consequently, our
business and results of operations depend on the continued recognition of the
Sprint brand name and success of Sprints business. In recent months, Sprints
share of the market has declined, as has ours. If Sprints business plan does
not succeed, or if Sprint has a significant disruption to its business plan or
network, fails to operate its business in an efficient manner, or suffers a
weakening of its brand name or erosion of its customer base, our operations and
profitability would likely be negatively impacted.

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

Changes in Sprint PCS products and services may adversely affect key operating
metrics.

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

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

We have a number of significant disputes with Sprint related to our agreements
including those described under Item 7, Related Party Transaction and
Transactions Between AirGate and iPCS  Transactions with Sprint. These
disputes involve a number of

45



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issues including:



| |  |  | Sprints collection of various revenues from subscribers and other
parties and the payment of AirGates portion of those monies;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------



| |  |  | various charges made by Sprint under the agreements with AirGate;
| | - |  | -----------------------------------------------------------------



| |  |  | Sprints right to impose programs, requirements and conditions on
AirGate that adversely affect AirGates financial performance; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------



| |  |  | various other rights and responsibilities imposed upon the parties
under the terms of their agreements.
| | - |  | -------------------------------------------------------------------------------------------------------

In recent months, Sprint and AirGate have focused on whether these disputes can
be resolved by agreement and are currently engaged in negotiation of these
issues. If an agreement cannot be reached on terms that are acceptable to
AirGate and Sprint, either party may take additional measures, including the
filing of litigation, to have these issues resolved. The mere existence of
these disputes could adversely affect our relationship with Sprint. If some or
all of these disputed issues are resolved against AirGate, such resolution
could have a material adverse effect on our liquidity or financial condition.

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

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



| |  |  | the roaming arrangements are negotiated by Sprint and may not benefit
us in the same manner that they benefit Sprint;
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | the quality of the service provided by another provider during a
roaming call may not approximate the quality of the service provided by
the Sprint PCS network;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the price of a roaming call off our network may not be competitive
with prices of other wireless companies for roaming calls;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



| |  |  | customers may have to use a more expensive dual-band/dual mode
handset with diminished standby and talk time capacities;
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | subscribers must end a call in progress and initiate a new call when
leaving the Sprint PCS network and entering another wireless network;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Sprint customers may not be able to use Sprints advanced features,
such as voicemail notification, while roaming; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | Sprint or the carriers providing the service may not be able to
provide us with accurate billing information on a timely basis.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------

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

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

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

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

We depend on our relationship with Sprint to obtain handsets, and we have
agreed to purchase all of our 3G capable handsets from Sprint or a Sprint
authorized distributor through the earlier of December 31, 2004 or the date on
which the cumulative 3G

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handset fees received by Sprint from all Sprint network partners equal
$25,000,000. Sprint orders handsets from various manufacturers. We could have
difficulty obtaining specific types of handsets in a timely manner if:



| |  |  | Sprint does not adequately project the need for handsets for itself,
its network partners and its other third-party distribution channels,
particularly in transition to new technologies, such as one time radio
transmission technology, or 1XRTT;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Sprint gives preference to other distribution channels, which it does
periodically;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | we do not adequately project our need for handsets;
| | - |  | ---------------------------------------------------



| |  |  | Sprint modifies its handset logistics and delivery plan in a manner
that restricts or delays our access to handsets; or
| | - |  | -----------------------------------------------------------------------------------------------------------------------



| |  |  | there is an adverse development in the relationship between Sprint
and its suppliers or vendors.
| | - |  | ------------------------------------------------------------------------------------------------

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

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

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

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

Sprints national network is a combination of networks. The large metropolitan
areas are owned and operated by Sprint, and the areas in between them are owned
and operated by Sprint network partners. We believe that most, if not all, of
these companies have incurred substantial debt to pay the large cost of
building out their networks. Two of these companies have filed petitions
seeking reorganization under Chapter 11 of the Bankruptcy Code.

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

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

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

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

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

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

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

Risks Particular to Our Industry

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

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

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

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

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

Sprint and its network partners, including AirGate, have committed significant
resources to wireless data services and our business plan assumes increasing
uptake in such services. That demand may not materialize. Even if such demand
does develop, our ability to deploy and deliver wireless data services relies,
in many instances, on new and unproven technology. Existing technology may not
perform as expected. We may not be able to obtain new technology to effectively
and economically deliver these services.

The success of wireless data services is substantially dependent on the ability
of Sprint and others to develop applications for wireless data devices and to
develop and manufacture devices that support wireless applications. These
applications or devices may not be developed or developed in sufficient
quantities to support the deployment of wireless data services. These services
may not be widely introduced and fully implemented at all or in a timely
fashion. These services may not be successful when they are in place, and
customers may not purchase the services offered.

Consumer needs for wireless data services may be met by technologies such as
802.11, known as wi-fi, which does not rely on FCC regulated spectrum. The lack
of standardization across wireless data handsets may contribute to customer
confusion, which

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could slow acceptance of wireless data services, or increase customer care
costs. Either could adversely affect our ability to provide these services
profitably. If these services are not successful or costs associated with
implementation and completion of the rollout of these services materially
exceed our current estimates, our financial condition and prospects cold be
materially adversely affected.

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

The wireless communications industry is experiencing significant technological
change, as evidenced by



| |  |  | the increasing pace of digital upgrades in existing analog wireless
systems,
| | - |  | ----------------------------------------------------------------------------



| |  |  | evolving industry standards,
| | - |  | ----------------------------



| |  |  | ongoing improvements in the capacity and quality of digital
technology,
| | - |  | -----------------------------------------------------------------------



| |  |  | shorter development cycles for new products and
| | - |  | -----------------------------------------------



| |  |  | enhancements and changes in end-user requirements and preferences.
| | - |  | ------------------------------------------------------------------

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

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

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

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

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

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

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

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.

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

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

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

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

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

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




ITEM 2.Properties

As of September 30, 2003, our properties were as follows:



| |  |  | Corporate offices. Our principal executive offices consist of leased
office space located in Atlanta, Georgia. AirGate also leases office space
in Charleston, Columbia and Greenville, South Carolina and Asheville, North
Carolina.
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Sprint PCS stores. As of September 30, 2003, AirGate leased space for 33
retail stores in its territory.
| |  |  | --------------------------------------------------------------------------------------------------------



| |  |  | Switching Centers. AirGate leases switching centers in Greenville, South
Carolina and Columbia, South Carolina.
| |  |  | ---------------------------------------------------------------------------------------------------------------



| |  |  | Cell Sites. AirGate leases space on approximately 800 cell site towers
and owns 1 tower. AirGate co-locates on approximately 99% of its cell
sites.
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------

We believe our facilities are in good operating condition and are currently
suitable and adequate for our business operations.




ITEM 3.Legal Proceedings

In May 2002, putative class action complaints were filed in the United States
District Court for the Northern District of Georgia against AirGate PCS, Inc.,
Thomas M. Dougherty, Barbara L. Blackford, Alan B. Catherall, Credit Suisse
First Boston, Lehman Brothers, UBS Warburg LLC, William Blair & Company, Thomas
Wiesel Partners LLC and TD Securities. The complaints do not specify an amount
or range of damages that the plaintiffs are seeking. The complaints seek class
certification and allege that the prospectus used in connection with the
secondary offering of Company stock by certain former iPCS shareholders on
December 18, 2001 contained materially false and misleading statements and
omitted material information necessary to make the statements in the prospectus
not false and misleading. The alleged omissions included (i) failure to
disclose that in order to complete an effective integration of iPCS, drastic
changes would have to be made to the Companys distribution channels, (ii)
failure to disclose that the sales force in the acquired iPCS markets would
require extensive restructuring and (iii) failure to disclose that the churn
or turnover rate for subscribers would increase as a result of an increase in
the amount of sub-prime credit quality subscribers the Company added from its
merger with iPCS. On July 15, 2002, certain plaintiffs and their counsel filed
a motion seeking appointment as lead plaintiffs and lead counsel.
Subsequently, the court denied this motion without prejudice and two of the
plaintiffs and their counsel filed a renewed motion seeking appointment as lead
plaintiffs and lead

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counsel. On September 12, 2003, the court again denied that motion without
prejudice and on December 2, 2003, certain plaintiffs and their counsel filed
a modified renewed motion.

While there is no pending litigation with Sprint, we have a variety of disputes
with Sprint which are described under Item 7.  Related Party Transactions and
Transactions Between AirGate and Sprint  Transactions with Sprint.

We are also subject to a variety of other claims and suits that arise from time
to time in the ordinary course of business.

While management currently believes that resolving all of these matters,
individually or in the aggregate, will not have a material adverse impact on
our liquidity, financial condition or results of operations, the litigation and
other claims noted above are subject to inherent uncertainties and managements
view may change in the future. If an unfavorable outcome were to occur, there
exists the possibility of a material adverse impact on our liquidity, financial
condition and results of operation for the period in which the effect becomes
reasonably estimable.




ITEM 4.Submission Of Matters To A Vote Of Security Holders

None.




PART II




ITEM 5.Market For Registrants Common Equity And Related Stockholder Matters

Shares of our common stock began trading on The Nasdaq National Market on
September 28, 1999, under the symbol PCSA. Before that date, there was no
public market for our common stock. Beginning on April 8, 2003, after being
de-listed from The Nasdaq National Market, our common stock began trading on
the OTC Bulletin Board under the symbol PCSA.OB. On December 11, 2003, the
last reported bid price per share of AirGates common stock on the OTC Bulletin
Board was $1.77. On December 11, 2003, there were 202 holders of record of
our common stock.

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

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


AirGate has never declared or paid any cash dividends on its common stock or
any other of its securities. AirGate intends to retain any future earnings for
use in its business and does not anticipate paying cash dividends in the
foreseeable future. In addition, our credit facility and the indenture
governing our notes severely limit our ability to declare dividends.

51



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ITEM 6.Selected Financial Data

The selected financial data presented below under the captions Statement of
Operations Data, Statement of Cash Flow Data and Balance Sheet Data as of
and for each of the years ended September 30, 2003, 2002, 2001 and 2000, and
the nine months ended September 30, 1999 are derived from the consolidated
financial statements of AirGate PCS, Inc. and subsidiaries, which consolidated
financial statements have been audited by KPMG LLP, independent auditors. The
consolidated financial statements as of September 30, 2003 and 2002, and for
each of the years in the three-year period ended September 30, 2003, and the
report thereon, are included elsewhere in this report.

For the NineMonthsFor the Year Ended
    
    EndedSeptember 30,
    
    September 30,2003(2)
    
    2002(1)
    
    2001
    
    2000
    
    1999Consolidated Statements of Operations Data:
    
    
    
    
    
    (In thousands except per share and subscriber data)Revenues:Service revenue
    
    $
    309,377
    
    
    $
    327,365
    
    
    $
    105,976
    
    
    $
    9,746
    
    
    $
    Roaming revenue
    
    
    86,672
    
    
    
    111,162
    
    
    
    55,329
    
    
    
    12,338
    
    
    
    Equipment revenue
    
    
    13,988
    
    
    
    18,030
    
    
    
    10,782
    
    
    
    2,981
    
    
    
    Total revenues
    
    
    410,037
    
    
    
    456,557
    
    
    
    172,087
    
    
    
    25,065
    
    
    
    Operating expenses:Cost of services and roaming (exclusive of depreciation and
amortization as shown separately below)
    
    
    243,191
    
    
    
    311,303
    
    
    
    116,909
    
    
    
    27,993
    
    
    
    Cost of equipment
    
    
    28,419
    
    
    
    43,592
    
    
    
    20,218
    
    
    
    5,685
    
    
    
    Selling and marketing
    
    
    68,186
    
    
    
    116,610
    
    
    
    71,706
    
    
    
    28,539
    
    
    
    General and administrative
    
    
    30,228
    
    
    
    25,851
    
    
    
    17,141
    
    
    
    15,338
    
    
    
    5,619Depreciation and amortization
    
    
    60,662
    
    
    
    70,197
    
    
    
    30,621
    
    
    
    12,034
    
    
    
    622Amortization of intangible assets
    
    
    6,821
    
    
    
    39,332
    
    
    
    46
    
    
    
    
    
    
    
    Loss on disposal of property and equipment
    
    
    1,969
    
    
    
    1,074
    
    
    
    
    
    
    
    
    
    
    
    Impairment of goodwill(3)
    
    
    
    
    
    
    460,920
    
    
    
    
    
    
    
    
    
    
    
    Impairment of property and equipment (3)
    
    
    
    
    
    
    44,450
    
    
    
    
    
    
    
    
    
    
    
    Impairment of intangible assets (3)
    
    
    
    
    
    
    312,043
    
    
    
    
    
    
    
    
    
    
    
    Total operating expenses
    
    
    439,476
    
    
    
    1,425,372
    
    
    
    256,641
    
    
    
    89,589
    
    
    
    6,241Operating loss
    
    
    (29,439
    )
    
    
    (968,815
    )
    
    
    (84,554
    )
    
    
    (64,524
    )
    
    
    (6,241
    )Interest income
    
    
    229
    
    
    
    590
    
    
    
    2,463
    
    
    
    9,321
    
    
    
    Interest expense
    
    
    (55,547
    )
    
    
    (57,153
    )
    
    
    (28,899
    )
    
    
    (26,120
    )
    
    
    (9,358
    )Income tax benefit
    
    
    
    
    
    
    28,761
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    $
    (84,757
    )
    
    $
    (996,617
    )
    
    $
    (110,990
    )
    
    $
    (81,323
    )
    
    $
    (15,599
    )Basic and diluted net loss per share of common stock
    
    $
    (3.27
    )
    
    $
    (41.96
    )
    
    $
    (8.48
    )
    
    $
    (6.60
    )
    
    $
    (4.57
    )Basic and diluted weighted-average outstanding
common shares
    
    
    25,908,414
    
    
    
    23,751,507
    
    
    
    13,089,285
    
    
    
    12,329,149
    
    
    
    3,414,276Consolidated Other Data:Number of subscribers at end of period
    
    
    359,460
    
    
    
    554,833
    
    
    
    235,025
    
    
    
    56,689
    
    
    
    Consolidated Statements of Cash Flows Data:Cash provided by (used in) operating activities
    
    $
    42,548
    
    
    $
    (45,242
    )
    
    $
    (40,850
    )
    
    $
    (41,609
    )
    
    $
    (2,473
    )Cash used in investing activities
    
    
    (35,975
    )
    
    
    (78,716
    )
    
    
    (71,772
    )
    
    
    (152,397
    )
    
    
    (15,706
    )Cash provided by (used in) financing activities
    
    
    15,030
    
    
    
    142,143
    
    
    
    68,528
    
    
    
    (6,510
    )
    
    
    274,783


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As ofSeptember 30,2003(2)
    
    2002(1)
    
    2001
    
    2000
    
    1999Consolidated Balance Sheet Data (at period end):
    
    
    
    
    
    
    
    
    
    (In Thousands)Cash and cash equivalents
    
    $
    54,078
    
    
    $
    32,475
    
    
    $
    14,290
    
    
    $
    58,384
    
    
    $
    258,900Total current assets
    
    
    101,265
    
    
    
    129,773
    
    
    
    56,446
    
    
    
    74,315
    
    
    
    261,247Property and equipment, net
    
    
    178,070
    
    
    
    399,155
    
    
    
    209,326
    
    
    
    183,581
    
    
    
    44,206Total assets
    
    
    290,916
    
    
    
    574,294
    
    
    
    281,010
    
    
    
    268,948
    
    
    
    317,320Total current liabilities (4)
    
    
    88,747
    
    
    
    494,173
    
    
    
    61,998
    
    
    
    37,677
    
    
    
    31,507Long-term debt and capital lease obligations
    
    
    386,509
    
    
    
    354,828
    
    
    
    266,326
    
    
    
    180,727
    
    
    
    165,667Total liabilities (5)
    
    
    667,913
    
    
    
    867,241
    
    
    
    333,734
    
    
    
    219,075
    
    
    
    189,474Stockholders equity (deficit)
    
    
    (376,997
    )
    
    
    (292,947
    )
    
    
    (52,724
    )
    
    
    49,873
    
    
    
    127,846




|(1) |  | On November 30, 2001, AirGate acquired iPCS, Inc. (together with its
subsidiaries iPCS). The accounts of iPCS are included as of September
30, 2002 and the results of operations subsequent to November 30, 2001.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) |  | On February 23, 2003, iPCS filed for Chapter 11 bankruptcy protection.
Prior to February 23, 2003, the accounts and results of operations of iPCS
were consolidated. Subsequent to filing bankruptcy, iPCS is no longer
consolidated and is accounted for on the cost basis. On October 17, 2003,
AirGate irrevocably transferred all of its shares of iPCS common stock to
a trust organized under Delaware law. As of the date of the transfer, the
disposition will be accounted for as a discontinued operation and the
iPCS investment (approximately $184 million credit balance
carrying amount) will be eliminated and recorded as a non-monetary
gain from disposition of discontinuing operations.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) |  | As a result of the Companys fair value assessments, total impairment
charges of $817.4 million were recorded for the impairment of goodwill and
tangible and intangible assets related to iPCS for the year ended
September 30, 2002.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) |  | As a result of an event of default, the iPCS credit facility and iPCS
notes have been classified as a current liability as of September 30,
2002.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------



|(5) |  | As of September 30, 2003 includes the investment in iPCS of $184.1
million accounted for on the cost basis.
|--- |  | -----------------------------------------------------------------------------------------------------------




ITEM 7.Managements Discussion And Analysis Of Financial Condition And Results Of Operations

This Managements Discussion and Analysis of Results of Operations and
Financial Condition (MD&A) contains forward looking statements that are based
on current expectations, estimates, forecasts and projections about us, our
future performance, our liquidity, the wireless industry, our beliefs and
managements assumptions. In addition, other written and oral statements that
constitute forward looking statements may be made by us or on our behalf. Such
forward looking statements include statements regarding expected financial
results and other planned events, including but not limited to, anticipated
liquidity, churn rates, ARPU, CPGA and CCPU (all as defined in Non-GAAP
Financial Measures and Key Operating Metrics), roaming rates, EBITDA (as
defined in Non-GAAP Financial Measures and Key Operating Metrics), and
capital expenditures. Words such as anticipate, assume, believe,
estimate, expect, intend, plan, seek, project, target, goal,
variations of such words and similar expressions are intended to identify such
forward-looking statements. These statements are not guarantees of future
performance and involve certain risks, uncertainties and assumptions that are
difficult to predict. Therefore, actual future events or results may differ
materially from these statements. These risks and uncertainties include:



| |  |  | our ability to consummate the restructuring;
| | - |  | --------------------------------------------



| |  |  | the impact of a prepackaged or other plan of reorganization for AirGate;
| | - |  | ------------------------------------------------------------------------



| |  |  | our dependence on the success of Sprints wireless business;
| | - |  | ------------------------------------------------------------



| |  |  | the competitiveness and impact of Sprints pricing plans and PCS products and services;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | intense competition in the wireless market and the unsettled nature of the wireless market;
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | the potential to experience a continued high rate of subscriber turnover;
| | - |  | -------------------------------------------------------------------------



| |  |  | the ability of Sprint to provide back office billing, subscriber care
and other services and the quality and costs of such services or,
alternatively, our ability to outsource all or a portion of these
services at acceptable costs and the quality of such services;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | subscriber credit quality;
| | - |  | --------------------------



| |  |  | the ability to successfully leverage 3G products and services;
| | - |  | --------------------------------------------------------------



| |  |  | inaccuracies in financial information provided by Sprint;
| | - |  | ---------------------------------------------------------



| |  |  | new charges and fees, or increased charges and fees, imposed by Sprint;
| | - |  | -----------------------------------------------------------------------



| |  |  | the impact and outcome of disputes with Sprint;
| | - |  | -----------------------------------------------



| |  |  | our ability to predict future customer growth, as well as other key operating metrics;
| | - |  | --------------------------------------------------------------------------------------



| |  |  | the impact of spending cuts on network quality, customer retention and customer growth;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | rates of penetration in the wireless industry;
| | - |  | ----------------------------------------------



| |  |  | our significant level of indebtedness and debt covenant requirements;
| | - |  | ---------------------------------------------------------------------



| |  |  | the impact and outcome of legal proceedings between other Sprint network partners and Sprint;
| | - |  | ---------------------------------------------------------------------------------------------

53



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##### Table of Contents





| |  |  | the potential need for additional sources of capital and liquidity;
| | - |  | -------------------------------------------------------------------



| |  |  | risks related to our ability to compete with larger, more established businesses;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | rapid technological and market change;
| | - |  | --------------------------------------



| |  |  | an adequate supply of subscriber equipment;
| | - |  | -------------------------------------------



| |  |  | the current economic slowdown; and
| | - |  | ----------------------------------



| |  |  | the volatility of the market price of our common stock.
| | - |  | -------------------------------------------------------

These forward looking statements involve a number of risks and uncertainties
that could cause actual results to differ materially from those suggested by
the forward looking statements. Forward looking statements should, therefore,
be considered in light of various factors, including those set forth in this
annual report on Form 10-K under the captions Future Trends That May Affect
Operating Results, Liquidity and Capital Resources included in this Item 7.
Managements Discussion and Analysis of Financial Condition and Results of
Operations and Risk Factors included under Item 1. Business and elsewhere
in this report. Moreover, we caution you not to place undue reliance on these
forward-looking statements, which speak only as of the date they were made. We
do not undertake any obligation to publicly release any revisions to these
forward-looking statements to reflect events or circumstances after the date of
this report or to reflect the occurrence of unanticipated events. All
subsequent forward-looking statements attributable to us or any person acting
on our behalf are expressly qualified in their entirety by the cautionary
statements contained or referred to in this report.

Overview

On July 22, 1998, AirGate entered into management and related agreements with
Sprint whereby it became the network partner of Sprint with the right to
provide 100% digital PCS products and services under the Sprint brand names in
AirGates territory in the southeastern United States. In January 2000,
AirGate began commercial operations with the launch of four markets covering
2.2 million residents in AirGates territory. By September 30, 2000, AirGate
had launched commercial PCS service in all 21 of its markets. On September 30,
2003, AirGate had 359,460 subscribers and total network coverage of
approximately 6.1 million residents or 83% of the 7.4 million residents in its
territory.

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

On November 30, 2001, AirGate acquired iPCS, a network partner of Sprint with
37 markets in the midwestern states of Michigan, Illinois, Iowa and Nebraska.
The acquisition of iPCS increased the total resident population in the
Companys markets from approximately 7.1 million to approximately 14.5 million.
On February 23, 2003, iPCS filed a Chapter 11 bankruptcy petition in the United
States Bankruptcy Court for the Northern District of Georgia for the purpose of
effecting a court-administered reorganization. In connection with the financial
restructuring described elsewhere in this report, on October 17, 2003, we
transferred our shares of iPCS common stock to a trust organized under Delaware
law for the benefit of our stockholders.

CRITICAL ACCOUNTING POLICIES

The Company relies on the use of estimates and makes assumptions that impact
its financial condition and results. These estimates and assumptions are based
on historical results and trends as well as the Companys forecasts as to how
these might change in the future. The Companys critical accounting policies
that may materially impact the Companys results of operations include (See
Footnote 3  Summary of Significant Accounting Policies):

Accounting for iPCS

The accounts and results of iPCS are consolidated with AirGate and are included
in the Companys consolidated financial statements subsequent to November 30,
2001 and prior to February 23, 2003.

Subsequent to February 23, 2003, the date iPCS filed for bankruptcy, the
Company no longer consolidates the accounts and results of iPCS. The Company
follows the accounting literature of Statement of Financial Accounting
Standards (SFAS) No. 94 Consolidation of All Majority-Owned Subsidiaries
and Accounting Research Bulletin (ARB) No. 51 Consolidated Financial
Statements, when control of a majority-owned subsidiary did not rest with the
majority owners (as, for instance, where the subsidiary is in legal
reorganization or in bankruptcy), ARB No. 51 precludes consolidation of the
majority-owned subsidiary.

54



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The Company records the accounts of iPCS using the cost method of accounting
subsequent to February 23, 2003. After iPCS filed for bankruptcy, the Company
does not have the ability to exercise significant influence over the operations
of iPCS. The carrying value of the iPCS investment is reported in long term
liabilities on the balance sheet.

On October 17, 2003, AirGate
irrevocably transferred all of its shares of iPCS common stock to a
trust for the benefit of AirGate shareholders. As of the date of the
transfer to the trust, the iPCS investment (approximately
$184 million credit balance carrying amount) will be eliminated
and recorded as a non-monetary gain from disposition of discontinuing
operations.

Allowance for Doubtful Accounts

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

Using historical information the Company provides a reduction in revenues for
certain billing adjustments, late payment fees and early cancellation fees that
it anticipates will not be collectible. The reserve for billing adjustments,
late payment fees and early cancellation fees are included in the allowance for
doubtful accounts balance. If the allowance for doubtful accounts is not
adequate, it could have a material adverse affect on the Companys liquidity,
financial position and results of operations.

First Payment Default Subscribers

Prior to March 2003, the Company estimated the percentage of new subscribers
that would never pay a bill and reserved for the related percentage of monthly
revenue through a reduction in revenues. In 2002, the Company reinstated the
deposit requirement for sub-prime credit customers, and increased the deposit
amount in February 2003. The Company believes that the re-imposition of and
increase in deposit requirements and the continuation of spending limits for
sub-prime credit customers are sufficient to mitigate the collection risk.
Additionally, the Company has experienced improvements in the credit quality of
its subscriber base. Accordingly, in March 2003 the Company ceased recording
this reserve. At September 30, 2002, there was approximately $1.3 million
reserved for 7,126 first payment default subscribers.

Revenue Recognition

The Company recognizes revenue when persuasive evidence of an arrangement
exists, services have been rendered or products have been delivered, the price
to the buyer is fixed and determinable, and collectibility is reasonably
assured. Effective July 1, 2003 the Company adopted Emerging Issues Task Force
(EITF) No. 00-21, Accounting for Revenue Arrangements with Multiple Element
Deliverables. The EITF guidance addresses how to account for arrangements that
may involve multiple revenue-generating activities, i.e., the delivery or
performance of multiple products, services, and/or rights to use assets. In
applying this guidance, separate contracts with the same party, entered into at
or near the same time, will be presumed to be a bundled transaction, and the
consideration will be measured and allocated to the separate units based on
their relative fair values. The consensus guidance is applicable to agreements
entered into for quarters beginning after June 15, 2003. The adoption of 00-21
has required evaluation of each arrangement entered into by the Company for
each sales channel. The Company will continue to monitor arrangements with its
sales channels to determine if any changes in revenue recognition would need to
be made in the future. The adoption of EITF 00-21 has resulted in
substantially all of the activation fee revenue generated from Company-owned
retail stores and associated costs being recognized at the time the related
wireless handset is sold and it is classified as equipment revenue and cost of
equipment, respectively. Upon adoption of EITF 00-21, previously deferred
revenues and costs will continue to be amortized over the remaining estimated
life of a subscriber, not to exceed 30 months. Revenue and costs for
activations at other retail locations will continue to be deferred and
amortized over their estimated lives. The adoption of EITF 00-21 had the
effect of increasing equipment revenue by $0.4 million and increasing costs of
equipment by $0.3 million, which otherwise would have been deferred and
amortized.

Impairment of Long-Lived and Intangible Assets

The Company accounts for long-lived assets and goodwill in accordance with the
provisions of Statement of Financial Accounting Standards (SFAS) No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets and SFAS No.
142, Goodwill and Other Intangible Assets. SFAS No. 144 requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an
asset to future 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. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell the asset.
SFAS No. 142 requires annual tests for impairment of goodwill and intangible
assets that have indefinite useful lives and interim tests when an event has
occurred that more likely than not has reduced the fair value of such assets.
The Company no longer has any

55



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assets recorded subject to SFAS 142 impairment testing. As of September 30,
2002, the Company recorded substantial write-offs of long lived assets and
goodwill relating to its iPCS subsidiary (see Notes 2 and 11).

NEW ACCOUNTING PRONOUNCEMENTS

See note 3 to the consolidated financial statements for the years ended
September 30, 2003, 2002 and 2001 for a description of new accounting
pronouncements and their impact on the Company.

Results of Operations

On November 30, 2001, AirGate acquired iPCS, Inc. (together with its
subsidiaries, iPCS). Subsequent to November 30, 2001, the results of
operations and accounts of iPCS were consolidated with the Company in
accordance with generally accepted accounting principles. On February 23,
2003, iPCS filed a Chapter 11 bankruptcy petition in the United States
Bankruptcy Court for the Northern District of Georgia for the purpose of
effecting a court-administered reorganization. Subsequent to February 23,
2003, the Company no longer consolidated the accounts and results of operations
of iPCS and the accounts of iPCS were recorded as an investment using the cost
method of accounting. On October 17, 2003, AirGate irrevocably transferred all
of its shares of iPCS common stock to a trust organized under Delaware law. As
of the date of the transfer, iPCS will be accounted for as a discontinued
operation and the iPCS investment (approximately $184 million credit
balance carrying amount) will be eliminated and recorded as a
non-monetary gain from disposition of discontinuing operations.

The comparability of the Companys results for the year ended September 30,
2003 to the same period for 2002 are effected by the exclusion of the results
of iPCS for the periods prior to November 30, 2001 and after February 23, 2003.
As a result and in addition to the other factors described below for AirGate,
the exclusion of iPCS results after February 23, 2003 has the effect of
lowering revenues and expenses in the year ended September 30, 2003 compared to
the same period in 2002, which is partially offset by the exclusion of results
for iPCS prior to November 30, 2001. The Company has pushed down to iPCS the
effects of purchase accounting related to the iPCS acquisition.

For the year ended September 30, 2003 compared to the year ended September 30,
2002:

Revenues

Year Ended September 30,(in thousands)2003
    
    
    
    2002AirGate
    
    iPCS
    
    Elimination
    
    Combined
    
    AirGate
    
    iPCS
    
    Elimination
    
    CombinedService revenue
    
    $
    251,481
    
    
    $
    57,896
    
    
    $
    
    
    
    $
    309,377
    
    
    $
    226,504
    
    
    $
    100,861
    
    
    $
    
    
    
    $
    327,365Roaming revenue
    
    
    68,222
    
    
    
    18,893
    
    
    
    (443
    )
    
    
    86,672
    
    
    
    74,013
    
    
    
    37,923
    
    
    
    (774
    )
    
    
    111,162Equipment revenue
    
    
    11,645
    
    
    
    2,575
    
    
    
    (232
    )
    
    
    13,988
    
    
    
    13,027
    
    
    
    5,296
    
    
    
    (293
    )
    
    
    18,030Total
    
    $
    331,348
    
    
    $
    79,364
    
    
    $
    (675
    )
    
    $
    410,037
    
    
    $
    313,544
    
    
    $
    144,080
    
    
    $
    (1,067
    )
    
    $
    456,557


We derive our revenue from the following sources:



| |  |  | Service.We sell wireless personal communications services. The various
types of service revenue associated with wireless communications services
include monthly recurring access and feature charges and monthly
non-recurring charges for local, wireless long distance and roaming
airtime usage in excess of the subscribed usage plan.
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Roaming.The Company receives roaming revenue at a per-minute rate from
Sprint and other Sprint PCS network partners when Sprints or its network
partners PCS subscribers from outside of the Companys territory use the
Companys network. The Company pays the same reciprocal roaming rate when
subscribers from our territory use the network of Sprint or its other PCS
network partners. The Company also receives non-Sprint roaming revenue
when subscribers of other wireless service providers who have roaming
agreements with Sprint roam on the Companys network.
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Equipment.We sell wireless personal communications handsets and
accessories that are used by our subscribers in connection with our
wireless services. Equipment revenue is derived from the sale of handsets
and accessories from Company owned stores, net of sales incentives,
rebates and an allowance for returns. The Companys handset return policy
allows subscribers to return their handsets for a full refund within 14
days of purchase. When handsets are returned to the Company, the Company
may be able to reissue the handsets to subscribers at little additional
cost.
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Service Revenue.Service revenue was $309.4 million for the year ended
September 30, 2003, compared to $327.4 million for the year ended September 30,
2002, a decrease of $18.0 million. For AirGate, service revenue was $251.5
million for the year ended September 30, 2003 compared to $226.5 million for
the year ended September 30, 2002, an increase of $25.0 million. The increase
in service revenue attributable to AirGate reflects the higher average number
of subscribers using the Companys network, partially offset by lower minute
over plan overage charges. The decrease in Company service revenue is
primarily attributable to the shorter period of iPCS results of operation
included in the year ended September 30, 2003 compared to the year ended
September 30, 2002.

Roaming Revenue.The Company recorded roaming revenue of $86.7 million for the
year ended September 30, 2003, compared to $111.2 million for the year ended
September 30, 2002, a decrease of $24.5 million. For AirGate, roaming revenue
was $68.2

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million for the year ended September 30, 2003, compared to $74.0 million for
the year ended September 30, 2002. For the year ended September 30, 2003,
approximately 94% of AirGate roaming revenue was from Sprint PCS and Sprint PCS
network partners, compared to 94% for the year ended September 30, 2002.

While the roaming minutes of use increased for the year ended September 30,
2003 over the prior year, the increase was more than offset by decreases in the
price per minute, which is primarily attributable to the declines in the
reciprocal roaming rate among Sprint and its PCS network partners, including
the Company. Sprint has unilaterally decreased this rate over time, from $0.20
per minute of use prior to June 1, 2001, to $0.10 per minute of use through
calendar year 2002 to $0.058 per minute of use in 2003. See Sprint
Relationship and Agreements The Management AgreementsService pricing, roaming
and fees.

Equipment Revenue.The Company recorded equipment revenue of $14.0 million for
the year ended September 30, 2003, compared to $18.0 million for the year ended
September 30, 2002, a decrease of $4.0 million. For AirGate, equipment revenue
was $11.6 million for the year ended September 30, 2003, compared to $13.0
million for the year ended September 30, 2002. The reduction in AirGate
equipment revenue is primarily attributable to the reduced AirGate subscriber
gross additions during the year ended September 30, 2003 compared to the year
ended September 30, 2002. For the Company, equipment revenue also decreased as
a result of the shorter period of iPCS results of operations included for the
year ended September 30, 2003 compared to the year ended September 30, 2002.

Cost of Service and Roaming

Year Ended September 30,(in thousands)2003
    
    
    
    
    
    
    
    2002AirGate
    
    iPCS
    
    Elimination
    
    Combined
    
    AirGate
    
    iPCS
    
    Elimination
    
    CombinedRoaming expense
    
    $
    53,708
    
    
    $
    13,674
    
    
    $
    (443
    )
    
    $
    66,939
    
    
    $
    57,689
    
    
    $
    28,617
    
    
    $
    (774
    )
    
    $
    85,532Network operating costs
    
    
    43,750
    
    
    
    16,170
    
    
    
    
    
    
    
    59,920
    
    
    
    48,328
    
    
    
    37,672
    
    
    
    
    
    
    
    86,000Bad debt expense
    
    
    5,218
    
    
    
    1,694
    
    
    
    
    
    
    
    6,912
    
    
    
    21,343
    
    
    
    5,590
    
    
    
    
    
    
    
    26,933Wireless handset upgrades
    
    
    6,046
    
    
    
    1,788
    
    
    
    
    
    
    
    7,834
    
    
    
    3,136
    
    
    
    1,712
    
    
    
    
    
    
    
    4,848Other cost of service
    
    
    78,643
    
    
    
    22,943
    
    
    
    
    
    
    
    101,586
    
    
    
    73,657
    
    
    
    34,333
    
    
    
    
    
    
    
    107,990Total cost of service and roaming
    
    $
    187,365
    
    
    $
    56,269
    
    
    $
    (443
    )
    
    $
    243,191
    
    
    $
    204,153
    
    
    $
    107,924
    
    
    $
    (774
    )
    
    $
    311,303


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



| |  |  | Roaming expense,
| | - |  | ----------------



| |  |  | Network operating costs (including salaries, cell site lease
payments, fees related to the connection of the Companys switches to
the cell sites that they support, inter-connect fees and other expenses
related to network operations),
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Bad debt related to estimated uncollectible accounts receivable,
| | - |  | ----------------------------------------------------------------



| |  |  | Wireless handset subsidies on existing subscriber upgrades through national third-party retailers, and
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | Other cost of service includes:
| | - |  | -------------------------------



| |  |  | Back office services provided by Sprint 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 the Companys own subscribers long distance usage and roaming
expense when subscribers from the Companys territory place calls
on Sprints network.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Cost of service and roaming was $243.2 million for the year ended September 30,
2003, compared to $311.3 million for the year ended September 30, 2002, a
decrease of $68.1 million. For AirGate, the cost of service and roaming was
$187.4 million for the year ended September 30, 2003, compared to $204.2
million for the year ended September 30, 2002. The decrease in the cost of
service and roaming for AirGate is attributable to reduced roaming and bad debt
expenses. For the Company, the decrease in cost of service and roaming is also
attributable to the shorter period of iPCS results of operations included for
the year ended September 30, 2003 compared to the year ended September 30,
2002.

Roaming expense was $66.9 million for the year ended September 30, 2003,
compared to $85.5 million for the year ended September 30, 2002, a decrease of
$18.6 million. For AirGate, roaming expense was $53.7 million for the year
ended September 30, 2003, compared to $57.7 million for the year ended
September 30, 2002. The decline in roaming expense is attributable to the
decrease in the reciprocal roaming rate paid to Sprint and its network
partners, partially offset by increased roaming minutes of use by our
subscribers. The increase in roaming minutes of use is due both to the growth
in the subscriber base as well as the general increase in usage per subscriber
year over year. For the Company, the decrease in roaming expense is also
attributable to the shorter period of iPCS results of operation included for
the year ended September 30, 2003, compared to the year ended September 30,
2002.

For the year ended September 30, 2003 approximately 95% of the AirGate roaming
expense was paid to Sprint PCS and Sprint PCS network partners, compared to 91%
for the year ended September 30, 2002.

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For the year ended September 30, 2003, network operating costs were $59.9
million compared to $86.0 million at September 30, 2002, a decrease of $26.1
million. For AirGate, network operating costs were $43.8 million for the year
ended September 30, 2003, compared to $48.3 million for the year ended
September 30, 2002. The decrease resulted from more favorable network
connectivity-related costs despite the growing AirGate subscriber base and
increased subscriber usage. The decrease for the Company was also attributable
to the shorter period of iPCS results of operations included for the year ended
September 30, 2003, compared to the year ended September 30, 2002. At
September 30, 2003, AirGates 359,460 subscribers were supported by a network
of approximately 800 active cell sites, 4 switches and 64 network operations
employees, compared to September 30, 2002, when the Companys network,
including the iPCS territory, consisted of approximately 1,433 active cell
sites (800 for AirGate and 633 for iPCS) and 7 switches (4 for AirGate and 3
for iPCS) and 144 employees (89 for AirGate and 55 for iPCS).

Bad debt expense included in the cost of service and roaming was $6.9 million
for the year ended September 30, 2003, compared to $26.9 million for the year
ended September 30, 2002, a decrease of $20.0 million. For AirGate, bad debt
expense was $5.2 million for the year ended September 30, 2003, compared to
$21.3 million for the year ended September 30, 2002. The AirGate decrease in
bad debt expense is attributable to the decrease in payment defaults resulting
from the re-imposition and increase of deposit requirements for sub-prime
credit customers and the improved credit quality of our customer base during
the 2003 fiscal year. The decrease for the Company was also attributable to
the shorter period of iPCS results of operations included for the year ended
September 30, 2003, compared to the year ended September 30, 2002.

Sprint has a program in which subscribers with lower quality credit or limited
credit history may nonetheless sign up for services subject to certain account
spending limits, if the subscriber makes a deposit ranging from $125 to $250.
In May 2001, Sprint introduced the NDASL Program, in which the deposit
requirement was waived except in very limited circumstances. The NDASL program
was replaced in late 2001 with the Clear Pay program. The Clear Pay program
re-instituted the deposit for only the lowest credit quality subscribers. The
NDASL and Clear Pay programs and their associated lack of general deposit
requirements increased the number of the Companys sub-prime credit
subscribers. In February 2002, Sprint allowed its network partners to
re-institute deposits in a program called the Clear Pay II program. The Clear
Pay II programs and its deposit requirements are currently in effect for all of
AirGates markets. In early February 2003, AirGate increased the deposit
threshold to $250 for most sub-prime customers.

The Company incurred approximately $7.8 million for wireless handset upgrade
costs through national third party retailers, business and Sprint sales
channels for the year ended September 30, 2003 compared to $4.8 million for the
year ended September 30, 2002. For AirGate, these costs were $6.0 million for
the year ended September 30, 2003, compared to $3.1 million for the year ended
September 30, 2002. The AirGate increase is attributable to the larger number
of subscribers upgrading handsets in these channels. For the Company, the
increase is partially offset by the shorter period of iPCS results of
operations included for the year ended September 30, 2003, compared to the year
ended September 30, 2002.

Other Cost of Service Expenses

The Company incurred $101.6 million for the year ended September 30, 2003 for
other cost of service expenses including long distance expenses, Sprint
affiliation fees and Sprint service fees to support its customer base, compared
to $108.0 million for the year ended September 30, 2002, a decrease of $6.4
million. For AirGate, these costs increased to $78.6 million for the year ended
September 30, 2003, compared to $73.7 million for the year ended September 30,
2002. The increase primarily reflects growth in the subscriber base from
339,139 as of September 30, 2002 to 359,460 as of September 30, 2003. For the
Company, the decrease was primarily attributable to the shorter period of iPCS
results of operations included for the year ended September 30, 2003, compared
to the year ended September 30, 2002.

Cost of Equipment; Other Operating Expenses and Interest

Year Ended September 30,(in thousands)2003
    
    
    
    2002AirGate
    
    iPCS
    
    Elimination
    
    Combined
    
    AirGate
    
    iPCS
    
    Elimination
    
    CombinedCost of equipment
    
    $
    21,522
    
    
    $
    7,129
    
    
    
    (232
    )
    
    $
    28,419
    
    
    $
    27,778
    
    
    $
    16,107
    
    
    
    (293
    )
    
    $
    43,592Selling and marketing
    
    
    51,769
    
    
    
    16,417
    
    
    
    
    
    
    
    68,186
    
    
    
    79,099
    
    
    
    37,511
    
    
    
    
    
    
    
    116,610General and administrative
    
    
    23,347
    
    
    
    6,881
    
    
    
    
    
    
    
    30,228
    
    
    
    18,143
    
    
    
    7,708
    
    
    
    
    
    
    
    25,851Depreciation and
amortization
    
    
    46,494
    
    
    
    14,168
    
    
    
    
    
    
    
    60,662
    
    
    
    40,678
    
    
    
    29,519
    
    
    
    
    
    
    
    70,197Amortization of
intangible assets
    
    
    
    
    
    
    6,821
    
    
    
    
    
    
    
    6,821
    
    
    
    86
    
    
    
    39,246
    
    
    
    
    
    
    
    39,332Loss on disposal of
property and equipment
    
    
    518
    
    
    
    1,451
    
    
    
    
    
    
    
    1,969
    
    
    
    1,074
    
    
    
    
    
    
    
    
    
    
    
    1,074Impairment of goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    460,920
    
    
    
    
    
    
    
    460,920Impairment of property
and equipment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44,450
    
    
    
    
    
    
    
    44,450Impairment of intangible
assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    312,043
    
    
    
    
    
    
    
    312,043Interest Income
    
    
    (187
    )
    
    
    (42
    )
    
    
    
    
    
    
    (229
    )
    
    
    (161
    )
    
    
    (429
    )
    
    
    
    
    
    
    (590
    )Interest Expense
    
    
    42,706
    
    
    
    12,841
    
    
    
    
    
    
    
    55,547
    
    
    
    35,474
    
    
    
    21,679
    
    
    
    
    
    
    
    57,153


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Cost of Equipment

We purchase handsets and accessories to resell to our subscribers for use in
connection with our services. Because we subsidize the sale of handsets to
remain competitive in the marketplace, the cost of handsets is higher than the
resale price to the subscriber. Cost of equipment was $28.4 million for the
year ended September 30, 2003, and $43.6 million for year ended September 30,
2002, a decrease of $15.2 million. For AirGate, cost of equipment was $21.5
million for the year ended September 30, 2003, compared to $27.8 million for
the year ended September 30, 2002. This decrease is attributable to the
reduction in the number of subscribers added during the period. The decrease
for the Company was also attributable to the shorter period of iPCS results of
operations included for the year ended September 30, 2003, compared to the year
ended September 30, 2002.

Selling and Marketing

Selling and marketing expense includes retail store costs such as salaries and
rent, promotion, advertising and commission costs, and handset subsidies on
units sold by national third-party retailers, the Companys business sales
channel and Sprint sales channels for which the Company does not record
revenue. Under our agreements with Sprint, when a national retailer or other
Sprint distribution channel sells a handset purchased from Sprint to a
subscriber from the Companys territory, the Company is obligated to reimburse
Sprint for the handset subsidy and related costs that Sprint originally
incurred. The Company incurred selling and marketing expense of $68.2 million
for the year ended September 30, 2003, compared to $116.6 million for the year
ended September 30, 2002, a decrease of $48.4 million. For AirGate, selling
and marketing expense was $51.8 million for the year ended September 30, 2003,
compared to $79.1 million for the year ended September 30, 2002. The decrease
reflects reduced gross subscriber additions, 55 staff reductions, 9 store
closings, and reduced advertising and promotion expenses, partially offset by
severance and similar costs. The decrease for the Company was also
attributable to the shorter period of iPCS results of operations included for
the year ended September 30, 2003, compared to the year ended September 30,
2002.

At September 30, 2003, there were approximately 343 AirGate employees
performing sales and marketing functions, compared to 710 sales and marketing
employees as of September 30, 2002 (480 for AirGate and 230 for iPCS). The
decrease in employees reflects the deconsolidation of iPCS and AirGate staff
reductions.

General and Administrative

For the year ended September 30, 2003, the Company incurred general and
administrative expense of $30.2 million, compared to $25.9 million for the year
ended September 30, 2002, an increase of $4.3 million. For AirGate, general
and administrative expense was $23.3 million for the year ended September 30,
2003, compared to $18.1 million for the year ended September 30, 2002. This
increase reflects increased spending for costs associated with the proposed
recapitalization plan of $3.0 million, outside consultants providing services
to AirGate to help identify cost saving opportunities, costs associated with
migrating the accounting function to Atlanta, Georgia from Geneseo, Illinois,
and the reduction in iPCS payments for these expenses.

Depreciation and Amortization

We capitalize network development costs incurred to ready our network for use
and costs to build-out our retail stores and office space. Depreciation of
these costs begins when the equipment is ready for its intended use and is
amortized over the estimated useful life of the asset. For the year ended
September 30, 2003, depreciation decreased to $60.7 million, compared to $70.2
million for the year ended September 30, 2002, a reduction of $9.5 million.
For AirGate, depreciation expense was $46.5 million for the year ended
September 30, 2003, compared to $40.7 million for the year ended September 30,
2002. This increase for AirGate is primarily attributable to capital additions
at the end of fiscal year 2002 that were depreciated for a full year in fiscal
year 2003. For the Company, the decrease is also attributable to the
deconsolidation of iPCS at February 23, 2003, and the resulting shorter period
of iPCS results of operations included for the year ended September 30, 2003,
compared to the year ended September 30, 2002.

The Company incurred capital expenditures of $25.9 million for the year ended
September 30, 2003, which included approximately $0.4 million of capitalized
interest, compared to capital expenditures of $97.1 million and capitalized
interest of $7.1 million for the year ended September 30, 2002. AirGate
incurred capital expenditures of $16.0 million for the year ended September 30,
2003, compared to $41.4 million for the year ended September 30, 2002.

Amortization of Intangible Assets

Amortization of intangible assets primarily relates to the amounts recorded
from the iPCS acquisition for the acquired subscriber base, non-competition
agreements, and the right to provide service under iPCS Sprint agreements.
Amortization for the year ended September 30, 2003, was approximately $6.8
million, compared to $39.3 million for the year ended September 30, 2002.

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Loss on Disposal of Property and Equipment

For the year ended September 30, 2003, the Company recognized a loss of $2.0
million, compared to $1.1 million for the year ended September 30, 2002 on the
disposal of property and equipment. The loss for the year ended September 30,
2003 was the result of store closures at AirGate and iPCS. The loss for the
year ended September 30, 2002 related to the abandonment of eleven cell sites
in AirGates territory.

Goodwill Impairment

The Company recorded goodwill impairments of approximately $460.9 million for
the year ended September 30, 2002, reflecting the Companys assessments that
the fair value of the reporting unit iPCS was less than the carrying amount and
was deemed impaired.

Impairment of Property and Equipment

For the year ended September 30, 2002, the Company recorded an asset impairment
of $44.5 million associated with the fixed assets (principally wireless
networking infrastructure) of iPCS. This impairment arose from significant
adverse changes to the business plan for iPCS as well as a generally weak
secondary market for telecommunications equipment.

Impairment of Intangible Assets

For the year ended September 30, 2002, the Company recorded an impairment of
intangible assets of $312.0 million for the assets related to iPCS right to
provide services under the Sprint agreements and the acquired iPCS subscriber
base. The right to provide service under iPCS Sprint agreements and the
acquired iPCS subscriber base recorded by the Company resulted from the
purchase price allocation related to the acquisition of iPCS. This impairment
arose from significant adverse changes to the business plan for iPCS.
Accordingly, the Company reduced the carrying value of the right to provide
services under the Sprint agreements and the acquired iPCS subscriber base to
its fair value at September 30, 2002.

Interest Income

For the year ended September 30, 2003, interest income for the Company was $0.2
million, compared to $0.6 million for the year ended September 30, 2002. The
decrease reflects the Companys lower average cash and cash equivalent balances
and lower average interest rates on deposits for the year ended September 30,
2003, when compared to the year ended September 30, 2002.

Interest Expense

For the year ended September 30, 2003, interest expense was $55.5 million,
compared to $57.2 million for the year ended September 30, 2002, a decrease of
$1.7 million. For AirGate, interest expense was $42.7 million for the year
ended September 30, 2003, compared to $35.5 million for the year ended
September 30, 2002. For AirGate, the increase is attributable to increased
borrowings under the AirGate credit facility, which was partially offset by
lower interest rates, and an increase in the accreted value of the AirGate
notes. For the Company, the decrease in interest expense is attributable to
the shorter period of iPCS results of operations included for the year ended
September 30, 2003, compared to the year ended September 30, 2002.

The Company had borrowings of $404.3 million as of September 30, 2003,
compared to $709.8 million at September 30, 2002, which reflects the
deconsolidation of iPCS. AirGate had borrowings, including accreted value, of
$404.3 million as of September 30, 2003, compared to $356.3 million at
September 30, 2002.

Income Tax Benefit

Income tax benefit of $28.8 million was recognized for the year ended September
30, 2002 related to the reversal of valuation allowances upon the acquisition
of iPCS. Income tax benefits will be recognized in the future only to the
extent management believes recoverability of deferred tax assets is more likely
than not.

Net Loss

For the year ended September 30, 2003, the net loss was $84.8 million, a
decrease of $911.8 million, compared to a net loss of $996.6 million for the
year ended September 30, 2002. The decrease in net loss was attributable
primarily to asset impairments during 2002 and year-over-year improvements in
operations of AirGate for fiscal year 2003. During the year ended September
30, 2002, the Company recorded goodwill impairments of $460.9 million, property
and equipment impairments of $44.5 million, and intangible assets impairment of
$312.0 million, each of which was related to the Companys investment in iPCS.
For AirGate, the net loss was $42.2 million for the year ended September 30,
2003, compared to a net loss of $92.8 million for the year ended September 30,
2002. During the year ended September 30, 2003, the net loss for AirGate was
positively affected by $25.0 million in higher service revenues, a $27.3
million reduction in sales and marketing expenses, primarily in advertising, a
$16.1 million improvement in bad debt expense and $8.6 million in special
settlements from Sprint, offset by an increase in depreciation and
amortization expense of $5.8 million and an increase in interest
expense of $7.2 million.

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Non-GAAP Financial Measures and Key Operating Metrics

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

Terms such as subscriber net additions, average revenue per user (ARPU),
churn, cost per gross addition (CPGA) and cash cost per user (CCPU) are
important operating metrics used in the wireless telecommunications industry.
These metrics are important to compare us to other wireless service providers.
ARPU, CCPU and CPGA also assist management in budgeting and CPGA also assists
management in quantifying the incremental costs to acquire a new subscriber.
Except for churn and net subscriber additions, we have included a
reconciliation of these metrics to the most directly comparable GAAP financial
measure. Churn and subscriber net additions are operating statistics with no
comparable GAAP financial measure. ARPU, CPGA and CCPU are supplements to GAAP
financial information and should not be considered an alternative to, or more
meaningful than, revenues, expenses or net loss as determined in accordance
with GAAP. In calculating CCPU, we exclude depreciation and amortization and
selling and marketing expenses. CCPU is intended to provide an estimate of the
ongoing cash costs of maintaining our existing subscribers. By excluding
depreciation and amortization, the non-cash costs of assets needed to support
our subscribers is not apparent. Further, by excluding selling and marketing
expenses, all expenses to continue operating our business are not apparent to
investors.

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

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

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



| |  |  | EBITDA means earnings before interest, taxes, depreciation and amortization.
| | - |  | ------------------------------------------------------------------------------



| |  |  | ARPU summarizes the average monthly service revenue per user, excluding
roaming revenue. The Company excludes roaming revenue from its ARPU
calculation because this revenue is generated from customers of Sprint and
other carriers that use our network and not directly from our subscribers.
ARPU is computed by dividing service revenue for the period by the average
subscribers for the period.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Churn is the average monthly rate of subscriber turnover that both
voluntarily and involuntarily discontinued service during the period,
expressed as a percentage of the average subscribers. Churn is computed by
dividing the number of subscribers that discontinued service during the
period, net of 30-day returns, by the average subscribers for the period.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | CPGA summarizes the average cost to acquire new subscribers during the
period. CPGA is computed by adding the income statement components of selling
and marketing (including commissions), cost of equipment and activation costs
(which are included as a component of cost of service) and reducing that
amount by the equipment revenue recorded. That net amount is then divided by
the total new subscribers acquired during the period.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | CCPU is a measure of the average monthly cash costs to operate the business
on a per user basis consisting of subscriber support, network operations,
service delivery, roaming expense, bad debt expense, wireless handset upgrade
subsidies (but not commissions) and other general and administrative costs,
divided by average subscribers for the period.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

61



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The tables which follow present and reconcile non-GAAP financial measures and
key operating metrics for the Company for the years ended September 30, 2003
and 2002. For the year ended September 30, 2003 and 2002, these metrics are
shown separately for each of AirGate, iPCS and the combined Company.

The table below sets forth key operating metrics for the Company for the years
ended September 30, 2003 and 2002.

Year Ended September 30,2003
    
    2002AirGate
    
    iPCS
    
    Combined
    
    AirGate
    
    iPCS
    
    CombinedGross subscriber additions
    
    
    172,007
    
    
    
    59,403
    
    
    
    231,410
    
    
    
    247,221
    
    
    
    127,028
    
    
    
    374,249Net subscriber additions
    
    
    20,321
    
    
    
    14,199
    
    
    
    34,520
    
    
    
    104,116
    
    
    
    66,072
    
    
    
    170,188Total subscribers
    
    
    359,460
    
    
    
    
    
    
    
    359,460
    
    
    
    339,139
    
    
    
    215,694
    
    
    
    554,833ARPU
    
    $
    60
    
    
    $
    53
    
    
    $
    59
    
    
    $
    61
    
    
    $
    54
    
    
    $
    59Churn
    
    
    3.2
    %
    
    
    4.0
    %
    
    
    3.5
    %
    
    
    3.5
    %
    
    
    3.0
    %
    
    
    3.4
    %CPGA
    
    $
    364
    
    
    $
    356
    
    
    $
    362
    
    
    $
    387
    
    
    $
    388
    
    
    $
    387CCPU
    
    $
    50
    
    
    $
    58
    
    
    $
    52
    
    
    $
    59
    
    
    $
    62
    
    
    $
    60Capital expenditures (in thousands)
    
    $
    16,023
    
    
    $
    9,921
    
    
    $
    25,944
    
    
    $
    41,338
    
    
    $
    55,722
    
    
    $
    97,060EBITDA (in thousands)
    
    $
    46,827
    
    
    
    ($8,783
    )
    
    $
    38,044
    
    
    
    ($16,703
    )
    
    
    ($842,583
    )
    
    
    ($859,286
    )


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

Year Ended September 30,2003
    
    2002AirGate
    
    iPCS
    
    Combined
    
    AirGate
    
    iPCS
    
    CombinedNet Loss
    
    $
    (42,186
    )
    
    $
    (42,571
    )
    
    $
    (84,757
    )
    
    $
    (92,780
    )
    
    $
    (903,837
    )
    
    $
    (996,617
    )Depreciation and amortization
    
    
    46,494
    
    
    
    20,989
    
    
    
    67,483
    
    
    
    40,764
    
    
    
    68,765
    
    
    
    109,529Interest income
    
    
    (187
    )
    
    
    (42
    )
    
    
    (229
    )
    
    
    (161
    )
    
    
    (429
    )
    
    
    (590
    )Interest expense
    
    
    42,706
    
    
    
    12,841
    
    
    
    55,547
    
    
    
    35,474
    
    
    
    21,679
    
    
    
    57,153Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (28,761
    )
    
    
    (28,761
    )EBITDA
    
    $
    46,827
    
    
    $
    (8,783
    )
    
    $
    38,044
    
    
    $
    (16,703
    )
    
    $
    (842,583
    )
    
    $
    (859,286
    )


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

Year Ended September 30,2003
    
    2002AirGate
    
    iPCS
    
    Combined
    
    AirGate
    
    iPCS
    
    CombinedNet cash provided by (used in)
operating activities
    
    $
    50,182
    
    
    $
    (7,634
    )
    
    $
    42,548
    
    
    $
    (24,460
    )
    
    $
    (20,782
    )
    
    $
    (45,242
    )Change in operating assets and
liabilities
    
    
    (6,061
    )
    
    
    1,267
    
    
    
    (4,794
    )
    
    
    24,446
    
    
    
    3,017
    
    
    
    27,463Interest expense
    
    
    42,706
    
    
    
    12,841
    
    
    
    55,547
    
    
    
    35,474
    
    
    
    21,679
    
    
    
    57,153Accretion of interest
    
    
    (32,698
    )
    
    
    (11,589
    )
    
    
    (44,287
    )
    
    
    (27,605
    )
    
    
    (23,065
    )
    
    
    (50,670
    )Interest and other income
    
    
    (187
    )
    
    
    (42
    )
    
    
    (229
    )
    
    
    (161
    )
    
    
    (429
    )
    
    
    (590
    )Goodwill and asset impairments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (817,413
    )
    
    
    (817,413
    )Provision for doubtful accounts
    
    
    (5,218
    )
    
    
    (1,694
    )
    
    
    (6,912
    )
    
    
    (21,343
    )
    
    
    (5,590
    )
    
    
    (26,933
    )Other
    
    
    (1,897
    )
    
    
    (1,932
    )
    
    
    (3,829
    )
    
    
    (3,054
    )
    
    
    
    
    
    
    (3,054
    )EBITDA
    
    $
    46,827
    
    
    $
    (8,783
    )
    
    $
    38,044
    
    
    $
    (16,703
    )
    
    $
    (842,583
    )
    
    $
    (859,286
    )


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

Year Ended September 30,2003
    
    2002AirGate
    
    iPCS*
    
    Combined
    
    AirGate
    
    iPCS*
    
    Combined*Average Revenue per User (ARPU):Service revenue
    
    $
    251,481
    
    
    $
    57,896
    
    
    $
    309,377
    
    
    $
    226,504
    
    
    $
    100,861
    
    
    $
    327,365Average subscribers
    
    
    349,300
    
    
    
    222,794
    
    
    
    438,418
    
    
    
    310,013
    
    
    
    183,407
    
    
    
    462,852ARPU
    
    $
    60
    
    
    $
    53
    
    
    $
    59
    
    
    $
    61
    
    
    $
    54
    
    
    $
    59




|* |  | For 2003, iPCS amounts represent the period between October 1, 2002
and February 23, 2003 (146 days). For 2003, average subscribers for
combined entity is a weighted average. For 2002, iPCS amounts represent
the period between December 1, 2001 and September 30, 2002 (304 days).
For 2002, the average subscribers for combined entity is a weighted
average.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

62



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##### Table of Contents



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

YEAR ENDED SEPTEMBER 30,2003
    
    2002AirGate
    
    iPCS*
    
    Elimination
    
    Combined*
    
    AirGate
    
    iPCS*
    
    Elimination
    
    Combined*Cash Cost per User (CCPU):Cost of service and
roaming expense
    
    $
    187,365
    
    
    $
    56,269
    
    
    $
    (443
    )
    
    $
    243,191
    
    
    $
    204,153
    
    
    $
    107,924
    
    
    $
    (774
    )
    
    $
    311,303Less: Activation expense
    
    
    (996
    )
    
    
    (194
    )
    
    
    
    
    
    
    (1,190
    )
    
    
    (1,830
    )
    
    
    (907
    )
    
    
    
    
    
    
    (2,737
    )Plus: General and
administrative expense
    
    
    23,347
    
    
    
    6,881
    
    
    
    
    
    
    
    30,228
    
    
    
    18,143
    
    
    
    7,708
    
    
    
    
    
    
    
    25,851Total cash costs
    
    $
    209,716
    
    
    $
    62,956
    
    
    $
    (443
    )
    
    $
    272,229
    
    
    $
    220,466
    
    
    $
    114,725
    
    
    $
    (774
    )
    
    $
    334,417Average subscribers
    
    
    349,300
    
    
    
    222,794
    
    
    
    
    
    
    
    438,418
    
    
    
    310,013
    
    
    
    183,407
    
    
    
    
    
    
    
    462,852CCPU
    
    $
    50
    
    
    $
    58
    
    
    $
    
    
    
    $
    52
    
    
    $
    59
    
    
    $
    62
    
    
    $
    
    
    
    $
    60




|* |  | For 2003, iPCS amounts represent the period between October 1, 2002
and February 23, 2003 (146 days). For 2003, average subscribers for
combined entity is a weighted average. For 2002, iPCS amounts represent
the period between December 1, 2001 and September 30, 2002 (304 days).
For 2002, the average subscribers for combined entity is a weighted
average.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

YEAR ENDED SEPTEMBER 30,2003
    
    2002AirGate
    
    iPCS*
    
    Elimination
    
    Combined*
    
    AirGate
    
    iPCS*
    
    Elimination
    
    Combined*Cost per Gross Add (CPGA):Selling and marketing expense
    
    $
    51,769
    
    
    $
    16,417
    
    
    $
    
    
    
    $
    68,186
    
    
    $
    79,099
    
    
    $
    37,511
    
    
    $
    
    
    
    $
    116,610Plus: Activation expense
    
    
    996
    
    
    
    194
    
    
    
    
    
    
    
    1,190
    
    
    
    1,830
    
    
    
    907
    
    
    
    
    
    
    
    2,737Plus: Cost of equipment
    
    
    21,521
    
    
    
    7,130
    
    
    
    (232
    )
    
    
    28,419
    
    
    
    27,778
    
    
    
    16,107
    
    
    
    (293
    )
    
    
    43,592Less: Equipment revenue
    
    
    (11,645
    )
    
    
    (2,575
    )
    
    
    232
    
    
    
    (13,988
    )
    
    
    (13,027
    )
    
    
    (5,296
    )
    
    
    293
    
    
    
    (18,030
    )Total acquisition costs
    
    $
    62,641
    
    
    $
    21,166
    
    
    $
    
    
    
    $
    83,807
    
    
    $
    95,680
    
    
    $
    49,229
    
    
    $
    
    
    
    $
    144,909Gross additions
    
    
    172,007
    
    
    
    59,403
    
    
    
    
    
    
    
    231,410
    
    
    
    247,221
    
    
    
    127,028
    
    
    
    
    
    
    
    374,249CPGA
    
    $
    364
    
    
    $
    356
    
    
    $
    
    
    
    $
    362
    
    
    $
    387
    
    
    $
    388
    
    
    $
    
    
    
    $
    387




|* |  | For 2003, iPCS amounts represent the period between October 1, 2002
and February 23, 2003 (146 days). For 2002, iPCS amounts represent the
period between December 1, 2001 and September 30, 2002 (304 days).
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Total Subscribers

As of September 30, 2003, the Company provided personal communication services
to 359,460 subscribers compared to 554,833 subscribers as of September 30,
2002. For AirGate, total subscribers were 359,460 at September 30, 2003,
compared to 339,139 at September 30, 2002.

Subscriber Gross Additions

Subscriber gross additions for the years ended September 30, 2003 and 2002 were
231,410 and 374,249, respectively. For AirGate, subscriber gross additions
were 172,007 for the year ended September 30, 2003, compared to 247,221 for the
year ended September 30, 2002. For AirGate, the decrease in subscriber gross
additions is attributable to an increase in the deposit amounts required for
sub-prime credit customers, the loss of distribution from closing retail
stores, Sprints loss of certain national third-party distribution channels,
staff reductions and sales compensation plan changes. For the Company, the
decrease is also attributable to the shorter period of iPCS results of
operations included in the year ended September 30, 2003, compared to the year
ended September 30, 2002.

Churn

Churn for the year ended September 30, 2003 was 3.5%, compared to 3.4% for the
year ended September 30, 2002. For AirGate, churn was 3.2% for the year ended
September 30, 2003, compared to 3.5% for the year ended September 30, 2002.
The decrease in churn for AirGate is primarily a result of a decrease in the
number of sub-prime credit quality subscribers whose service was involuntarily
discontinued during the period.

Subscriber Net Additions

For the year ended September 30, 2003, the Company added 34,520 net new
subscribers, compared to 170,188 for the year ended September 30, 2002. For
AirGate, net new subscribers were 20,321 for the year ended September 30, 2003,
compared to 104,116

63



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##### Table of Contents



for the year ended September 30, 2002. The decline in net additions for
AirGate is primarily due to a decrease in gross subscriber additions and an
increase in the total number of subscribers who terminated service during the
period. For the Company, the decrease is also attributable to the shorter
period of iPCS results of operations included in the year ended September 30,
2003, compared to the year ended September 30, 2002.

Average Revenue Per User

For the years ended September 30, 2003 and 2002, ARPU was $59 and $59,
respectively. For AirGate, ARPU was $60 for the year ended September 30, 2003,
compared to $61 for the year ended September 30, 2002. The decrease in ARPU
reflects lower minute over plan overage charges per user and lower cancellation
fees per user, which was partially offset by increased monthly recurring
charges per user, and an increase in E911 and WLNP payments from Sprint.

Cost Per Gross Addition

CPGA was $362 for the year ended September 30, 2003, compared to $387 for the
year ended September 30, 2002. For AirGate, CPGA was $364 for the year ended
September 30, 2003, compared to $387 for the year ended September 30, 2002. The
decrease in CPGA was the result of reduced customer acquisition costs,
partially offset by fewer subscriber gross additions.

Cash Cost Per User

CCPU was $52 for the year ended September 30, 2003, compared to $60 for the
year ended September 30, 2002. For AirGate, CCPU was $50 for the year ended
September 30, 2003, compared to $59 for the year ended September 30, 2002. The
decrease in CCPU is primarily attributable to lower network operations costs
spread over a greater number of average subscribers, lower roaming rates for
outbound minutes of use (primarily by Sprint and its network partners), and
significantly lower bad debt expense. These improvements were partially offset
by increased general and administrative expenses, and expenses related to the
proposed recapitalization plan.

EBITDA

For the year ended September 30, 2003, EBITDA was $38.0 million, an increase of
$897.3 million, compared to EBITDA of ($859.3) million for the year ended
September 30, 2002. The increase in EBITDA was attributable primarily to asset
impairments during 2002 and year-over-year improvements in operations of
AirGate for fiscal year 2003. During the year ended September 30, 2002, the
Company recorded goodwill impairments of $460.9 million, property and equipment
impairments of $44.5 million, and intangible assets impairment of $312.0
million, each of which was related to the Companys investment in iPCS. For
AirGate, EBITDA was $46.8 million for the year ended September 30, 2003,
compared to EBITDA of ($16.7) million for the year ended September 30, 2002.
During the year ended September 30, 2003, EBITDA for AirGate was positively
affected by $25.0 million in higher service revenues, a $27.3 million reduction
in sales and marketing expenses, primarily in advertising, a $16.1 million
improvement in bad debt expense and $8.6 million in special settlements from
Sprint.

64



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##### Table of Contents



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

Revenues

Year Ended September 30,(in thousands)2002
    
    2001AirGate
    
    iPCS
    
    Elimination
    
    Combined
    
    AirGate
    
    iPCS
    
    Elimination
    
    CombinedService revenue
    
    $
    226,504
    
    
    $
    100,861
    
    
    $
    
    
    
    $
    327,365
    
    
    $
    105,976
    
    
    $
    
    
    
    $
    
    
    
    $
    105,976Roaming revenue
    
    
    74,013
    
    
    
    37,923
    
    
    
    (774
    )
    
    
    111,162
    
    
    
    55,329
    
    
    
    
    
    
    
    
    
    
    
    55,329Equipment revenue
    
    
    13,027
    
    
    
    5,296
    
    
    
    (293
    )
    
    
    18,030
    
    
    
    10,782
    
    
    
    
    
    
    
    
    
    
    
    10,782Total
    
    $
    313,544
    
    
    $
    144,080
    
    
    $
    (1,067
    )
    
    $
    456,557
    
    
    $
    172,087
    
    
    $
    
    
    
    $
    
    
    
    $
    172,087


Service Revenue.Service revenue was $327.4 million for the year ended
September 30, 2002, compared to $106.0 million for the year ended September 30,
2001, an increase of $221.4 million. The increased revenue reflects the
substantially higher average number of subscribers using the Companys network,
including subscribers acquired in the iPCS acquisition.

Roaming Revenue.The Company recorded roaming revenue of $111.2 million during
the year ended September 30, 2002, compared to $55.3 million for the year ended
September 30, 2001, an increase of $55.9 million. The increase is attributable
to a larger wireless subscriber base for Sprint and other Sprint PCS network
partners, the additional covered territory acquired with iPCS, increased
roaming revenue to iPCS from Verizon Wireless and increased roaming revenue
from other third-party carriers, partially offset by a lower average roaming
rate from Sprint and its PCS network partners. For the year ended September
30, 2002, roaming revenue from Sprint and its PCS network partners was $103.1
million, or 93% of the roaming revenue recorded. For the year ended September
30, 2002, roaming revenue from Sprint and its PCS network partners attributable
to AirGate and iPCS was $70.0 million and $33.1 million, respectively, compared
to $53.9 million or 97% for AirGate only for the year ended September 30, 2001.

Sprint unilaterally reduced the reciprocal roaming rate among Sprint and its
PCS network partners, including the Company, from $0.20 per minute of use prior
to June 1, 2001, to $0.10 per minute of use in calendar 2002. See Sprint
Relationship and Agreements  Management Agreements  Service pricing, roaming,
and fees.

Equipment Revenue.The Company recorded equipment revenue of $18.0 million
during the year ended September 30, 2002, compared to $10.8 million for the
year ended September 30, 2001, an increase of $7.2 million. For AirGate,
equipment revenue was $13.0 million for the year ended September 30, 2002,
compared to $10.8 million for the year ended September 30, 2001. The increase
in AirGate equipment revenue is primarily attributable to the increased AirGate
subscriber gross additions during the year ended September 30, 2002 compared to
the year ended September 30, 2001. For the Company, the increase in equipment
revenue is also attributable to the inclusion of iPCS results of operations
subsequent to November 30, 2001.

Cost of Service and Roaming

Year Ended September 30,(in thousands)2002
    
    2001AirGate
    
    iPCS
    
    Elimination
    
    Combined
    
    AirGate
    
    iPCS
    
    Elimination
    
    CombinedRoaming expense
    
    $
    57,689
    
    
    $
    28,617
    
    
    $
    (774
    )
    
    $
    85,532
    
    
    $
    40,472
    
    
    $
    
    
    
    $
    
    
    
    $
    40,472Network operating costs
    
    
    48,328
    
    
    
    37,672
    
    
    
    
    
    
    
    86,000
    
    
    
    36,513
    
    
    
    
    
    
    
    
    
    
    
    36,513Bad debt expense
    
    
    21,343
    
    
    
    5,590
    
    
    
    
    
    
    
    26,933
    
    
    
    8,125
    
    
    
    
    
    
    
    
    
    
    
    8,125Wireless handset upgrades
    
    
    3,136
    
    
    
    1,712
    
    
    
    
    
    
    
    4,848
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other cost of service
    
    
    73,657
    
    
    
    34,333
    
    
    
    
    
    
    
    107,990
    
    
    
    31,799
    
    
    
    
    
    
    
    
    
    
    
    31,799Total cost of service and roaming
    
    $
    204,153
    
    
    $
    107,924
    
    
    $
    (774
    )
    
    $
    311,303
    
    
    $
    116,909
    
    
    $
    
    
    
    $
    
    
    
    $
    116,909


The cost of service and roaming was $311.3 million for the year ended September
30, 2002, compared to $116.9 million for the year ended September 30, 2001, an
increase of $194.4 million. The increase in the cost of service and roaming is
attributable to the increase in the number of subscribers, including those
resulting from the acquisition of iPCS.

Roaming expense was $85.5 million for the year ended September 30, 2002,
compared to $40.5 million for the year ended September 30, 2001, an increase of
$45.0 million. The increase in roaming expense was a result of the substantial
increase in the Companys subscriber base, the acquired iPCS subscriber base
and an increase in the roaming minutes of use, partially offset by a lower
average rate per minute. For the Company, 92% and 88% of roaming expense was
attributable to Sprint and its network partners for the years ended September
30, 2002 and 2001, respectively. As discussed above, the per-minute rate the
Company pays Sprint or its PCS network partners when subscribers from the
Companys territory roam onto the network of Sprint or its network partners
decreased beginning June 1, 2001 for AirGate and January 1, 2002 for iPCS.

Bad debt expense was $26.9 million for the year ended September 30, 2002,
compared to $8.1 million for the year ended September 30, 2001, an increase of
$18.8 million. This increase in bad debt expense is attributable to the
increase in AirGates subscriber base, the increase in payment defaults
resulting from the increase in sub-prime credit quality customers with no or
little

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deposit required and inclusion of the results of operations of iPCS after
November 30, 2001. The increase in sub-prime credit quality customers was
largely attributable to the waiver of the deposit in the NDASL and Clear Pay
programs.

For the year ended September 30, 2002, network operating costs were $86.0
million, compared to $36.5 million for the year ending September 30, 2001, an
increase of $49.5 million. This increase resulted from the acquisition of iPCS
and its subscriber base and supporting its network assets and an increased
AirGate subscriber base. The Company was supporting 554,833 subscribers at
September 30, 2002 (AirGate and iPCS were 339,139 and 215,694, respectively),
compared to 235,025 subscribers at September 30, 2001. At September 30, 2002,
the Companys network, including the iPCS territory, consisted of approximately
1,433 active cell sites (800 for AirGate and 633 for iPCS), 7 switches (4 for
AirGate and 3 for iPCS) and 144 employees (89 for AirGate and 55 for iPCS).

The Company incurred approximately $4.8 million associated with wireless
handset upgrade costs through national third party retailers, business and
Sprint channels for the year ended September 30, 2002. The Company did not
record any costs specifically associated with wireless handset upgrades in our
national third party retailers for the year ended September 30, 2001.

The Company incurred $108 million for the year ended September 30, 2002 for
other cost of service expenses including long distance expenses, Sprint
affiliation fees and Sprint service fees to support its customer base, compared
to $31.8 million for the year ended September 30, 2001, an increase of $76.2
million. For AirGate, these costs increased to $73.7 million for the year ended
September 30, 2002, compared to $31.8 million for the year ended September 30,
2001. These other cost of service expenses increased as a result of the growth
in subscribers from 235,025 as of September 30, 2001 to 339,139 as of September
30, 2002. The increase for the Company was primarily attributable to including
iPCS results of operations for the year ended September 30, 2002.

Cost of Equipment; Other Operating Expenses and Interest

Year Ended September 30,(in thousands)2002
    
    2001AirGate
    
    iPCS
    
    Elimination
    
    Combined
    
    AirGate
    
    iPCS
    
    Elimination
    
    CombinedCost of equipment
    
    $
    27,778
    
    
    $
    16,107
    
    
    $
    (293
    )
    
    $
    43,592
    
    
    $
    20,218
    
    
    $
    
    
    
    $
    
    
    
    $
    20,218Selling and marketing
    
    
    79,099
    
    
    
    37,511
    
    
    
    
    
    
    
    116,610
    
    
    
    71,706
    
    
    
    
    
    
    
    
    
    
    
    71,706General and administrative
    
    
    18,143
    
    
    
    7,708
    
    
    
    
    
    
    
    25,851
    
    
    
    17,141
    
    
    
    
    
    
    
    
    
    
    
    17,141Depreciation and amortization
    
    
    40,678
    
    
    
    29,519
    
    
    
    
    
    
    
    70,197
    
    
    
    30,621
    
    
    
    
    
    
    
    
    
    
    
    30,621Amortization of Intangible assets
    
    
    86
    
    
    
    39,246
    
    
    
    
    
    
    
    39,332
    
    
    
    46
    
    
    
    
    
    
    
    
    
    
    
    46Loss on disposal of property and
equipment
    
    
    1,074
    
    
    
    
    
    
    
    
    
    
    
    1,074
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Impairment of goodwill
    
    
    
    
    
    
    460,920
    
    
    
    
    
    
    
    460,920
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Impairment of property and equipment
    
    
    
    
    
    
    44,450
    
    
    
    
    
    
    
    44,450
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Impairment of intangible assets
    
    
    
    
    
    
    312,043
    
    
    
    
    
    
    
    312,043
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest income
    
    
    (161
    )
    
    
    (429
    )
    
    
    
    
    
    
    (590
    )
    
    
    (2,463
    )
    
    
    
    
    
    
    
    
    
    
    (2,463
    )Interest expense
    
    
    35,474
    
    
    
    21,679
    
    
    
    
    
    
    
    57,153
    
    
    
    28,899
    
    
    
    
    
    
    
    
    
    
    
    28,899


Cost of equipment was $43.6 million for the year ended September 30, 2002,
compared to $20.2 million for year ended September 30, 2001, an increase of
$23.4 million. The increase is attributable to the increase in the number of
subscribers added during the period, including subscribers added as a result of
the iPCS acquisition.

Selling and Marketing

The Company incurred selling and marketing expenses of $116.6 million for the
year ended September 30, 2002, compared to $71.7 million for the year ended
September 30, 2001, an increase of $44.9 million. At September 30, 2002, there
were approximately 710 employees performing sales and marketing functions,
compared to 388 employees as of September 30, 2001. The majority of the
increase in employees was a result of the acquisition of iPCS. At September
30, 2002, employees performing sales and marketing functions for AirGate and
iPCS was approximately 480 and 230, respectively.

General and Administrative

For the year ended September 30, 2002, the Company incurred general and
administrative expenses of $25.9 million, compared to $17.1 million for the
year ended September 30, 2001, an increase of $8.8 million. The increase
reflected the increased number of employees and service providers providing
general and administrative services, including the increased employees
resulting from the acquisition of iPCS. At September 30, 2002, approximately
126 employees were performing corporate support functions compared to 62
employees as of September 30, 2001. For the year ended September 30, 2002,
general and administrative expense attributable to AirGate and iPCS was $18.1
million and $7.7 million, respectively.

Depreciation

For the year ended September 30, 2002, depreciation increased to $70.2 million,
compared to $30.6 million for the year ended September 30, 2001, an increase of
$39.6 million. For AirGate, depreciation expense was $40.7 million for the
year ended September 30, 2002, compared to $30.6 million for the year ended
September 30, 2001. For AirGate, the increase in depreciation

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expense primarily relates to depreciation of additional network assets placed
in service during 2002 and 2001. For the Company, depreciation expense also
increased as a result of the acquired iPCS property and equipment and the
related depreciation costs.

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

Amortization of Intangible Assets

Amortization of intangible assets reflects amortization recorded as part of the
iPCS acquisition for the acquired subscriber base, non-competition agreements,
and the right to provide service under iPCS Sprint agreements. Amortization
for the year ended September 30, 2002, was approximately $39.3 million.

Loss on Disposal of Property and Equipment

For the year ended September 30, 2002, the Company recognized a loss of $1.1
million on disposal of property and equipment. The loss reflects the
abandonment of eleven cell sites in AirGates territory that were in the
process of being constructed.

Goodwill Impairment

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

Impairment of Property and Equipment

During the quarter ended September 30, 2002, the Company recorded an asset
impairment of $44.5 million for property and equipment (principally wireless
networking infrastructure) of iPCS. The impairment was recorded under the
requirements of SFAS No. 144 Accounting for the Impairment or Disposal of
Long-Lived Assets. As discussed above, the impairment arose from significant
adverse changes to the business plan for iPCS as well as a generally weak
secondary market for telecommunications related equipment.

Impairment of Intangible Assets

The Company recorded an intangible asset impairment of $312.0 million
reflecting an impairment to iPCS right to provide services under the Sprint
agreements and the acquired iPCS subscriber base. The right to provide service
under iPCS Sprint agreements and the acquired iPCS subscriber base was
recorded by the Company reflecting the purchase price allocation resulting from
the acquisition of iPCS. The original value and life assigned to this
intangible was $323.3 million and 205 months, respectively. As discussed
above, the impairment arose from significant adverse changes that occurred to
the business plan for iPCS. Accordingly, the Company adjusted the carrying
value for the right to provide services under the Sprint agreements to its fair
value at September 30, 2002.

Interest Income

For the year ended September 30, 2002, interest income was $0.6 million,
compared to $2.5 million for the year ended September 30, 2001. The Company
experienced higher cash balances and achieved higher interest rates on deposits
for much of the year ended September 30, 2001, which resulted in higher
interest income for the year, compared to the year ended September 30, 2002.
For the year ended September 30, 2002, interest income attributable to AirGate
and iPCS was $0.2 million and $0.4 million, respectively.

Interest Expense

For the year ended September 30, 2002, interest expense was $57.2 million,
compared to $28.9 million for the year ended September 30, 2001, an increase of
$28.3 million. The increase is primarily attributable to the increased debt
related to iPCS notes and credit facility, accreted interest on the AirGate and
iPCS notes and increased borrowings under the AirGate and iPCS credit
facilities, partially offset by lower commitment fees on undrawn balances for
the AirGate and iPCS credit facilities, and

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lower interest rates on variable rate borrowings under the AirGate and iPCS
credit facilities. The Company had borrowings of $709.8 million as of
September 30, 2002, including debt of iPCS, compared to $266.3 million at
September 30, 2001. AirGate had borrowings of $356.3 million as of September
30, 2002, compared to $266.3 million at September 30, 2001. For the year ended
September 30, 2002, interest expense attributable to AirGate and iPCS was $34.3
million and $22.9 million, respectively.

Income Tax Benefit

The Company recognized an income tax benefit of $28.8 million for the year
ended September 30, 2002 related to the reversal of valuation allowances upon
the acquisition of iPCS. Income tax benefits will be recognized in the future
only to the extent management believes recoverability of deferred tax assets is
more likely than not.

Net Loss

For the year ended September 30, 2002, the net loss was $996.6 million,
compared to a net loss of $111.0 million for the year ended September 30, 2001,
an increase of $885.6 million. The increased loss reflected a goodwill
impairment of $460.9 million, the property and equipment impairment related to
AirGates investment in iPCS of $44.5 million, and the intangibles impairment
associated with AirGates investment in iPCS of $312.0 million. For the year
ended September 30, 2002, the net loss attributable to AirGate and iPCS was
$92.8 million and $903.8 million, respectively. During the year ended
September 30, 2002, the net loss for AirGate was favorably impacted by a more
than 50% increase in our subscriber base and related service revenues, which
improved our operating leverage. This improvement was partially offset by a
$13.2 million increase in bad debt expense, a $10.1 million increase in
depreciation and amortization, a $6.6 million increase in interest
expense and a $5 million charge related to
the receivable from Sprint.

Non-GAAP Financial Measures and Key Operating Metrics

The tables which follow present and reconcile non-GAAP financial measures and
key operating metrics for the Company for the years ended September 30, 2002
and 2001. For the year ended September 30, 2002 and 2001, these metrics are
shown separately for AirGate, iPCS and the combined Company.

The table below sets forth key operating metrics for the Company for the year
ended September 30, 2002 and 2001.

Year Ended September 30,2002
    
    2001AirGate
    
    iPCS
    
    Combined
    
    AirGate
    
    iPCS
    
    CombinedGross subscriber additions
    
    
    247,221
    
    
    
    127,028
    
    
    
    374,249
    
    
    
    233,390
    
    
    
    
    
    
    
    233,390Net subscriber additions
    
    
    104,116
    
    
    
    66,072
    
    
    
    170,188
    
    
    
    178,336
    
    
    
    
    
    
    
    178,336Total subscribers
    
    
    339,139
    
    
    
    215,694
    
    
    
    554,833
    
    
    
    235,025
    
    
    
    
    
    
    
    235,025ARPU
    
    $
    61
    
    
    $
    54
    
    
    $
    59
    
    
    $
    62
    
    
    $
    
    
    
    $
    62Churn
    
    
    3.5
    %
    
    
    3.0
    %
    
    
    3.4
    %
    
    
    2.8
    %
    
    
    
    
    
    
    2.8
    %CPGA
    
    $
    387
    
    
    $
    388
    
    
    $
    387
    
    
    $
    361
    
    
    $
    
    
    
    $
    361CCPU
    
    $
    59
    
    
    $
    62
    
    
    $
    60
    
    
    $
    77
    
    
    $
    
    
    
    $
    77Capital expenditures (in thousands)
    
    $
    41,338
    
    
    $
    55,722
    
    
    $
    97,060
    
    
    $
    71,270
    
    
    $
    
    
    
    $
    71,270EBITDA (in thousands)
    
    
    ($16,703
    )
    
    
    ($842,583
    )
    
    $
    (859,286
    )
    
    
    ($53,887
    )
    
    $
    
    
    
    
    ($53,887
    )


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

Year Ended September 30,2002
    
    2001AirGate
    
    iPCS
    
    Combined
    
    AirGate
    
    iPCS
    
    CombinedNet Loss
    
    $
    (92,780
    )
    
    $
    (903,837
    )
    
    $
    (996,617
    )
    
    $
    (110,990
    )
    
    $
    
    
    
    $
    (110,990
    )Depreciation and amortization
    
    
    40,764
    
    
    
    68,765
    
    
    
    109,529
    
    
    
    30,667
    
    
    
    
    
    
    
    30,667Interest income
    
    
    (161
    )
    
    
    (429
    )
    
    
    (590
    )
    
    
    (2,463
    )
    
    
    
    
    
    
    (2,463
    )Interest expense
    
    
    35,474
    
    
    
    21,679
    
    
    
    57,153
    
    
    
    28,899
    
    
    
    
    
    
    
    28,899Income taxes
    
    
    
    
    
    
    (28,761
    )
    
    
    (28,761
    )
    
    
    
    
    
    
    
    
    
    
    EBITDA
    
    $
    (16,703
    )
    
    $
    (842,583
    )
    
    $
    (859,286
    )
    
    $
    (53,887
    )
    
    $
    
    
    
    $
    (53,887
    )


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

Year Ended September 30,2002
    
    2001AirGate
    
    iPCS
    
    Combined
    
    AirGate
    
    iPCS
    
    CombinedNet cash provided by (used in) operating
activities
    
    $
    (24,460
    )
    
    $
    (20,782
    )
    
    $
    (45,242
    )
    
    $
    (40,850
    )
    
    $
    
    
    
    $
    (40,850
    )Change in operating assets and liabilities
    
    
    24,446
    
    
    
    3,017
    
    
    
    27,463
    
    
    
    (4,674
    )
    
    
    
    
    
    
    (4,674
    )Interest expense
    
    
    35,474
    
    
    
    21,679
    
    
    
    57,153
    
    
    
    28,899
    
    
    
    
    
    
    
    28,899Accretion of interest
    
    
    (27,605
    )
    
    
    (23,065
    )
    
    
    (50,670
    )
    
    
    (23,799
    )
    
    
    
    
    
    
    (23,799
    )Interest and other income
    
    
    (161
    )
    
    
    (429
    )
    
    
    (590
    )
    
    
    (2,463
    )
    
    
    
    
    
    
    (2,463
    )Goodwill and asset impairments
    
    
    
    
    
    
    (817,413
    )
    
    
    (817,413
    )
    
    
    
    
    
    
    
    
    
    
    Provision for doubtful accounts
    
    
    (21,343
    )
    
    
    (5,590
    )
    
    
    (26,933
    )
    
    
    (8,125
    )
    
    
    
    
    
    
    (8,125
    )Other
    
    
    (3,054
    )
    
    
    
    
    
    
    (3,054
    )
    
    
    (2,875
    )
    
    
    
    
    
    
    (2,875
    )EBITDA
    
    $
    (16,703
    )
    
    $
    (842,583
    )
    
    $
    (859,286
    )
    
    $
    (53,887
    )
    
    $
    
    
    
    $
    (53,887
    )


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

Year Ended September 30,2002
    
    2001AirGate
    
    iPCS*
    
    Combined*
    
    AirGate
    
    iPCS
    
    CombinedAverage Revenue per User (ARPU):Service revenue
    
    $
    226,504
    
    
    $
    100,861
    
    
    $
    327,365
    
    
    $
    105,976
    
    
    $
    
    
    
    $
    105,976Average subscribers
    
    
    310,013
    
    
    
    183,407
    
    
    
    462,852
    
    
    
    141,673
    
    
    
    
    
    
    
    141,673ARPU
    
    $
    61
    
    
    $
    54
    
    
    $
    59
    
    
    $
    62
    
    
    $
    
    
    
    $
    62




|* |  | For 2002, iPCS amounts represent the period between December 1, 2001 and
September 30, 2002 (304 days). For 2002, the average subscribers for combined
entity is a weighted average.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

Year Ended September 30,2002
    
    2001AirGate
    
    iPCS*
    
    Elimination
    
    Combined
    
    AirGate
    
    iPCS
    
    CombinedCash Cost per User (CCPU):Cost of service and
roaming expense
    
    $
    204,153
    
    
    $
    107,924
    
    
    $
    (774
    )
    
    $
    311,303
    
    
    $
    116,909
    
    
    $
    
    
    
    $
    116,909Less: Activation expense
    
    
    (1,830
    )
    
    
    (907
    )
    
    
    
    
    
    
    (2,737
    )
    
    
    (3,200
    )
    
    
    
    
    
    
    (3,200
    )Plus: General and
administrative expense
    
    
    18,143
    
    
    
    7,708
    
    
    
    
    
    
    
    25,851
    
    
    
    17,141
    
    
    
    
    
    
    
    17,141Total cash costs
    
    $
    220,466
    
    
    $
    114,725
    
    
    $
    (774
    )
    
    $
    334,417
    
    
    $
    130,850
    
    
    $
    
    
    
    $
    130,850Average subscribers
    
    
    310,013
    
    
    
    183,407
    
    
    
    
    
    
    
    462,852
    
    
    
    141,673
    
    
    
    
    
    
    
    141,673CCPU
    
    $
    59
    
    
    $
    62
    
    
    $
    
    
    
    $
    60
    
    
    $
    77
    
    
    $
    
    
    
    $
    77




|* |  | For 2002, iPCS amounts represent the period between December 1, 2001 and
September 30, 2002 (304 days). For 2002, the average subscribers for combined
entity is a weighted average.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

Year Ended September 30,2002
    
    2001AirGate
    
    iPCS*
    
    Elimination
    
    Combined*
    
    AirGate
    
    iPCS
    
    CombinedCost per Gross Add (CPGA):Selling and marketing expense
    
    $
    79,099
    
    
    $
    37,511
    
    
    $
    
    
    
    $
    116,610
    
    
    $
    71,706
    
    
    $
    
    
    
    $
    71,706Plus: Activation expense
    
    
    1,830
    
    
    
    907
    
    
    
    
    
    
    
    2,737
    
    
    
    3,200
    
    
    
    
    
    
    
    3,200Plus: Cost of equipment
    
    
    27,778
    
    
    
    16,107
    
    
    
    (293
    )
    
    
    43,592
    
    
    
    20,218
    
    
    
    
    
    
    
    20,218Less: Equipment revenue
    
    
    (13,027
    )
    
    
    (5,296
    )
    
    
    293
    
    
    
    (18,030
    )
    
    
    (10,782
    )
    
    
    
    
    
    
    (10,782
    )Total acquisition costs
    
    $
    95,680
    
    
    $
    49,229
    
    
    $
    
    
    
    $
    144,909
    
    
    $
    84,342
    
    
    $
    
    
    
    $
    84,342Gross Additions
    
    
    247,221
    
    
    
    127,028
    
    
    
    
    
    
    
    374,249
    
    
    
    233,390
    
    
    
    
    
    
    
    233,390CPGA
    
    $
    387
    
    
    $
    388
    
    
    $
    
    
    
    $
    387
    
    
    $
    361
    
    
    $
    
    
    
    $
    361




|* |  | For 2002, iPCS amounts represent the period between December 1, 2001 and
September 30, 2002 (304 days).
|- |  | -------------------------------------------------------------------------------------------------------

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Subscriber Gross Additions

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

Subscriber Net Additions

As of September 30, 2002, the Company provided personal communication services
to 554,833 subscribers compared to 235,025 subscribers as of September 30,
2001, an increase of 319,808 subscribers. The increased subscribers include
149,622 subscribers acquired from iPCS on November 30, 2001. For the year
ended September 30, 2002, the Company added 104,116 net new AirGate subscribers
compared to 178,336 in the year ended September 30, 2001. The decrease in net
subscriber additions is primarily due to the increase in the number of
subscriber deactivations more than offsetting the increased gross subscriber
additions.

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

Average Revenue Per User

For the years ended September 30, 2002 and 2001, ARPU was $59 and $62,
respectively. For the year ended September 30, 2002, ARPU for AirGate was $61,
compared to $54 for iPCS. The decrease in ARPU for the Company primarily
reflects lower ARPU for iPCS, no longer recognizing terminating long-distance
access revenues and declines in the average monthly recurring revenue per user.
Until March 2002, the Company recorded terminating long-distance access
revenues billed by Sprint PCS to long distance carriers. Sprint PCS has made a
claim against the Company for these historical revenues based upon Sprints
current litigation with AT&T and other long distance carriers. While we
continue to examine the rights we may have against Sprint PCS, the Company
recorded a reserve for the terminating access charges previously paid by Sprint
PCS on behalf of long distance carriers and for which Sprint PCS has made a
claim.

Churn

Churn for the year ended September 30, 2002 was 3.4%, compared to 2.8% for the
year ended September 30, 2001. For the year ended September 30, 2002, churn
attributable to AirGate and iPCS was 3.5% and 3.0%, respectively. The increase
in churn for the Company primarily results from the increased number of
sub-prime credit quality subscribers whose service was involuntarily
deactivated during the period. Excluding the subscriber reserve, churn for the
year ended September 30, 2002 and 2001 was 4.0% and 2.8%, respectively.
Excluding the subscriber reserve, churn for the year ended September 30, 2002
attributable to AirGate and iPCS was 4.2% and 3.6%, respectively.

Cost Per Gross Addition

CPGA was $387 for the year ended September 30, 2002, compared to $361 for the
year ended September 30, 2001. For the year ended September 30, 2002, CPGA for
AirGate and iPCS was $387 and $388, respectively. The increased CPGA reflects
greater marketing related costs and increased handset sales incentives, which
resulted in higher handset subsidies.

Cash Cost Per User

CCPU was $60 for the year ended September 30, 2002, compared to $77 for the
year ended September 30, 2001. For the year ended September 30, 2002, CCPU for
AirGate and iPCS was $59 and $62, respectively. The decreased CCPU reflects
network and administrative support costs being spread over a greater number of
average subscribers, including those acquired in the merger with iPCS.

EBITDA

For the year ended September 30, 2002, EBITDA was ($859.3) million,
compared to EBITDA of ($53.9) million for the year ended September 30, 2002,
for an increased loss of $805.4 million. EBITDA for the year ended September
30, 2002 was negatively affected by a goodwill impairment of $460.9 million,
the property and equipment impairment associated with AirGates investment in
iPCS of $44.5 million and the intangibles impairment associated with AirGates
investment in iPCS of $312.0 million. For AirGate, EBITDA was ($16.7) million
for the year ended September 30, 2002, compared to EBITDA of ($53.9) million
for the year ended September 30, 2001. During the year ended September 30,
2002, EBITDA for AirGate was favorably impacted by a more than 50% increase in
our subscriber base and related service revenues, which improved our operating
leverage. This improvement was partially offset by a $13.2 million increase in
bad debt expense and a $5 million charge related to the receivable from Sprint.

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LIQUIDITY AND CAPITAL RESOURCES

The following discussion of liquidity and capital resources, unless otherwise
indicated, is presented on a consolidated basis and includes the liquidity and
capital resources of iPCS and its consolidated subsidiaries.

As of September 30, 2003, AirGate, exclusive of iPCS, had $54.1 million in cash
and cash equivalents compared to $4.9 million in cash and cash equivalents at
September 30, 2002, an increase of $49.2 million. The improved cash position
at September 30, 2003 for AirGate is primarily attributable to the following
(dollars in thousands):

For theYear endedSeptember 30, 2003Sprint special settlements*
    
    $
    10,500Other operating cash flow activities
    
    
    39,682Total operating cash flow
    
    
    50,182Capital expenditures
    
    
    (16,023
    )Borrowings under credit facility
    
    
    17,000Payments for credit facility
    
    
    (2,024
    )Other
    
    
    56Total
    
    
    15,032Increase in cash and cash equivalents
    
    $
    49,191




|* |  | During the fiscal year ended September 30, 2003, Sprint paid $10.5 million for
amounts that were previously not properly remitted to AirGate on a timely
basis. The $10.5 million paid by Sprint included $4.1 million of previously
unapplied customer deposits, $4.0 million of revenue for AirGate subscribers
whose bills are paid through national accounts, $0.6 million of subscriber
payments resulting from a change in the method of calculating collected
revenues and $1.8 million for E911 and other items.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Companys working capital balance was $12.5 million at September 30, 2003,
compared to a working capital deficit of $364.4 million at September 30, 2002.
The improvement in the Companys working capital position is primarily
attributable to the deconsolidation of iPCS subsequent to February 23, 2003.

Net Cash Provided By (Used In) Operating Activities

The $42.5 million of cash provided by operating activities for the year ended
September 30, 2003 was the result of the Companys $84.8 million net loss
offset by non-cash items including depreciation, amortization of note
discounts, financing costs, amortization of intangibles, provision for doubtful
accounts, loss on disposal of property and equipment and non-cash stock
compensation totaling $122.5 million. Changes in working capital provided $4.8
million to operating activities. The increased net working capital changes
were driven primarily by an increase in net settlements received from Sprint,
reducing inventory on hand and timing of accounts payable disbursements,
partially offset by increased accounts receivable. For the year ended
September 30, 2003, AirGate provided cash from operating activities of $50.2
million which was partially offset by cash used in operating activities of $7.6
million for iPCS.

The $45.2 million of cash used in operating activities for the year ended
September 30, 2002 was the result of the Companys $996.6 million net loss
offset by $978.8 million of goodwill impairment, property and equipment
impairment, impairment of intangible assets, depreciation, amortization of note
discounts, financing costs, amortization of intangibles, deferred tax benefit,
provision for doubtful accounts and non-cash stock compensation, that was
partially offset by negative working capital changes of $27.5 million. The
negative net working capital changes were primarily a result of timing of
payments from Sprint, increased interest payable related to the increase in the
balance of the AirGate and iPCS credit facilities, and increased current
maturities of long-term debt at September 30, 2002, compared to September 30,
2001, related to iPCS. For the year ended September 30, 2002, cash used in
operating activities attributable to AirGate and iPCS was $24.5 million and
$20.8 million, respectively.

The $40.9 million of cash used in operating activities for the year ended
September 30, 2001 was the result of the Companys $111.0 million net loss
partially offset by $4.6 million in cash provided by changes in net working
capital and $65.5 million of depreciation, amortization of note discounts,
provision for doubtful accounts, amortization of financing costs and non-cash
stock option compensation.

Net Cash Used in Investing Activities

The $36.0 million of cash used in investing activities for the year ended
September 30, 2003 represents $25.9 million for purchases of property and
equipment. Purchases of property and equipment for the year ended September
30, 2003 reflected investments related to the expansion of switch capacity and
service coverage. In addition, $10.0 million of cash was deconsolidated
subsequent to February 23, 2003 relating to the iPCS bankruptcy. For the year
ended September 30, 2003, cash used in investing activities attributable to
AirGate and iPCS was $16.0 million and $20.0 million, respectively.

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The $78.7 million of cash used in investing activities for the year ended
September 30, 2002 represents $97.1 million for purchases of property and
equipment and $6.0 million of cash acquisition costs related to the iPCS
acquisition, partially offset by $24.4 million of cash acquired from iPCS.
Purchases of property and equipment for the year ended September 30, 2002
reflected investments to upgrade the Companys network to 1XRTT, expand switch
capacity and increase service coverage in the Companys territories. For the
year ended September 30, 2002, cash used in investing activities attributable
to AirGate and iPCS was $23.0 million and $55.7 million, respectively.

For the year ended September 30, 2001, cash used in investing activities of
$71.8 million reflects cash payments of $71.3 million for purchases of
equipment and $0.5 million to purchase business assets.

Net Cash Provided by Financing Activities

The $15.0 million of cash provided by financing activities for the year ended
September 30, 2003, primarily reflects $17.0 million in borrowings under the
AirGate credit facility, net of $2.0 million in AirGate credit facility
principal repayments. For the year ended September 30, 2003, the $15.0 million
in cash provided by financing activities was solely attributable to AirGate.

The $142.2 million of cash provided by financing activities for the year ended
September 30, 2002, reflects $61.2 million in borrowings under the AirGate
credit facility and $80.0 million under the iPCS credit facility, proceeds of
$0.7 million received from the exercise of employee stock options and $0.6
million received from stock issued under the employee stock purchase plan,
partially offset by $0.3 million for payments related to the amendment of the
iPCS credit facility. For the year ended September 30, 2002, cash provided by
financing activities attributable to AirGate and iPCS was $62.5 million and
$79.6 million, respectively.

The $68.5 million of cash provided by financing activities for the year ended
September 30, 2001 consisted of $61.8 million borrowed under the AirGate credit
facility and $6.7 million of proceeds received from the exercise of employee
stock options.

Liquidity, Financial Restructuring and Going Concern

The financial statements have been prepared on a going concern basis, which
contemplates the realization of assets and satisfaction of liabilities in the
normal course of business. The financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result
should the Company be unable to continue as a going concern.

As shown in the consolidated financial statements, the Company has generated
significant net losses since inception and has an accumulated deficit of $1.3
billion and stockholders deficit of $377.0 million at September 30, 2003. For
the year ended September 30, 2003, the Companys net loss amounted to $84.8
million, $42.2 million of which was attributable to AirGate. In addition to
its capital needs to fund operating losses, AirGate has invested large amounts
to build-out its networks and for other capital assets. Since inception,
AirGate has invested $302.0 million to purchase property and equipment. While
much of AirGates network is now complete, and capital expenditures are
expected to be lower than prior years, such expenditures will continue to be
necessary. As of September 30, 2003, AirGate had working capital of $12.5
million and cash and cash equivalents of $54.1 million, and no remaining
availability under its credit facility. As a result, AirGate is completely
dependent on available cash and operating cash flow to pay debt service and
meet its other capital needs. If such sources are not sufficient, alternative
funding sources may not be available.

Due to the factors described in Item 1.  Business Overview  Current
Operating Environment and its Impact on Us, management made changes to the
assumptions underlying the long-range business plans for AirGate and iPCS.
These changes included fewer new subscribers, lower ARPU, higher subscriber
churn, increased service and pass through costs from Sprint in the near-term
and lower roaming margins from Sprint.

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

These factors also led the Company to revise its business strategy and take
actions to cut costs. These actions included the following:



| |  |  | Restructuring the AirGate organization and eliminating more than 150 positions;
| | - |  | -------------------------------------------------------------------------------



| |  |  | Reducing capital expenditures;
| | - |  | ------------------------------



| |  |  | Reducing spending for sales and marketing activities; and
| | - |  | ---------------------------------------------------------



| |  |  | Reducing network operating costs by more closely managing connectivity costs.
| | - |  | -----------------------------------------------------------------------------

These actions improved operating cash flow, and management expects that AirGate
will have sufficient cash and cash equivalents and cash flow from operations to
satisfy its liquidity needs for the next twelve months. However, under our
current business plan, our compliance with the financial covenants under our
credit facility is not assured and the Companys ability to generate sufficient
cash flow to meet its financial covenants and payment obligations in 2005 and
beyond is substantially uncertain. In

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November 2003, AirGate entered into an amendment to the AirGate credit
facility, which implemented changes which management expects to generally
assist AirGate in complying with these financial covenants for the next twelve
months. In addition, there is substantial risk that under its current business
plan, the Company would not have sufficient liquidity to meet its cash interest
obligations under the old AirGate notes in 2006. As a result, the Company has
proposed the recapitalization plan described in Item 1.  Business Overview 
The Financial Restructuring. The completion of the recapitalization plan will
improve AirGates capital structure and reduce the required payments under
AirGates existing notes.

If the financial restructuring is completed, the existing AirGate credit
facility will remain in place with a final maturity in 2008. The 13.5% old
AirGate notes maturing in 2009 are expected to be replaced by the 9 3/8% new
AirGate notes maturing in 2009 to be issued as a part of the financial
restructuring. The principal amount at maturity of the AirGate notes is
expected to decrease by $140 million and annual cash interest payments are
expected to decrease by $25.5 million per year after 2004. As a result, after
2004, the financial restructuring would provide cumulative cash savings of $255
million through 2009.

In the event that the conditions for the consummation of the recapitalization
plan are not satisfied, including, for example, the failure to meet the minimum
tender condition, the Companys board of directors may elect, assuming that it
receives sufficient acceptances from the holders of the old AirGate notes, to
seek as an alternative to the recapitalization plan, the confirmation of a
prepackaged plan of reorganization within the next year. It is anticipated
that any prepackaged plan of reorganization would effect the same transactions
contemplated by the recapitalization plan. If a prepackaged plan of
reorganization or bankruptcy case of any kind is commenced with regard to the
Company, it would constitute a default under the AirGate senior credit facility
and the indenture governing the old AirGate notes. Such a default could result
in an acceleration of the debt represented by the senior credit facility and
the old AirGate notes.

In light of these circumstances and in
connection with their audit of the Companys year-end financial results, KPMG
LLP, the Companys independent
auditors, included an explanatory paragraph for going
concern in
their audit opinion with respect to the Companys
fiscal 2003 financial statements. Such an explanatory paragraph would result in a default under the Companys credit
facility. The Company has obtained an amendment of its credit facility to permit this explanatory paragraph and
prevent a default under the credit facility.

The completion of the financial restructuring will improve AirGates cash flow
by significantly reducing debt service payments in 2005 and beyond. If the
financial restructuring is not effected, through the recapitalization plan or
the prepackaged plan, management intends to take actions to enable the Company
to meet its debt service requirements and other capital needs. Such actions
may include seeking additional amendments to our credit facility to avoid
future financial covenant defaults, seeking additional sources of financing,
and further reducing general and administrative, sales and marketing and
capital spending. There can be no assurance that these actions will be
sufficient to enable the Company to generate sufficient cash flow to meet its
financial covenants and payment obligations.

AirGate Capital Resources

As of September 30, 2003, AirGate, exclusive of iPCS, had $54.1 million of cash
and cash equivalents. During the quarter ended September 30, 2003, the Company
has fully drawn the AirGate credit facility, leaving no further borrowing
available under the credit facility.

Contractual Obligations

AirGate is obligated to make future payments under various contracts it has
entered into, including amounts pursuant to the AirGate credit facility, the
AirGate notes, capital leases and non-cancelable operating lease agreements for
office space, cell sites, vehicles and office equipment. Expected future
minimum contractual cash obligations for the next five years and in the
aggregate at September 30, 2003, are as follows (dollars in thousands):

Payments Due By Period Years Ending September 30,Total
    
    2004
    
    2005
    
    2006
    
    2007
    
    2008
    
    ThereafterAirGate credit facility, principal (1)
    
    $
    151,475
    
    
    $
    17,775
    
    
    $
    23,700
    
    
    $
    30,107
    
    
    $
    39,893
    
    
    $
    40,000
    
    
    $
    AirGate credit facility, interest (2)
    
    
    24,696
    
    
    
    7,991
    
    
    
    6,756
    
    
    
    5,327
    
    
    
    3,430
    
    
    
    1,192
    
    
    
    AirGate old AirGate notes, principal
    
    
    300,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    300,000AirGate old AirGate notes, interest (3)
    
    
    202,500
    
    
    
    
    
    
    
    40,500
    
    
    
    40,500
    
    
    
    40,500
    
    
    
    40,500
    
    
    
    40,500AirGate operating leases (4)
    
    
    60,262
    
    
    
    18,899
    
    
    
    14,396
    
    
    
    9,485
    
    
    
    6,632
    
    
    
    5,159
    
    
    
    5,691$
    738,933
    
    
    $
    44,665
    
    
    $
    85,352
    
    
    $
    85,419
    
    
    $
    90,455
    
    
    $
    86,851
    
    
    $
    346,191




|(1) |  | Total repayments are based upon borrowings outstanding as of
September 30, 2003.
|--- |  | --------------------------------------------------------------------------------



|(2) |  | Interest rate is assumed to be 5.5%. As of September 30, 2003, the
interest rate on the credit facility was 5.05%.
|--- |  | ------------------------------------------------------------------------------------------------------------------



|(3) |  | Interest rate on old AirGate notes is 13.5% with payments starting in
2005.
|--- |  | ---------------------------------------------------------------------------



|(4) |  | Operating leases do not include payments due under renewals to the
original lease term.
|--- |  | ---------------------------------------------------------------------------------------

On August 16, 1999, AirGate entered into a $153.5 million senior credit
facility. The AirGate credit facility provides for (i) a $13.5 million senior
secured term loan (the Tranche I Term Loan) which matures on June 6, 2007,
and (ii) a $140.0 million senior secured term loan (the Tranche II Term Loan)
which matures on September 30, 2008. Mandatory quarterly payments of principal
are required beginning December 31, 2002 for the Tranche I Term Loan and March
31, 2004 for the Tranche II Term Loan payments initially in the amount of 3.75%
of the loan balance then outstanding and increasing thereafter. A commitment
fee of 1.50% on unused borrowings under the AirGate credit facility is payable
quarterly and included in interest expense. No

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amounts remain available for borrowing under the AirGate credit facility as of
September 30, 2003. The AirGate credit facility is secured by all the assets
of AirGate and its restricted subsidiaries. The interest rate for the AirGate
credit facility is determined on a margin above either the prime lending rate
in the United States or the London Interbank Offer Rate. At September 30, 2003
and 2002, the weighted average interest rate on outstanding borrowings was
5.05% and 5.6%, respectively.

The AirGate credit facility contains ongoing financial covenants, including
reaching covered population targets, maximum annual spending on capital
expenditures, attaining minimum subscriber revenues, and maintaining certain
leverage and other ratios such as debt to total capitalization, debt to EBITDA
(as defined in credit facility agreement, Bank EBITDA) and Bank EBITDA to
fixed charges. The AirGate credit facility restricts the ability of AirGate
and its restricted subsidiaries to: create liens; incur indebtedness; make
certain payments, including payments of dividends and distributions in respect
of capital stock; consolidate, merge and sell assets; engage in certain
transactions with affiliates; and fundamentally change its business. As of
September 30, 2003, AirGate was in compliance in all material respects with
covenants contained in the AirGate credit facility, as amended.

In contemplation of the proposed restructuring, AirGate entered into an
amendment to the AirGate credit facility on November 30, 2003. Certain changes
are effective for periods ended December 31, 2003 and are used in determining
compliance with financial covenants for periods ended December 31, 2003 and
thereafter. These changes include (i) changes to the definition of Bank EBITDA
to provide that, among other things, in determining Bank EBITDA, certain
additional items will be added back to our consolidated net income or loss (to
the extent deducted in determining such income or loss), including any charges
incurred in connection with the restructuring, up to $2.0 million per year to
pursue claims against, or dispute claims by, Sprint; up to $5.0 million in
start-up costs in connection with any outsourcing billing and customer care
services, and (ii) calculating the ratio of total debt to Bank EBITDA and
senior secured debt to Bank EBITDA based on the four most recent fiscal
quarters, rather than the last two quarters annualized. In addition, the
amendment provides for a waiver, effective as of September 30, 2003, of the
requirement that the Company deliver an opinion of its independent auditors
with respect to the financial statements for the year ended September 30, 2003
that does not contain a going concern or other similar qualification.

The effectiveness of other changes made by the amendment is conditioned on,
among other things, at least 90% of the face value of the Old AirGate Notes
having been exchanged in the restructuring. These changes include: (i)
deleting the minimum subscriber covenant, (ii) revising the threshold
requirements for minimum revenues and most of the ratios that we are required
to maintain; (iii) providing AirGate the ability to incur certain other limited
indebtedness and related lien; make certain limited investments and form
subsidiaries under limited circumstances that are not subject to certain
restrictive covenants contained in the credit facility or required to guarantee
the credit facility and (iv) permitting AirGate to repurchase, at a discount,
the old notes or the new notes from our cash on hand in an aggregate amount not
to exceed $25 million in value of those notes, provided that we at the same
time incur an equal amount of permitted subordinated indebtedness.

The amendment will not affect any of the other provisions of the AirGate credit
facility, including those which restrict AirGates ability to merge,
consolidate or sell substantially all of its assets. In connection with the
amendment, the Company has agreed to prepay $10.0 million in principal under
the credit facility, which will be credited against principal payments
otherwise due in 2004 and 2005 in the amount of $7.5 million and $2.5 million,
respectively. The prepayment is required only if the recapitalization plan is
completed. The amendment will not otherwise affect AirGates obligation to pay
interest, premium, if any, or any other of the principal on the AirGate credit
facility, when due.

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

Type of facility
    
    Moody's
    
    S&PAirGate notes
    
    Caa2
    
    CC




| |  | On September 25, 2003, S&P announced that upon completion of the restructuring
it would lower AirGates corporate rating to SD and lower AirGates
subordinated debt rating to D. On October 15, 2003, Moodys announced that
it placed AirGates subordinated debt on review for a possible rating upgrade
to B3.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| |  | RELATED PARTY TRANSACTIONS AND TRANSACTIONS BETWEEN AIRGATE AND IPCS
| |  | --------------------------------------------------------------------



| |  | Transactions with Sprint
| |  | ------------------------



| |  | Under the Sprint agreements, Sprint provides the Company significant support
services such as customer service, billing, collections, long distance,
national network operations support, inventory logistics support, use of the
Sprint and Sprint PCS brand names, national advertising, national distribution
and product development. Additionally, the Company derives substantial roaming
revenue and incurs substantial roaming expenses when Sprints and Sprints
network partners PCS wireless subscribers incur minutes of use in the
Companys territory and when the Companys subscribers incur minutes of use in
Sprints and Sprints network partners PCS territories. These transactions
are recorded as roaming revenue, cost of service and roaming, cost
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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of equipment and selling and marketing expense in the Companys consolidated
statements of operations. Cost of service and roaming transactions relate to
the affiliation fee, long distance charges, roaming expenses, and the costs of
services such as billing, collections and customer service. Cost of equipment
transactions relate to inventory purchased by the Company from Sprint under the
Sprint agreements. Selling and marketing transactions relate to subsidized
costs on handsets and commissions paid by the Company under Sprints national
distribution programs. Amounts recorded relating to the Sprint agreements for
the years ended September 30, 2003, 2002 and 2001, are as follows (dollars in
thousands):

Years Ended September 30,2003
    
    2002
    
    2001Amounts included in the Consolidated Statement of Operations:AirGate roaming revenue
    
    $
    63,798
    
    
    $
    70,002
    
    
    $
    53,863AirGate cost of service and roaming:Roaming
    
    $
    50,383
    
    
    $
    52,746
    
    
    $
    40,472Customer service
    
    
    40,014
    
    
    
    40,454
    
    
    
    15,526Affiliation fees
    
    
    18,358
    
    
    
    15,815
    
    
    
    7,603Long distance
    
    
    12,485
    
    
    
    13,846
    
    
    
    6,556Other
    
    
    1,902
    
    
    
    2,115
    
    
    
    1,252Total cost of service and roaming
    
    $
    123,142
    
    
    $
    124,976
    
    
    $
    71,409AirGate cost of equipment
    
    $
    18,051
    
    
    $
    23,662
    
    
    $
    19,405AirGate selling and marketing
    
    $
    12,440
    
    
    $
    21,728
    
    
    $
    20,827iPCS roaming revenue
    
    $
    14,724
    
    
    $
    33,137
    
    
    $
    iPCS cost of service and roaming:Roaming
    
    $
    12,158
    
    
    $
    25,723
    
    
    $
    Customer service
    
    
    11,760
    
    
    
    19,367
    
    
    
    Affiliation fees
    
    
    4,911
    
    
    
    8,011
    
    
    
    Long distance
    
    
    3,281
    
    
    
    7,686
    
    
    
    Other
    
    
    461
    
    
    
    781
    
    
    
    Total cost of service and roaming
    
    $
    32,571
    
    
    $
    61,568
    
    
    $
    iPCS cost of equipment
    
    $
    6,124
    
    
    $
    17,097
    
    
    $
    iPCS selling and marketing
    
    $
    3,138
    
    
    $
    9,970
    
    
    $
    


As ofSeptember 30,2003
    
    2002Receivable from Sprint
    
    $
    15,809
    
    
    $
    44,953Payable to Sprint
    
    
    (45,069
    )
    
    
    (88,360
    )


The Company reclassified approximately $10.0 million of subscriber accounts
receivable for the fiscal year ended September 30, 2002 to a receivable from
Sprint. The Company believes at least $10.0 million was payable from Sprint,
but Sprint acknowledged that only $5.8 million was owed to AirGate. The
Company provided an allowance to reflect the receivable at its net realizable
value at September 30, 2002. The Company collected this amount subsequent to
September 30, 2002.

Because approximately 95% of our revenue is collected by Sprint and 64% of cost
of service and roaming in our financial statements are derived from fees and
charges by (or through) Sprint, we have a variety of settlement issues and
other contract disputes open and outstanding from time to time. Currently,
this includes, but is not limited to, the following items, all of which for
accounting purposes have been reserved or otherwise provided for:



| |  |  | In fiscal year 2002, Sprint PCS asserted it has the right to
recoup up to $3.9 million in long-distance access revenues previously
paid by Sprint PCS to AirGate, for which Sprint PCS has invoiced $1.2
million. We have disputed these amounts.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Sprint invoiced AirGate approximately $0.4 million with respect
to fiscal year 2002 and $1.3 million for fiscal year 2003 to
reimburse Sprint for certain 3G related development expenses. We are
disputing Sprints right to charge 3G fees in 2002 and beyond.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Sprint invoiced AirGate software maintenance fees of
approximately $1.7 million for each of fiscal years 2002 and 2003.
We are disputing Sprints right to charge software maintenance fees.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | During the fiscal year 2003, Sprint invoiced AirGate $2.6
million for information technology (IT) expenses including
reimbursement for the amortization of IT projects completed by
Sprint. The Company has disputed Sprints right to collect these
fees.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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The payable to Sprint includes disputed amounts for which Sprint has invoiced
AirGate approximately $8.9 million. The invoiced amount does not include $2.7
million for long-distance access revenues claimed but not invoiced by Sprint,
or fees relating to disputed 3G, software maintenance and information
technology after September 30, 2003.

We intend to vigorously contest these charges and to closely examine all fees
and charges imposed by Sprint. In addition to these disputes, we have other
outstanding issues with Sprint which could result in set-offs to the items
described above or in payments due from Sprint. For example, we believe Sprint
has failed to calculate, pay and report on collected revenues in accordance
with our agreements with Sprint, which, together with other cash remittance
issues, has resulted in a shortfall in cash payments to AirGate. Sprint has
unilaterally reduced the reciprocal roaming rate charged among Sprint and its
network partners, in a manner which we believe is a breach of our agreements
with Sprint.

During the year ended September 30, 2003, AirGate recorded $3.6 million (not
including $1.3 million for monthly service charges as described below) in
credits from Sprint as a reduction of cost of services and $3.7 million as an
increase in revenues. We are reviewing whether additional amounts are due
AirGate and we continue to discuss with Sprint the proper method for
calculating, paying and reporting on collected revenues and other matters.

Sprint determines monthly service charges at the beginning of each calendar
year. Sprint takes the position that at the end of each year, it calculates
the costs to provide these services for its network partners and requires a
final settlement against the charges actually paid. If the costs to provide
these services are less than the amounts paid by Sprints network partners,
Sprint issues a credit for these amounts. If the costs to provide the services
are more that the amounts paid by Sprints network partners, Sprint charges the
network partners for these amounts. During the fiscal year ended September 30,
2002, Sprint credited AirGate $1.3 million, which was recorded as a reduction
to cost of service.

The Sprint Agreements require the Company to maintain certain minimum network
performance standards and to meet other performance requirements. AirGate was
in compliance in all material respects with these requirements as of September
30, 2003.

Transactions between AirGate and iPCS

The Company formed AirGate Service Company, Inc. (ServiceCo) to provide
management services to both AirGate and iPCS. ServiceCo is a wholly-owned
restricted subsidiary of AirGate. ServiceCo expenses were allocated between
AirGate and iPCS based on the percentage of subscribers (the ServiceCo
Allocation), which was approximately 60% AirGate and 40% iPCS. Personnel who
provided general management services to AirGate and iPCS were leased to
ServiceCo. Generally, the management personnel included the corporate staff at
the Companys principal corporate offices in Atlanta and the accounting staff
in Geneseo, Illinois. Expenses that related primarily to one company are
allocated to that company. Expenses that are related to ServiceCo or both
companies, such as rents associated with the Atlanta and Geneseo offices,
consulting costs incurred for ServiceCo and other expenses related to ServiceCo
management services, were allocated in accordance with the ServiceCo
Allocation.

On January 27, 2003, iPCS retained a chief restructuring officer to oversee the
restructuring of iPCS and manage the day-to-day operations of iPCS. To
facilitate the orderly transition of management services to the chief
restructuring officer, AirGate and iPCS executed an amendment to the Services
Agreement that generally would allow individual services to be terminated by
either party upon 30 days prior notice. iPCS began terminating services
provided by ServiceCo in March, 2003. All remaining services were terminated
by iPCS by September 30, 2003. For the years ended September 30, 2003 and
2002, iPCS paid a net total of $2.9 million and $1.7 million, respectively for
ServiceCo expenses, which had the effect of reducing AirGate expenses by that
amount and AirGate may see its costs increase in the future without the benefit
of the ServiceCo allocation.

AirGate has completed transactions in the normal course of business with its
unrestricted subsidiary iPCS. These transactions are comprised of roaming
revenue and expenses, inventory sales and purchases and sales of network
operating equipment as further described below.

In the normal course of business under AirGates and iPCS respective Sprint
agreements, AirGates subscribers incur minutes of use in iPCS territory
causing AirGate to incur roaming expense to Sprint. In addition, iPCS
subscribers incur minutes of use in AirGates territory for which AirGate
receives roaming revenue from Sprint. AirGate received $0.2 million of roaming
revenue with respect to use by iPCS subscribers of AirGates network and
incurred $0.3 million of roaming expense with respect to use by AirGate
subscribers of iPCS network for the year ended September 30, 2003, compared to
$0.4 million of roaming revenue and $0.4 million of roaming expense for the
year ended September 30, 2002. The reciprocal roaming rate charged and other
terms are established by Sprint under AirGates and iPCS respective Sprint
agreements.

In order to optimize the most efficient use of certain models of handset
inventories in relation to regional demand for the year ended September 30,
2003, AirGate purchased approximately $0.3 million of wireless handset
inventories from iPCS at cost. At September 30, 2003, AirGate was not carrying
any wireless handset inventory purchased from iPCS.

During the year ended September 30, 2002, AirGate sold approximately $0.1
million of wireless handset inventories to iPCS. Additionally, AirGate
purchased approximately $0.2 million of wireless handset inventory from iPCS.
At September 30, 2002, neither AirGate nor iPCS were carrying any wireless
handset inventory purchased from each other.

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During the year ended September 30, 2002, AirGate sold approximately $0.2
million of network operating equipment to iPCS. Additionally, iPCS sold
AirGate approximately $0.7 million of network operating equipment.

All of these transactions prior to February 23, 2003 have been eliminated in
consolidation, when appropriate.

The terms and conditions of each of the transactions described above are
comparable to those that could have been obtained in transactions with
unaffiliated entities.

Transactions Involving Board Members

Timothy M. Yager was a member of the AirGate board of directors until December
16, 2002. Prior to joining the AirGate board, Mr. Yager was the chief
executive officer of iPCS. Pursuant to his employment agreement with iPCS,
iPCS purchased consulting services from Mr. Yager during the year ended
September 30, 2003. On January 27, 2003, Mr. Yager was appointed chief
restructuring officer to oversee the restructuring of iPCS and his company, YMS
Management, LLC, entered into a management services agreement to manage the
day-to-day operations of iPCS. In connection with his appointment as chief
restructuring officer, Mr. Yager and iPCS agreed to terminate the provisions of
his employment agreement providing for consulting services to iPCS and payments
thereunder to Mr. Yager. The management services agreement provides weekly
payments of $15,000, plus certain expenses. The agreement also provides that
upon confirmation of a plan of reorganization or a sale of iPCS, Mr. Yager is
entitled to a fixed fee equal to $500,000 less 50% of the aggregate weekly
payments previously paid to Mr. Yager under the management services agreement.
If the sale of iPCS results in proceeds in excess of $190 million, Mr. Yager is
entitled to a fee equal to the lesser of 1.25% of such proceeds or $3.5
million. In addition, upon the closing of any equity investment in iPCS, Mr.
Yager is entitled to a fee equal to 2% of the amount invested. During the year
ended September 30, 2003, iPCS purchased $0.3 million of consulting services
from Mr. Yager, which represents payments under his employment agreement prior
to January 27, 2003 and payments as chief restructuring officer and to YMS
after that time and prior to February 23, 2003.

Inflation

Our management believes that inflation has not had, and will not have, a
material adverse effect on our results of operation.




ITEM 7A.Quantitative And Qualitative Disclosure About Market Risk

In the normal course of business, the Companys operations are exposed to
interest rate risk on its credit facilities and any future financing
requirements. The Companys fixed rate debt consists primarily of the accreted
carrying value of the 1999 AirGate notes ($253.0 million at September 30,
2003). Our variable rate debt consists of borrowings made under the AirGate
credit facility ($151.3 million at September 30, 2003). For the year ended
September 30, 2003, the weighted average interest rate under the AirGate credit
facility was 5.05%. Our primary interest rate risk exposures relate to (i) the
interest rate on long-term borrowings; (ii) our ability to refinance the
AirGate notes at maturity at market rates; and (iii) the impact of interest
rate movements on our ability to meet interest expense requirements and
financial covenants under our debt instruments.

The Company manages the interest rate risk on its outstanding long-term debt
through the use of a combination of fixed and variable rate debt. While the
Company cannot predict its ability to refinance existing debt or the impact
interest rate movements will have on existing debt, the Company continues to
evaluate its interest rate risk on an ongoing basis.

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The following table presents the estimated future balances of outstanding
long-term debt projected at the end of each period and future required annual
principal payments for each period then ended associated with the AirGate notes
and credit facilities based on projected levels of long-term indebtedness:

Years Ending September 30,2004
    
    2005
    
    2006
    
    2007
    
    2008
    
    Thereafter(Dollars in thousands)AirGate notes
    
    $
    297,191
    
    
    $
    297,289
    
    
    $
    297,587
    
    
    $
    298,115
    
    
    $
    298,906
    
    
    
    Fixed interest rate
    
    
    13.5
    %
    
    
    13.5
    %
    
    
    13.5
    %
    
    
    13.5
    %
    
    
    13.5
    %
    
    
    13.5
    %Principal payments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    300,000AirGate credit facility
    
    $
    133,700
    
    
    $
    110,000
    
    
    $
    79,893
    
    
    $
    40,000
    
    
    
    
    
    
    
    Variable interest rate (1)
    
    
    5.5
    %
    
    
    5.5
    %
    
    
    5.5
    %
    
    
    5.5
    %
    
    
    5.5
    %
    
    
    5.5
    %Principal payments
    
    $
    17,775
    
    
    $
    23,700
    
    
    $
    30,107
    
    
    $
    39,893
    
    
    $
    40,000
    
    
    
    




|(1) |  | The interest rate on the credit facilities equals the London Interbank
Offered Rate (LIBOR) +3.75%. LIBOR is assumed to equal 1.75% for all
periods presented. A 1% increase (decrease) in the variable interest rate
would result in a $4.6 million increase (decrease) in the related interest
expense over the balance of the credit facilitys terms as of September
30, 2003.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




ITEM 8.Financial Statements and Supplementary Data

Our financial statements are listed under Item 15(a) of this annual report and
are filed as part of this report on the pages indicated.




ITEM 9.Changes In And Disagreements With Accountants On Accounting And Financial Disclosure

None.




ITEM 9A.Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the
Commissions rules and forms, and that such information is accumulated and
communicated to our management including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure.

As of the end of the period covered by this report, September 30, 2003 (the
Evaluation Date), we carried out an evaluation, under the supervision and
with the participation of the Companys management, including our Chief
Executive Officer and Chief Financial Officer of the effectiveness of the
design and operation of our disclosure controls and procedures. Based upon
that evaluation, the President and Chief Executive Officer and the Chief
Financial Officer concluded that our disclosure controls and procedures were
effective as of the Evaluation Date.

Under our agreements with Sprint, Sprint provides us with billing, collections,
customer care and other back office services. As a result, Sprint remits
approximately 95% of our revenues to us. In addition, approximately 65% of
cost of service and roaming in our consolidated financial statements relate to
charges by or through Sprint for its affiliation fee, charges for services
provided under our agreements with Sprint such as billing, collections and
customer care, roaming expense, long-distance, and pass-through and other fees
and expenses. Due to this relationship, the Company, necessarily relies on
Sprint to provide accurate, timely and sufficient data and information to
properly record our revenues, expenses and accounts receivable, which underlie
a substantial portion of our periodic financial statements and other financial
disclosures.

Information provided by Sprint includes reports regarding our subscriber
accounts receivable. Sprint provides us monthly accounts receivable, billing
and cash receipts information on a market level, rather than a subscriber
level. We review these various reports to identify discrepancies or errors.
However, under our agreements with Sprint, we are entitled to only a portion of
the receipts, net of items such as taxes, government surcharges and the 8%
Sprint affiliation fee. Sprint has used a tool called the revenue profile to
estimate the payments due to us.

Because of our reliance on Sprint for financial information, we must depend on
Sprint to design adequate internal controls with respect to the processes
established to provide this data and information to the Company and Sprints
other network partners. To address this issue, Sprint engages its independent
auditors to perform a periodic evaluation of these controls and to provide a
Report on Controls Placed in Operation and Tests of Operating Effectiveness
for Affiliates under guidance provided in Statement of Auditing Standards No.
70 (SAS 70 reports). The report is provided to us annually and covers our
entire fiscal year.

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During the last quarter of fiscal year 2002, Company personnel inquired about
differences between various accounts receivable reports provided by Sprint. We
continued to make inquiries and have discussions with Sprint regarding these
differences until, in early December 2002, we learned that certain reports
provided by Sprint used to record our accounts receivable balances could not be
relied upon for financial reporting purposes. We worked with Sprint
cooperatively to confirm the correct accounts receivable balances and to
reconcile inconsistencies with reports we previously relied on.

Among other things, we believe Sprint failed to calculate, pay and provide
timely reports on portions of collected revenues in accordance with our
agreements with Sprint, which together with other cash remittance issues,
resulted in a shortfall in cash payments to us. In connection with our review
of the accounts receivable and other issues at September 30, 2002, we
reclassified approximately $10.0 million of AirGate subscriber accounts
receivable for the fiscal year ended September 30, 2002 to a receivable from
Sprint. We believe at least $10.0 million was payable by Sprint. We provided
an allowance to reflect the receivable at its net realizable value, which we
collected from Sprint subsequent to September 30, 2002.

In order to better monitor, verify and analyze information provided by Sprint,
we created a settlements department with two full-time employees and one
contract person. The manager of the settlements group serves as the primary
interface with Sprint regarding all issues related to the Sprint settlements
process. The settlements group reviews and analyzes financial data provided by
Sprint, including the components of the revenue profile that Sprint uses to
determine the amount of collected revenues paid to us. The settlements group
assists us in verifying amounts charged by Sprint as well as revenues and other
amounts settled with Sprint.

In addition, in connection with the preparation of our financial statements for
the year ended September 30, 2003, we undertook additional procedures to review
amounts payable by Sprint and to review Sprints internal controls and
procedures that impact its network partners, including us. In addition, Sprint
has undertaken additional measures to provide further assurances regarding its
internal controls. These measures undertaken by both Sprint and us include the
following:



| |  |  | Sprint agreed to provide semiannual SAS 70 reports beginning in 2004
| | - |  | --------------------------------------------------------------------



| |  |  | Sprint is obtaining SAS 70 reports from key service providers,
including the provider of its billing platform, which is expected to be
received by the end of 2003
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We completed an in-depth review on the procedures undertaken in prior
SAS 70 Reports and we requested and Sprint agreed to provide additional
procedures be included in future SAS 70 Reports
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We requested and Sprint provided additional agreed upon procedures
from Sprints independent accountants
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | We analyzed, documented and implemented file audit and assurance
processes for certain Sprint files used in recording financial
information
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We obtained an account level detail of subscriber accounts receivable
as of September 30, 2003 and have requested this detail on at least a
quarterly basis in the future
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

At September 30, 2002, we and our independent auditors believed that the
accounts receivable issues resulted from a reportable condition in our internal
controls. We and our independent auditors also believe that we have a
reportable condition in internal controls with respect to the fiscal year ended
September 30, 2003. We believe the processes we have put into place over the
course of the fiscal year have steadily improved our ability to identify
material errors in Sprint financial information on a timely basis. As a
result of the improved processes and procedures described above, the Company
believes no reportable condition in internal controls existed by the end of the
fiscal year, September 30, 2003, however, the Company will continue to monitor
and evaluate the effectiveness of its improvements in controls related to
information provided by Sprint and to continue to improve these processes.

In preparation for the requirements imposed under Section 404 of the Sarbanes
Oxley Act of 2002, we are retaining an outside accounting firm to assist us in
reviewing and improving our internal control processes, including the processes
to verify data provided by Sprint.

Changes in Internal Control over Financial Reporting

None.

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PART III




ITEM 10.Directors and Executive Officers of the Registrant.

Code of Ethics

AirGate has adopted a written Code of Ethics that applies to all of its
directors, officers, including its President and Chief Executive Officer (as
the chief executive officer) and its Chief Financial Officer (as its chief
accounting and financial officer), and employees. The Code of Ethics is
entitled Standards of Business Conduct and is available on AirGates website,
www.airgatepcsa.com, under the Corporate Governance caption. Any amendments
or waivers to the Standards of Business Conduct will be disclosed on AirGates
website promptly following the date of such amendment or waiver. Information
on AirGates website, however, does not form a part of this Form 10-K.

The remaining information called for by Item 10 is incorporated herein by
reference to AirGates Proxy Statement to be delivered in connection with its
2004 Annual Meeting of Shareowners.




ITEM 11.Executive Compensation.

Information called for by Item 11 is incorporated herein by reference to
AirGates Proxy Statement to be delivered in connection with its 2004 Annual
Meeting of Shareowners




ITEM 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

EQUITY COMPENSATION PLAN INFORMATION

The following table gives information about AirGate common stock that may be
issued under all of AirGates existing equity compensation plans as of
September 30, 2003, which include:



| |  |  | the AirGate PCS, Inc. 1999 Stock Option Plan,
| | - |  | ---------------------------------------------



| |  |  | the AirGate PCS, Inc. Amended and Restated 2000 Long-Term Incentive
Plan, which the Company assumed when it acquired iPCS in November 2001,
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the AirGate PCS, Inc. 2001 Non-Executive Stock Option Plan, and
| | - |  | ---------------------------------------------------------------



| |  |  | the AirGate PCS, Inc. 2002 Long-Term Incentive Plan.
| | - |  | ----------------------------------------------------

Grants made under the AirGate PCS, Inc. 2001 Non-Employee Director Compensation
Plan were issued under either the AirGate PCS, Inc. 1999 Stock Option Plan or
the AirGate PCS, Inc. 2002 Long-Term Incentive Plan and thus are not separately
stated in the table.

(c) Number of SecuritiesRemaining Available for(a) Number of
    
    
    
    
    
    Future Issuance UnderSecurities to be Issued
    
    (b) Weighted Average
    
    Equity CompensationUpon Exercise of
    
    Exercise Price of
    
    Plans (Excluding
    
    (d) Total of SecuritiesOutstanding Options,
    
    Outstanding Options,
    
    Securities Reflected
    
    Reflected inPlan Category
    
    Warrants and Rights
    
    Warrants and Rights
    
    in Column (a))
    
    Columns (a) and (c)Equity Compensation
Plans Approved by
Shareowners
    
    
    274,203
    (2)
    
    $
    34.67
    
    
    
    
    (1)
    
    
    274,203336,053
    (3)
    
    $
    31.19
    
    
    
    
    (1)
    
    
    336,053617,364
    (4)
    
    $
    2.93
    
    
    
    882,636
    
    
    
    1,500,000Equity Compensation
Plans Not Approved by
Shareowners
    
    
    49,450
    (5)
    
    $
    44.93
    
    
    
    
    (1)
    
    
    49,450TOTAL
    
    
    1,277,070
    
    
    $
    18.32
    
    
    
    882,636
    (6)
    
    
    2,159,706




|(1) |  | The right to issue options under this plan terminated upon shareholder
approval of the 2002 Long-Term Incentive Plan.
|--- |  | ---------------------------------------------------------------------------------------------------------------------



|(2) |  | Issued under the AirGate PCS, Inc. 1999 Stock Option Plan.
|--- |  | ----------------------------------------------------------



|(3) |  | Issued under the AirGate PCS, Inc. Amended and Restated 2000 Long-Term
Incentive Plan.
|--- |  | --------------------------------------------------------------------------------------



|(4) |  | Issued under the AirGate PCS, Inc. 2002 Long-Term Incentive Plan.
|--- |  | -----------------------------------------------------------------

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|(5) |  | Issued under the AirGate PCS, Inc. 2001 Non-Executive Stock Option Plan.
|--- |  | ------------------------------------------------------------------------



|(6) |  | In addition, 73,314 shares of AirGates common stock remained for
issuance under the AirGate PCS, Inc. 2001 Employee Stock Purchase Plan.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------

The remaining information called for by Item 12 is incorporated herein by
reference to AirGates Proxy Statement to be delivered in connection with its
2004 Annual Meeting of Shareowners.




ITEM 13.Certain Relationships and Related Transactions.

Information called for by Item 13 is incorporated herein by reference to
AirGates Proxy Statement to be delivered in connection with its 2004 Annual
Meeting of Shareowners.




ITEM 14.Principal Accounting Fees and Services.

Information called for by Item 14 is incorporated herein by reference to
AirGates Proxy Statement to be delivered in connection with its 2004 Annual
Meeting of Shareowners.

PART IV

ITEM 15.   Exhibits, Financial Statement Schedules and
Reports On Form 8-K

(a)  Financial
Statements and Schedules

| |                                                             | 
| | ----------------------------------------------------------- | 
| | See Index to Consolidated Financial Statements at page F-1. | 
| |                                                             | 

(b)  Reports
on Form 8-K

The following Current Reports on 8-K
were filed by AirGate during the quarter ended September 30, 2003:

On July 2, 2003, AirGate
furnished a Current Report on Form 8-K with the Securities and
Exchange Commission under Item 9  Regulation FD
Disclosure announcing that Robert A. Ferchat has been named to
chairman of the Companys board of Directors.

On August 15, 2003, AirGate
furnished a Current Report on Form 8-K with the Securities and
Exchange Commission under Item 12  Results of
Operations and Financial Condition relating to issuance of a press
release regarding financial and operating results for the third
quarter of fiscal year 2003.

On September 26, 2003, AirGate
furnished a Current Report on Form 8-K with the Securities and
Exchange Commission under Item 5  Other Events
relating to issuance of a press release regarding its intent to
pursue a registered exchange offer.

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##### Table of Contents



(c) Exhibits

ExhibitNumber
    
    Description3.1
    
    Restated Certificate of Incorporation of AirGate PCS, Inc. (AirGate), dated
December 17, 2002 (incorporated by reference to Exhibit 3.1 to the annual report
on Form 10-K/ A filed by AirGate with the Commission on January 17, 2003 for the
year ended September 30, 2002 (SEC File No. 000-27455))3.2
    
    Amended and Restated Bylaws of AirGate, dated December 17, 2002 (incorporated by
reference to Exhibit 3.2 to the annual report on Form 10-K/ A filed by AirGate
with the Commission on January 17, 2003 for the year ended September 30, 2002 (SEC
File No. 000-27455))4.1
    
    Specimen of common stock certificate of AirGate (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 (File Nos. 333-79189-02 and 333-79189-01))4.2
    
    Form of Warrant Agreement for warrants issued in units offering (incorporated by
reference to Exhibit 10.15 to the Registration Statement on Form S-1/ A filed by
AirGate with the SEC on September 23, 1999 (File Nos. 333-79189-02 and
333-79189-01))4.3
    
    Form of Warrant issued in units offering (included in Exhibit 4.2)4.4
    
    Form of unit (included in Exhibit 4.2)4.5
    
    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))4.6
    
    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 AirGate with the SEC on September 23, 1999 (SEC File Nos.
333-79189-02 and 333-79189-01))4.7
    
    Form of 13.5% senior subordinated discount note due 2009 (included in Exhibit 4.6)10.1
    
    Support Agreement, dated as of September 24, 2003, by and among AirGate and each
of the noteholders signatory thereto (incorporated by reference to
Exhibit 10.1 to the Registration Statement on Form S-4 filed by
AirGate with the SEC on September 26, 2003 (SEC File No. 333-109165))10.2
    
    Form of Registration Rights Agreement, dated as of November 30, 2001, by and among
AirGate 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
Communications, Inc., Technology Group, LLC, Montrose Mutual PCS, Inc., Gridley
Enterprises, Inc., Timothy M. Yager and Kelly M. Yager (incorporated by reference
to Exhibit 10.2 to the current report on Form 8-K filed by AirGate with the
Commission on August 31, 2001 (SEC File No. 000-27455))10.3
    
    Sprint PCS Management Agreement and Addenda I-III thereto between SprintCom, Inc.
and AirGate Wireless, L.L.C. (incorporated by reference to Exhibit 10.1 to the
Registration Statement on Form S-1/ A filed by AirGate with the Commission on June
15, 1999 (SEC File Nos. 333-79189-02 and 333-79189-01))


82



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##### Table of Contents



ExhibitNumber
    
    Description10.4
    
    Assignment of Sprint PCS Management Agreement,
Sprint Spectrum Services Agreement and Trademark
and Service Mark Agreement from AirGate Wireless,
L.L.C. to AirGate Wireless, Inc. dated November
20, 1998 (incorporated by reference to Exhibit
10.14 to the Registration Statement on Form S-1/ A
filed by AirGate with the Commission on August 9,
1999 (SEC File Nos. 333-79189-02 and
333-79189-01))10.5
    
    Addendum IV to Sprint PCS Management Agreement
dated August 26, 1999 by and among SprintCom,
Inc., Sprint Communications Company, L.P., Sprint
Spectrum L.P. and AirGate (incorporated by
reference to Exhibit 10.1.2 to the annual report
on Form 10-K filed by AirGate with the Commission
on December 18, 2000 for the year ended September
30, 2000 (SEC File No. 000-27455))10.6
    
    Addendum V to Sprint PCS Management Agreement
dated May 12, 2000 by and among SprintCom, Inc.,
Sprint Communications Company, L.P. and AirGate
(incorporated by reference to Exhibit 10.1.3 to
the annual report on Form 10-K filed by AirGate
with the Commission on December 18, 2000 for the
year ended September 30, 2000 (SEC File No.
000-27455))10.7
    
    Addendum VI to Sprint PCS Management Agreement
dated December 8, 2000 by and among SprintCom,
Inc., Sprint Communications Company, L.P., Sprint
Spectrum L.P. and AirGate (incorporated by
reference to Exhibit 10.1.4 to the quarterly
report on Form 10-Q filed by AirGate with the
Commission on February 14, 2001 for the quarter
ended December 31, 2000 (SEC File No. 000-27455))10.8
    
    Schedule of Definitions to Sprint PCS Management
Agreement by and among SprintCom, Inc. and AirGate
Wireless, L.L.C. (incorporated by reference to
Exhibit 10.33 to the quarterly report on Form 10-Q
filed by AirGate with the Commission on May 15,
2002 for the quarter ended March 31, 2002 (SEC
File No. 000-27455))10.9
    
    Sprint PCS Services Agreement between Sprint
Spectrum L.P. and AirGate Wireless, L.L.C.
(incorporated by reference to Exhibit 10.2 to the
Registration Statement on Form S-1/ A filed by
AirGate with the Commission on June 15, 1999 (SEC
File Nos. 333-79189-02 and 333-79189-01))10.10
    
    Sprint Spectrum Trademark and Service Mark License
Agreement (incorporated by reference to Exhibit
10.3 to the Registration Statement on Form S-1/ A
filed by AirGate with the Commission on June 15,
1999 (SEC File Nos. 333-79189-02 and
333-79189-01))10.11
    
    Sprint Trademark and Service Mark License
Agreement (incorporated by reference to Exhibit
10.4 to the Registration Statement on Form S-1/ A
filed by AirGate with the Commission on June 15,
1999 (SEC File Nos. 333-79189-02 and
333-79189-01))10.12
    
    Sales Agency Agreement made as of May 1, 2001
between Sprint Communications Company L.P. and
AirGate (incorporated by reference to Exhibit
10.10 to the annual report on Form 10-K/ A filed
by AirGate with the Commission on January 17, 2003
for the year ended September 30, 2002 (SEC File
No. 000-27455))10.13
    
    Consent and Agreement (incorporated by reference
to Exhibit 10.13 to the Registration Statement on
Form S-1/ A filed by AirGate with the Commission
on September 17, 1999 (SEC File Nos. 333-79189-02
and 333-79189-01))10.14
    
    Master Site Agreement dated August 6, 1998 between
AirGate and BellSouth Carolinas PCS, L.P. and
BellSouth Personal Communications, Inc.
(incorporated by reference to Exhibit 10.5 to the
Registration Statement on Form S-1/ A filed by
AirGate with the Commission on June 15, 1999 (SEC
File Nos. 333-79189-02 and 333-79189-01))10.15
    
    Notice to AirGate of an assignment of sublease
dated September 20, 1999 between BellSouth
Cellular Corp. and Crown Castle South Inc., given
pursuant to Section 16(b) of the Master Site
Agreement (incorporated by reference to Exhibit
10.5.1 to the annual report on Form 10-K filed by
AirGate with the Commission on December 18, 2000
for the year ended September 30, 2000 (SEC File
No. 000-27455))


83



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ExhibitNumber
    
    Description10.16
    
    Master Tower Space Reservation and License
Agreement dated February 19, 1999 between AGW
Leasing Company, Inc. and American Tower, L.P.
(incorporated by reference to Exhibit 10.5.2 to
the annual report on Form 10-K filed by AirGate
with the Commission on December 18, 2000 for the
year ended September 30, 2000 (SEC File No.
000-27455))10.17
    
    Master Antenna Site Lease No. J50 dated July 20,
1999 between Pinnacle Towers Inc. and AGW Leasing
Company (incorporated by reference to Exhibit
10.5.3 to the annual report on Form 10-K filed by
AirGate with the Commission on December 18, 2000
for the year ended September 30, 2000 (SEC File
No. 000-27455))10.18
    
    Commercial Real Estate Lease dated August 7, 1998
between AirGate and Perry Company of Columbia,
Inc. to lease a warehouse facility (incorporated
by reference to Exhibit 10.7 to the Registration
Statement on Form S-1/ A filed by AirGate with the
Commission on July 12, 1999 (SEC File Nos.
333-79189-02 and 333-79189-01))10.19
    
    Lease Agreement dated August 25, 1999 between
Robert W. Bruce, Camperdown Company, Inc. and AGW
Leasing Company, Inc. to lease office/warehouse
space in Greenville, South Carolina (incorporated
by reference to Exhibit 10.7.1 to the annual
report on Form 10-K filed by AirGate with the
Commission on December 18, 2000 for the year ended
September 30, 2000 (SEC File No. 000-27455))10.20
    
    Form of Indemnification Agreement (incorporated by
reference to Exhibit 10.8 to the Registration
Statement on Form S-1/ A filed by AirGate with the
Commission on June 15, 1999 (SEC File Nos.
333-79189-02 and 333-79189-01))10.21
    
    Credit Agreement with Lucent, including form of
pledge agreement and form of intercreditor
agreement (incorporated by reference to Exhibit
10.12 to the Registration Statement on Form S-1/ A
filed by AirGate with the Commission on September
17, 1999 (SEC File Nos. 333-79189-02 and
333-79189-01))10.22
    
    First Amendment to Credit Agreement dated October
21, 2001 by and between AirGate PCS, Inc., State
Street Bank and Trust Company and Lehman
Commercial Paper, Inc.10.23
    
    Amendment No. 2 to the Credit Agreement dated
November 30, 2003 by and among AirGate PCS, Inc.,
State Street Bank and Trust Company and Lehman
Commercial Paper, Inc.10.24
    
    Employment Agreement dated April 9, 1999 by and
between AirGate and Thomas M. Dougherty
(incorporated by reference to Exhibit 10.9 to the
Registration Statement on Form S-1/ A filed by
AirGate with the Commission on June 15, 1999 (SEC
File Nos. 333-79189-02 and 333-79189-01))10.25
    
    First Amendment to Employment Agreement dated
December 20, 1999 between AirGate and Thomas M.
Dougherty (incorporated by reference to Exhibit
10.16 to the quarterly report on Form 10-Q filed
by AirGate with the Commission on May 15, 2000 for
the quarter ended March 31, 2000 (SEC File No.
000-27455))10.26
    
    Retention Bonus Agreement dated May 4, 2000
between AirGate and Thomas M. Dougherty
(incorporated by reference to Exhibit 10.17 to the
quarterly report on Form 10-Q filed by AirGate
with the Commission on May 15, 2000 for the
quarter ended March 31, 2000 (SEC File No.
000-27455))10.27
    
    Employment Agreement dated as of September 27,
1999 by and between AirGate and David C. Roberts
(incorporated by reference to Exhibit 10.22 to the
annual report on Form 10-K filed by AirGate with
the Commission on November 30, 2001 for the year
ended September 30, 2001 (SEC File No.
000-27455))10.28
    
    Employment Agreement dated as of August 30, 2000
by and between AirGate and Barbara L. Blackford
(incorporated by reference to Exhibit 10.23 to the
annual report on Form 10-K filed by AirGate with
the Commission on November 30, 2001 for the year
ended September 30, 2001 (SEC File No.
000-27455))10.29
    
    Separation Agreement and Release dated October 31,
2002, by and between AirGate and Alan Catherall
(incorporated by reference to Exhibit 10.26 to the
annual report on Form 10-K/ A filed by AirGate
with the Commission on January 17, 2003 for the
year ended September 30, 2002 (SEC File No.
000-27455))10.30
    
    Offer Letter, effective October 24, 2002, by and
between AirGate and William H. Seippel
(incorporated by reference to Exhibit 10.27 to the
annual report on Form 10-K/ A filed by AirGate
with the Commission on January 17, 2003 for the
year ended September 30, 2002 (SEC File No.
000-27455))


84



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ExhibitNumber
    
    Description10.31
    
    AirGate PCS, Inc. 1999 Stock Option Plan
(incorporated by reference to Exhibit 99.1 to
the Registration Statement on Form S-8 filed by
AirGate with the Commission on April 10, 2000
(SEC File No. 333-34416))10.32
    
    Form of AirGate PCS, Inc. Option Agreement
(incorporated by reference to Exhibit 10.25 to
the annual report on Form 10-K filed by AirGate
with the Commission on November 30, 2001 for the
year ended September 30, 2001 (SEC File No.
000-27455))10.33
    
    AirGate PCS, Inc. 2001 Non-Executive Stock
Option Plan (incorporated by reference to
Exhibit 10.11.2 to the quarterly report on Form
10-Q filed by AirGate with the Commission on
February 14, 2001 for the quarter ended December
31, 2000 (SEC File No. 000-27455))10.34
    
    AirGate PCS, Inc. 2001 Employee Stock Purchase
Plan (incorporated by reference to Exhibit
10.11.3 to the quarterly report on Form 10-Q
filed by AirGate with the Commission on February
14, 2001 for the quarter ended December 31, 2000
(SEC File No. 000-27455))10.35
    
    2002 AirGate PCS, Inc. Long-Term Incentive Plan
(incorporated by reference to Exhibit 99.1 to
the Registration Statement on Form S-8 filed by
AirGate with the Commission on March 29, 2002
(SEC File No. 333-85250)10.36
    
    AirGate PCS, Inc. Amended and Restated
Non-Employee Director Compensation Plan dated
January 22, 2003 (incorporated by reference to
Exhibit 10.2 to the quarterly report on Form
10-Q filed by AirGate with the Commission on May
15, 2003 for the quarter ended March 31, 2003
(SEC File No. 000-27455))10.37
    
    Agreement and Plan of Merger, dated as of August
28, 2001, by and between AirGate and iPCS, Inc.
(incorporated by reference to Exhibit 10.1 to
the current report on Form 8-K filed by AirGate
with the Commission on August 31, 2001 (SEC File
No. 000-27455))10.38
    
    Services Agreement dated as of January 1, 2002
by and among AirGate, AirGate Service Company,
Inc., iPCS, Inc. and iPCS Wireless, Inc.
(incorporated by reference to Exhibit 10.34 to
the quarterly report on Form 10-Q filed by
AirGate with the Commission on May 15, 2002 for
the quarter ended March 31, 2002 (SEC File No.
000-27455))10.39
    
    First Amendment to Services Agreement dated
February 21, 2003 by and among AirGate Service
Company, Inc., AirGate, iPCS Wireless, Inc. and
iPCS, Inc (incorporated by reference to Exhibit
10.1 to the quarterly report on Form 10-Q filed
by AirGate with the Commission on May 15, 2003
for the quarter ended March 31, 2003 (SEC File
No. 000-27455))10.40
    
    Technology License Agreement dated as of January
1, 2002 by and among AirGate, AGW Leasing
Company, Inc., AirGate Service Company, Inc.,
AirGate Network Services, Inc., iPCS, Inc., iPCS
Wireless, Inc. and iPCS Equipment, Inc.
(incorporated by reference to Exhibit 10.35 to
the quarterly report on Form 10-Q filed by
AirGate with the Commission on May 15, 2002 for
the quarter ended March 31, 2002 (SEC File No.
000-27455))12.1
    
    Computation of Ratio of Earnings to Fixed Charges21.1
    
    Subsidiaries of AirGate PCS, Inc (incorporated
by reference to Exhibit 21 to the annual report
on Form 10-K/ A filed by AirGate with the
Commission on January 17, 2003 for the year
ended September 30, 2002 (SEC File No.
000-27455))23.1
    
    Consent of KPMG LLP
Powers of Attorney.24.1
    
    Powers of Attorney31.1
    
    Rule 13a-14(a) certification of Chief Executive Officer of AirGate
filed in accordance with Section 302 of the Sarbanes-Oxley Act of
2002.31.2
    
    Rule 13a-14(a) certification of Chief Financial Officer of AirGate
filed in accordance with Section 302 of the Sarbanes-Oxley Act of
2002.32.1
    
    Section 1350 certification of Chief Executive Officer of AirGate
furnished in accordance with Section 906 of the Sarbanes-Oxley Act of
2002.32.2
    
    Section 1350 certification of Chief Financial Officer of AirGate
furnished in accordance with Section 906 of the Sarbanes-Oxley Act of
2002.


85



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SIGNATURES



| |  | Pursuant to the requirements of Section 13 or15(d)of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, on December
15, 2003.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

AIRGATE PCS, INCBy:
    
    /s/ WILLIAM H. SIEPPEL

        William H. Sieppel
     Chief Financial Officer
    (Principal Financial and
       Accounting Officer)


Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated.

Name
    
    Title
    
    Date/s/ THOMAS M. DOUGHERTY
Thomas M. Dougherty
    
    Chief Executive Officer and Director
(Principal Executive Officer)
    
    December 15, 2003/s/ WILLIAM H. SIEPPEL
William H. Sieppel
    
    Chief Financial Officer (Principal
Financial and Accounting Officer)
    
    December 15, 2003*
Robert A. Ferchat
    
    Chairman of the Board of Directors
    
    December 15, 2003*
Stephen R. Stetz
    
    Member, Board of Directors
    
    December 15, 2003By: /s/ BARBARA L. BLACKFORD
Barbara L. Blackford
Attorney-in-fact
    
    Vice President, General Counsel
and Corporate Secretary
    
    December 15, 2003




|* |  | Barbara L. Blackford, by signing her name hereto, does sign this document
on behalf of the above noted individuals pursuant to powers of attorney
duly executed by such individuals, which have been filed as an exhibit to
this Report.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





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##### Table of Contents








INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS


OF AIRGATE PCS, INC. AND ITS
SUBSIDIARIES





|                                              |                                                                                                                |      |  |      | 
|--------------------------------------------- | -------------------------------------------------------------------------------------------------------------- | ---- |  | ---- | 
|                                              |                                                                                                                | Page
|                                              |                                                                                                                |     
|Audited Consolidated Financial
    Statements |                                                                                                                |      |  |     
|                                              | Independent Auditors Report                                                                                   |      |  | F-2  | 
|                                              | Consolidated Balance Sheets as of
    September 30, 2003 and 2002                                              |      |  | F-3  | 
|                                              | Consolidated Statements of Operations for the
    Years Ended September 30, 2003, 2002 and 2001                |      |  | F-4  | 
|                                              | Consolidated Statements of Stockholders
    Deficit for the Years Ended September 30, 2003, 2002 and
    2001 |      |  | F-5  | 
|                                              | Consolidated Statements of Cash Flows for the
    Years Ended September 30, 2003, 2002 and 2001                |      |  | F-6  | 
|                                              | Notes to the Consolidated Financial Statements                                                                 |      |  | F-7  | 
|Financial Statement Schedule                  |                                                                                                                |      |  |     
|                                              | Independent Auditors Report                                                                                   |      |  | F-43 | 
|                                              | Consolidated Schedule of Valuation and Qualifying
    Accounts                                                 |      |  | F-44 | 




F-1



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##### Table of Contents



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, 2003 and 2002, and the related consolidated
statements of operations, stockholders deficit, and cash
flows for each of the years in the three-year period ended
September 30, 2003. These consolidated financial statements
are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.




We conducted our audits in accordance with
auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the 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 consolidated financial position of AirGate PCS,
Inc. and subsidiaries as of September 30, 2003 and 2002,
and the results of their operations and their cash flows for
each of the years in the three-year period ended
September 30, 2003, in conformity with accounting
principles generally accepted in the United States of America.




The accompanying consolidated financial
statements have been prepared assuming the Company will continue
as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has suffered
significant recurring losses since inception and has an
accumulated deficit of $1.3 billion and a
stockholders deficit of $377.0 million at
September 30, 2003. The Companys continuation as a
going concern is dependent on its ability to restructure or
otherwise amend the terms of its debt; and if unsuccessful, the
Company may seek bankruptcy court or other protection from its
creditors within the next year. These conditions raise
substantial doubt about the Companys ability to continue
as a going concern. Managements plans in regard to these
matters are described in Note 1. The consolidated financial
statements do not include any adjustments that might result from
the outcome of this uncertainty.






| |             
| | ------------
| | /s/ KPMG LLP

Atlanta, Georgia




December 5, 2003





F-2



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##### Table of Contents



AIRGATE PCS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS




|                                                                                                      |                                                                                                                                                                            |                               |                                             |               |          |         |         |            |          |         | 
|----------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------- | ------------------------------------------- | ------------- | -------- | ------- | ------- | ---------- | -------- | ------- | 
|                                                                                                      |                                                                                                                                                                            | September 30,                 |                                             | September 30,
|                                                                                                      |                                                                                                                                                                            | 2003                          |                                             | 2002         
|                                                                                                      |                                                                                                                                                                            |                               |                                             |              
|                                                                                                      |                                                                                                                                                                            |                              
|                                                                                                      |                                                                                                                                                                            | (Dollars in thousands, except
|                                                                                                      |                                                                                                                                                                            | share and per share amounts) 
|ASSETS                                                                                               
|Current assets:                                                                                       |                                                                                                                                                                            |                               |                                             |               |          |         |         |           
|                                                                                                      | Cash and cash equivalents                                                                                                                                                  |                               | $                                           | 54,078        |          |         | $       | 32,475     |         
|                                                                                                      | Accounts receivable, net of allowance for
    doubtful accounts of $4,635 and $11,256                                                                                      |                               |                                             | 26,994        |          |         |         | 38,127     |         
|                                                                                                      | Receivable from Sprint                                                                                                                                                     |                               |                                             | 15,809        |          |         |         | 44,953     |         
|                                                                                                      | Inventories                                                                                                                                                                |                               |                                             | 2,132         |          |         |         | 6,733      |         
|                                                                                                      | Prepaid expenses                                                                                                                                                           |                               |                                             | 2,107         |          |         |         | 7,159      |         
|                                                                                                      | Other current assets                                                                                                                                                       |                               |                                             | 145           |          |         |         | 326        |         
|                                                                                                      |                                                                                                                                                                            |                               |                                             |               |          |         |         |           
|                                                                                                      |                                                                                                                                                                            | Total current assets          |                                             |               | 101,265  |         |         |            | 129,773  |        
|Property and equipment, net of accumulated
    depreciation and amortization of $129,986 and $112,913 |                                                                                                                                                                            |                               | 178,070                                     |               |          |         | 399,155 |           
|Financing costs                                                                                       |                                                                                                                                                                            |                               | 6,682                                       |               |          |         | 8,118   |           
|Direct subscriber activation costs                                                                    |                                                                                                                                                                            |                               | 3,907                                       |               |          |         | 8,409   |           
|Intangible assets, net of accumulated
    amortization of $0 and $39,378                              |                                                                                                                                                                            |                               |                                            |               |          |         | 28,327  |           
|Other assets                                                                                          |                                                                                                                                                                            |                               | 992                                         |               |          |         | 512     |           
|                                                                                                      |                                                                                                                                                                            |                               |                                             |               |          |         |         |           
|                                                                                                      |                                                                                                                                                                            | Total assets                  |                                             | $             | 290,916  |         |         | $          | 574,294  |        
|                                                                                                      |                                                                                                                                                                            |                               |                                             |               |          |         |         |           
|                                                                                                     
|LIABILITIES AND STOCKHOLDERS
    DEFICIT                                                            
|Current liabilities:                                                                                  |                                                                                                                                                                            |                               |                                             |               |          |         |         |           
|                                                                                                      | Accounts payable                                                                                                                                                           |                               | $                                           | 5,945         |          |         | $       | 18,152     |         
|                                                                                                      | Accrued expenses                                                                                                                                                           |                               |                                             | 12,104        |          |         |         | 20,950     |         
|                                                                                                      | Payable to Sprint                                                                                                                                                          |                               |                                             | 45,069        |          |         |         | 88,360     |         
|                                                                                                      | Deferred revenue                                                                                                                                                           |                               |                                             | 7,854         |          |         |         | 11,775     |         
|                                                                                                      | Current maturities of long-term debt and capital
    lease obligations                                                                                                     |                               |                                             | 17,775        |          |         |         | 354,936    |         
|                                                                                                      |                                                                                                                                                                            |                               |                                             |               |          |         |         |           
|                                                                                                      |                                                                                                                                                                            | Total current liabilities     |                                             |               | 88,747   |         |         |            | 494,173  |        
|Deferred subscriber activation fee revenue                                                            |                                                                                                                                                                            |                               | 6,701                                       |               |          |         | 14,973  |           
|Other long-term liabilities                                                                           |                                                                                                                                                                            |                               | 1,841                                       |               |          |         | 3,267   |           
|Long-term debt and capital lease obligations,
    excluding current maturities                        |                                                                                                                                                                            |                               | 386,509                                     |               |          |         | 354,828 |           
|Investment in iPCS                                                                                    |                                                                                                                                                                            |                               | 184,115                                     |               |          |         |        |           
|                                                                                                      |                                                                                                                                                                            |                               |                                             |               |          |         |         |           
|                                                                                                      |                                                                                                                                                                            | Total liabilities             |                                             |               | 667,913  |         |         |            | 867,241  |        
|                                                                                                      |                                                                                                                                                                            |                               |                                             |               |          |         |         |           
|                                                                                                      |                                                                                                                                                                            |                               | Commitments and contingencies               |               |          |        |         |            |          |        | 
|Stockholders 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; 25,961,191 and
    25,806,520 shares issued and outstanding at
    September 30, 2003 and 2002 |                               |                                             | 259           |          |         |         | 258        |         
|                                                                                                      | Additional paid-in-capital                                                                                                                                                 |                               |                                             | 923,888       |          |         |         | 924,008    |         
|                                                                                                      | Accumulated deficit                                                                                                                                                        |                               |                                             | (1,300,941    | )        |         |         | (1,216,184 | )       
|                                                                                                      | Unearned stock compensation                                                                                                                                                |                               |                                             | (203          | )        |         |         | (1,029     | )       
|                                                                                                      |                                                                                                                                                                            |                               |                                             |               |          |         |         |           
|                                                                                                      |                                                                                                                                                                            | Total stockholders deficit   |                                             |               | (376,997 | )       |         |            | (292,947 | )      
|                                                                                                      |                                                                                                                                                                            |                               |                                             |               |          |         |         |           
|                                                                                                      |                                                                                                                                                                            |                               | Total liabilities and stockholders deficit |               | $        | 290,916 |         |            | $        | 574,294 | 
|                                                                                                      |                                                                                                                                                                            |                               |                                             |               |          |         |         |           




See accompanying notes to the consolidated
financial statements.

F-3



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##### Table of Contents



AIRGATE PCS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                                 |                                                                                                         |                                         |            |         |         |      |            |         |            |   |            |         |          |  
|---------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------- | --------------------------------------- | ---------- | ------- | ------- | ---- | ---------- | ------- | ---------- | - | ---------- | ------- | -------- | -
|                                                                 |                                                                                                         |                                        
|                                                                 |                                                                                                         | Years Ended September 30,              
|                                                                 |                                                                                                         |                                        
|                                                                 |                                                                                                         | 2003                                    |            | 2002    |         | 2001
|                                                                 |                                                                                                         |                                         |            |         |         |     
|                                                                 |                                                                                                         |                                        
|                                                                 |                                                                                                         | (Dollars in thousands, except share and
|                                                                 |                                                                                                         | per share amounts)                     
|Revenues:                                                        |                                                                                                         |                                         |            |         |         |      |            |         |            |   |            |        
|                                                                 | Service revenue                                                                                         |                                         | $          | 309,377 |         |      | $          | 327,365 |            |   | $          | 105,976 |         
|                                                                 | Roaming revenue                                                                                         |                                         |            | 86,672  |         |      |            | 111,162 |            |   |            | 55,329  |         
|                                                                 | Equipment revenue                                                                                       |                                         |            | 13,988  |         |      |            | 18,030  |            |   |            | 10,782  |         
|                                                                 |                                                                                                         |                                         |            |         |         |      |            |         |            |   |            |        
|                                                                 |                                                                                                         | Total revenues                          |            |         | 410,037 |      |            |         | 456,557    |   |            |         | 172,087  |  
|                                                                 |                                                                                                         |                                         |            |         |         |      |            |         |            |   |            |        
|Operating expenses:                                              |                                                                                                         |                                         |            |         |         |      |            |         |            |   |            |        
|                                                                 | Cost of service and roaming (exclusive of
    depreciation and amortization, as shown separately below) |                                         |            | 243,191 |         |      |            | 311,303 |            |   |            | 116,909 |         
|                                                                 | Cost of equipment                                                                                       |                                         |            | 28,419  |         |      |            | 43,592  |            |   |            | 20,218  |         
|                                                                 | Selling and marketing                                                                                   |                                         |            | 68,186  |         |      |            | 116,610 |            |   |            | 71,706  |         
|                                                                 | General and administrative                                                                              |                                         |            | 30,228  |         |      |            | 25,851  |            |   |            | 17,141  |         
|                                                                 | Depreciation and amortization of property and
    equipment                                             |                                         |            | 60,662  |         |      |            | 70,197  |            |   |            | 30,621  |         
|                                                                 | Amortization of intangible assets                                                                       |                                         |            | 6,821   |         |      |            | 39,332  |            |   |            | 46      |         
|                                                                 | Loss on disposal of property and equipment                                                              |                                         |            | 1,969   |         |      |            | 1,074   |            |   |            |        |         
|                                                                 | Impairment of goodwill                                                                                  |                                         |            |        |         |      |            | 460,920 |            |   |            |        |         
|                                                                 | Impairment of property and equipment                                                                    |                                         |            |        |         |      |            | 44,450  |            |   |            |        |         
|                                                                 | Impairment of intangible assets                                                                         |                                         |            |        |         |      |            | 312,043 |            |   |            |        |         
|                                                                 |                                                                                                         |                                         |            |         |         |      |            |         |            |   |            |        
|                                                                 |                                                                                                         | Total operating expenses                |            |         | 439,476 |      |            |         | 1,425,372  |   |            |         | 256,641  |  
|                                                                 |                                                                                                         |                                         |            |         |         |      |            |         |            |   |            |        
|                                                                 |                                                                                                         | Operating loss                          |            |         | (29,439 | )    |            |         | (968,815   | ) |            |         | (84,554  | )
|Interest income                                                  |                                                                                                         |                                         | 229        |         |         |      | 590        |         |            |   | 2,463      |        
|Interest expense                                                 |                                                                                                         |                                         | (55,547    | )       |         |      | (57,153    | )       |            |   | (28,899    | )      
|                                                                 |                                                                                                         |                                         |            |         |         |      |            |         |            |   |            |        
|                                                                 |                                                                                                         | Loss before income tax benefit          |            |         | (84,757 | )    |            |         | (1,025,378 | ) |            |         | (110,990 | )
|                                                                 |                                                                                                         | Income tax benefit                      |            |         |        |      |            |         | 28,761     |   |            |         |         |  
|                                                                 |                                                                                                         |                                         |            |         |         |      |            |         |            |   |            |        
|                                                                 |                                                                                                         | Net loss                                |            | $       | (84,757 | )    |            | $       | (996,617   | ) |            | $       | (110,990 | )
|                                                                 |                                                                                                         |                                         |            |         |         |      |            |         |            |   |            |        
|Basic and diluted net loss per share of common
    stock         |                                                                                                         | $                                       | (3.27      | )       |         | $    | (41.96     | )       |            | $ | (8.48      | )      
|                                                                 |                                                                                                         |                                         |            |         |         |      |            |         |            |   |            |        
|Basic and diluted weighted-average outstanding
    common shares |                                                                                                         |                                         | 25,908,414 |         |         |      | 23,751,507 |         |            |   | 13,089,285 |        
|                                                                 |                                                                                                         |                                         |            |         |         |      |            |         |            |   |            |        

See accompanying notes to the consolidated
financial statements.

F-4



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##### Table of Contents



AIRGATE PCS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
DEFICIT

Years Ended September 30, 2003, 2002, and
2001





|                              |                                                              |                                              |            |            |   |             |     |          |  |               |         |         |   |   |            |          |   |   |        |       |   |   |          |          |  
|----------------------------- | ------------------------------------------------------------ | -------------------------------------------- | ---------- | ---------- | - | ----------- | --- | -------- |  | ------------- | ------- | ------- | - | - | ---------- | -------- | - | - | ------ | ----- | - | - | -------- | -------- | -
|                              |                                                              |                                              |            |            |   |             |     |          |  |              
|                              |                                                              | Common Stock                                 |            | Additional |   |             |     | Unearned |  | Total        
|                              |                                                              |                                              |            | Paid-in    |   | Accumulated |     | Stock    |  | Stockholders
|                              |                                                              | Shares                                       |            | Amount     |   | Capital     |     | Deficit  |  | Compensation  |         | Deficit
|                              |                                                              |                                              |            |            |   |             |     |          |  |               |         |        
|                              |                                                              |                                             
|                              |                                                              | (Dollars in thousands, except share amounts)
|Balance at September 30, 2000 |                                                              |                                              | 12,816,783 |            |   | $           | 128 |          |  | $             | 161,575 |         |   | $ | (108,577   | )        |   | $ | (3,253 | )     |   | $ | 49,873   |         
|                              | Exercise of common stock purchase warrants                   |                                              |            | 80,641     |   |             |     | 1        |  |               |         |        |   |   |            |         |   |   |        |      |   |   |          | 1        |  
|                              | Exercise of stock options                                    |                                              |            | 467,556    |   |             |     | 5        |  |               |         | 6,722   |   |   |            |         |   |   |        |      |   |   |          | 6,727    |  
|                              | Forfeiture of compensatory stock options                     |                                              |            |           |   |             |     |         |  |               |         | (81     | ) |   |            |         |   |   |        | 81    |   |   |          |         |  
|                              | Stock compensation expense                                   |                                              |            |           |   |             |     |         |  |               |         | 39      |   |   |            |         |   |   |        | 1,626 |   |   |          | 1,665    |  
|                              | Net loss                                                     |                                              |            |           |   |             |     |         |  |               |         |        |   |   |            | (110,990 | ) |   |        |      |   |   |          | (110,990 | )
|                              |                                                              |                                              |            |            |   |             |     |          |  |               |         |         |   |   |            |          |   |   |        |       |   |   |          |         
|Balance at September 30, 2001 |                                                              |                                              | 13,364,980 |            |   |             | 134 |          |  |               | 168,255 |         |   |   | (219,567   | )        |   |   | (1,546 | )     |   |   | (52,724  | )       
|                              |                                                              |                                              |            |            |   |             |     |          |  |               |         |         |   |   |            |          |   |   |        |       |   |   |          |         
|                              | Issuance of common stock in merger with iPCS                 |                                              |            | 12,362,571 |   |             |     | 124      |  |               |         | 706,521 |   |   |            |         |   |   |        |      |   |   |          | 706,645  |  
|                              | Stock options and warrants assumed in merger with
    iPCS   |                                              |            |           |   |             |     |         |  |               |         | 47,727  |   |   |            |         |   |   |        |      |   |   |          | 47,727   |  
|                              | Exercise of stock options                                    |                                              |            | 33,558     |   |             |     |         |  |               |         | 685     |   |   |            |         |   |   |        |      |   |   |          | 685      |  
|                              | Issuance of restricted common stock                          |                                              |            | 12,067     |   |             |     |         |  |               |         | 252     |   |   |            |         |   |   |        | (252  | ) |   |          |         |  
|                              | Exercise of common stock purchase warrants                   |                                              |            | 15,001     |   |             |     |         |  |               |         |        |   |   |            |         |   |   |        |      |   |   |          |         |  
|                              | Issuance of common stock to employee stock
    purchase plan |                                              |            | 18,343     |   |             |     |         |  |               |         | 568     |   |   |            |         |   |   |        |      |   |   |          | 568      |  
|                              | Stock compensation expense                                   |                                              |            |           |   |             |     |         |  |               |         |        |   |   |            |         |   |   |        | 769   |   |   |          | 769      |  
|                              | Net loss                                                     |                                              |            |           |   |             |     |         |  |               |         |        |   |   |            | (996,617 | ) |   |        |      |   |   |          | (996,617 | )
|                              |                                                              |                                              |            |            |   |             |     |          |  |               |         |         |   |   |            |          |   |   |        |       |   |   |          |         
|Balance at September 30, 2002 |                                                              |                                              | 25,806,520 |            |   |             | 258 |          |  |               | 924,008 |         |   |   | (1,216,184 | )        |   |   | (1,029 | )     |   |   | (292,947 | )       
|                              |                                                              |                                              |            |            |   |             |     |          |  |               |         |         |   |   |            |          |   |   |        |       |   |   |          |         
|                              | Issuance of restricted common stock                          |                                              |            | 30,000     |   |             |     |         |  |               |         | 21      |   |   |            |         |   |   |        | (21   | ) |   |          |         |  
|                              | Exercise of common stock purchase warrants                   |                                              |            | 21,480     |   |             |     |         |  |               |         |        |   |   |            |         |   |   |        |      |   |   |          |         |  
|                              | Issuance of common stock to employee stock
    purchase plan |                                              |            | 108,383    |   |             |     | 1        |  |               |         | 56      |   |   |            |         |   |   |        |      |   |   |          | 57       |  
|                              | Forfeiture of compensatory stock option                      |                                              |            |           |   |             |     |         |  |               |         | (195    | ) |   |            |         |   |   |        | 195   |   |   |          |         |  
|                              | Forfeiture of restricted common stock                        |                                              |            | (5,192     | ) |             |     |         |  |               |         | (2      | ) |   |            |         |   |   |        | 2     |   |   |          |         |  
|                              | Stock compensation expense                                   |                                              |            |           |   |             |     |         |  |               |         |        |   |   |            |         |   |   |        | 650   |   |   |          | 650      |  
|                              | Net loss                                                     |                                              |            |           |   |             |     |         |  |               |         |        |   |   |            | (84,757  | ) |   |        |      |   |   |          | (84,757  | )
|                              |                                                              |                                              |            |            |   |             |     |          |  |               |         |         |   |   |            |          |   |   |        |       |   |   |          |         
|Balance at September 30, 2003 |                                                              |                                              | 25,961,191 |            |   | $           | 259 |          |  | $             | 923,888 |         |   | $ | (1,300,941 | )        |   | $ | (203   | )     |   | $ | (376,997 | )       
|                              |                                                              |                                              |            |            |   |             |     |          |  |               |         |         |   |   |            |          |   |   |        |       |   |   |          |         




See accompanying notes to the consolidated
financial statements.

F-5



---



##### Table of Contents



AIRGATE PCS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS




|                                                                            |                                                                                               |                                                             |                                    |                                                                        |                                                          |      |        |          |         |   |         |          |        |  |         |         |  
|--------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------- | ----------------------------------------------------------- | ---------------------------------- | ---------------------------------------------------------------------- | -------------------------------------------------------- | ---- | ------ | -------- | ------- | - | ------- | -------- | ------ |  | ------- | ------- | -
|                                                                            |                                                                                               |                                                            
|                                                                            |                                                                                               | Years Ended September 30                                   
|                                                                            |                                                                                               |                                                            
|                                                                            |                                                                                               | 2003                                                        |                                    | 2002                                                                   |                                                          | 2001
|                                                                            |                                                                                               |                                                             |                                    |                                                                        |                                                          |     
|                                                                            |                                                                                               |                                                            
|                                                                            |                                                                                               | (Dollars in thousands)                                     
|Cash flows from operating activities:                                       |                                                                                               |                                                             |                                    |                                                                        |                                                          |      |        |          |         |   |         |         
|                                                                            | Net loss                                                                                      |                                                             | $                                  | (84,757                                                                | )                                                        |      | $      | (996,617 | )       |   | $       | (110,990 | )     
|                                                                            | Adjustments to reconcile net loss to net cash
    provided by (used in) operating activities: |                                                             |                                    |                                                                        |                                                          |      |        |          |         |   |         |          |       
|                                                                            |                                                                                               | Impairment of goodwill                                      |                                    |                                                                        |                                                         |      |        |          | 460,920 |   |         |          |       | 
|                                                                            |                                                                                               | Impairment of property and equipment                        |                                    |                                                                        |                                                         |      |        |          | 44,450  |   |         |          |       | 
|                                                                            |                                                                                               | Impairment of intangible assets                             |                                    |                                                                        |                                                         |      |        |          | 312,043 |   |         |          |       | 
|                                                                            |                                                                                               | Loss on disposal of property and equipment                  |                                    |                                                                        | 1,969                                                    |      |        |          | 1,074   |   |         |          |       | 
|                                                                            |                                                                                               | Depreciation and amortization of property and
    equipment |                                    |                                                                        | 60,662                                                   |      |        |          | 70,197  |   |         |          | 30,621 | 
|                                                                            |                                                                                               | Amortization of intangible assets                           |                                    |                                                                        | 6,821                                                    |      |        |          | 39,332  |   |         |          | 46     | 
|                                                                            |                                                                                               | Amortization of financing costs into interest
    expense   |                                    |                                                                        | 1,210                                                    |      |        |          | 1,211   |   |         |          | 1,210  | 
|                                                                            |                                                                                               | Provision for doubtful accounts                             |                                    |                                                                        | 6,912                                                    |      |        |          | 26,933  |   |         |          | 8,125  | 
|                                                                            |                                                                                               | Interest expense associated with accretion of
    discounts |                                    |                                                                        | 44,287                                                   |      |        |          | 50,670  |   |         |          | 23,799 | 
|                                                                            |                                                                                               | Non-cash stock compensation                                 |                                    |                                                                        | 650                                                      |      |        |          | 769     |   |         |          | 1,665  | 
|                                                                            |                                                                                               | Deferred income tax benefit                                 |                                    |                                                                        |                                                         |      |        |          | (28,761 | ) |         |          |       | 
|                                                                            |                                                                                               |                                                             | Changes in assets and liabilities: |                                                                        |                                                          |      |        |          |         |   |         |          |        |  |        
|                                                                            |                                                                                               |                                                             |                                    | Accounts receivable                                                    |                                                          |      | (8,503 | )        |         |   | (29,669 | )        |        |  | (26,995 | )      
|                                                                            |                                                                                               |                                                             |                                    | Receivable from Sprint                                                 |                                                          |      | 14,677 |          |         |   | (36,008 | )        |        |  | (6,432  | )      
|                                                                            |                                                                                               |                                                             |                                    | Inventories                                                            |                                                          |      | 3,368  |          |         |   | 2,985   |          |        |  | (1,737  | )      
|                                                                            |                                                                                               |                                                             |                                    | Prepaid expenses, other current and non-current
    assets             |                                                          |      | 2,487  |          |         |   | (2,708  | )        |        |  | (4,470  | )      
|                                                                            |                                                                                               |                                                             |                                    | Accounts payable, accrued expenses and other long
    term liabilities |                                                          |      | 2,699  |          |         |   | (15,777 | )        |        |  | 8,741   |        
|                                                                            |                                                                                               |                                                             |                                    | Payable to Sprint                                                      |                                                          |      | (7,943 | )        |         |   | 45,397  |          |        |  | 27,272  |        
|                                                                            |                                                                                               |                                                             |                                    | Deferred revenue                                                       |                                                          |      | (1,991 | )        |         |   | 8,317   |          |        |  | 8,295   |        
|                                                                            |                                                                                               |                                                             |                                    |                                                                        |                                                          |      |        |          |         |   |         |         
|                                                                            |                                                                                               |                                                             |                                    |                                                                        | Net cash provided by (used in) operating
    activities  |      |        | 42,548   |         |   |         | (45,242  | )      |  |         | (40,850 | )
|                                                                            |                                                                                               |                                                             |                                    |                                                                        |                                                          |      |        |          |         |   |         |         
|Cash flows from investing activities:                                       |                                                                                               |                                                             |                                    |                                                                        |                                                          |      |        |          |         |   |         |         
|                                                                            | Property and equipment, net                                                                   |                                                             |                                    | (25,944                                                                | )                                                        |      |        | (97,060  | )       |   |         | (71,270  | )     
|                                                                            | Cash acquired from iPCS                                                                       |                                                             |                                    |                                                                       |                                                          |      |        | 24,402   |         |   |         |         |       
|                                                                            | Acquisition of iPCS                                                                           |                                                             |                                    |                                                                       |                                                          |      |        | (6,058   | )       |   |         |         |       
|                                                                            | Deconsolidation of iPCS                                                                       |                                                             |                                    | (10,031                                                                | )                                                        |      |        |         |         |   |         |         |       
|                                                                            | Purchase of business assets                                                                   |                                                             |                                    |                                                                       |                                                          |      |        |         |         |   |         | (502     | )     
|                                                                            |                                                                                               |                                                             |                                    |                                                                        |                                                          |      |        |          |         |   |         |         
|                                                                            |                                                                                               |                                                             |                                    |                                                                        | Net cash used in investing activities                    |      |        | (35,975  | )       |   |         | (78,716  | )      |  |         | (71,772 | )
|                                                                            |                                                                                               |                                                             |                                    |                                                                        |                                                          |      |        |          |         |   |         |         
|Cash flows from financing activities:                                       |                                                                                               |                                                             |                                    |                                                                        |                                                          |      |        |          |         |   |         |         
|                                                                            | Proceeds from borrowings under senior credit
    facilities                                   |                                                             |                                    | 17,000                                                                 |                                                          |      |        | 141,200  |         |   |         | 61,800   |       
|                                                                            | Payment for credit facility                                                                   |                                                             |                                    | (2,024                                                                 | )                                                        |      |        |         |         |   |         |         |       
|                                                                            | Payments made under capital lease obligations                                                 |                                                             |                                    | (3                                                                     | )                                                        |      |        | (4       | )       |   |         |         |       
|                                                                            | Proceeds from stock issued to employee stock
    purchase plan                                |                                                             |                                    | 57                                                                     |                                                          |      |        | 568      |         |   |         |         |       
|                                                                            | Payments for iPCS credit facility amendment                                                   |                                                             |                                    |                                                                       |                                                          |      |        | (306     | )       |   |         |         |       
|                                                                            | Proceeds from exercise of common stock purchase
    warrants                                  |                                                             |                                    |                                                                       |                                                          |      |        |         |         |   |         | 1        |       
|                                                                            | Proceeds from exercise of employee stock options                                              |                                                             |                                    |                                                                       |                                                          |      |        | 685      |         |   |         | 6,727    |       
|                                                                            |                                                                                               |                                                             |                                    |                                                                        |                                                          |      |        |          |         |   |         |         
|                                                                            |                                                                                               |                                                             |                                    |                                                                        | Net cash provided by financing activities                |      |        | 15,030   |         |   |         | 142,143  |        |  |         | 68,528  |  
|                                                                            |                                                                                               |                                                             |                                    |                                                                        |                                                          |      |        |          |         |   |         |         
|                                                                            |                                                                                               |                                                             |                                    |                                                                        | Net increase (decrease) in cash and cash
    equivalents |      |        | 21,603   |         |   |         | 18,185   |        |  |         | (44,094 | )
|Cash and cash equivalents at beginning of period                            |                                                                                               |                                                             | 32,475                             |                                                                        |                                                          |      | 14,290 |          |         |   | 58,384  |         
|                                                                            |                                                                                               |                                                             |                                    |                                                                        |                                                          |      |        |          |         |   |         |         
|Cash and cash equivalents at end of period                                  |                                                                                               | $                                                           | 54,078                             |                                                                        |                                                          | $    | 32,475 |          |         |   | 14,290  |         
|                                                                            |                                                                                               |                                                             |                                    |                                                                        |                                                          |      |        |          |         |   |         |         
|Supplemental disclosure of cash flow information:                           |                                                                                               |                                                             |                                    |                                                                        |                                                          |      |        |          |         |   |         |         
|                                                                            |                                                                                               | Cash paid for interest                                      |                                    | $                                                                      | 10,532                                                   |      |        | $        | 10,176  |   |         | $        | 3,846  | 
|Supplemental disclosure of non-cash investing and
    financing activities: |                                                                                               |                                                             |                                    |                                                                        |                                                          |      |        |          |         |   |         |         
|                                                                            | Capitalized interest                                                                          |                                                             | $                                  | 444                                                                    |                                                          |      | $      | 7,118    |         |   | $       | 2,917    |       
|                                                                            | Grant of restricted common stock and compensatory
    stock options                           |                                                             |                                    | 21                                                                     |                                                          |      |        | 252      |         |   |         |         |       
|                                                                            | Forfeiture of compensatory stock options                                                      |                                                             |                                    | (195                                                                   | )                                                        |      |        |         |         |   |         | (81      | )     
|                                                                            | Forfeiture of restricted stock                                                                |                                                             |                                    | (2                                                                     | )                                                        |      |        |         |         |   |         |         |       
|                                                                            | Modification of stock options                                                                 |                                                             |                                    |                                                                       |                                                          |      |        |         |         |   |         | 39       |       
|                                                                            | Purchases of property and equipment under capital
    leases                                  |                                                             |                                    |                                                                       |                                                          |      |        | 191      |         |   |         |         |       
|                                                                            | iPCS acquisition:                                                                             |                                                             |                                    |                                                                        |                                                          |      |        |          |         |   |         |          |       
|                                                                            |                                                                                               | Fair value of stock issued                                  |                                    |                                                                        |                                                         |      |        |          | 706,645 |   |         |          |       | 
|                                                                            |                                                                                               | Fair value of common stock options and warrants
    assumed |                                    |                                                                        |                                                         |      |        |          | 47,727  |   |         |          |       | 
|                                                                            |                                                                                               | Liabilities assumed                                         |                                    |                                                                        |                                                         |      |        |          | 394,165 |   |         |          |       | 
|                                                                            |                                                                                               | Fair value of tangible assets acquired                      |                                    |                                                                        |                                                         |      |        |          | 313,843 |   |         |          |       | 




See accompanying notes to the consolidated
financial statements.

F-6



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##### Table of Contents



AIRGATE PCS, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS



|    |                                                  
|--- | -------------------------------------------------
|(1) | Business, Basis of Presentation and
    Liquidity



| |                                  
| | ---------------------------------
| | (a)     Basis of
    Presentation

AirGate PCS, Inc. and its restricted and
unrestricted subsidiaries (the Company) were created
for the purpose of providing wireless Personal Communication
Services (PCS). AirGate PCS, Inc. and its restricted
subsidiaries (AirGate) are a network partner of
Sprint with the right to market and provide Sprint PCS products
and services using the Sprint brand names in a defined territory.




On November 30, 2001, AirGate acquired an
unrestricted subsidiary, iPCS, Inc. (together with its
subsidiaries, iPCS), a network partner of Sprint
with 37 markets in the midwestern United States. Subsequent
to November 30, 2001, the results of operations and
accounts of iPCS were consolidated with the Company in
accordance with generally accepted accounting principles. On
February 23, 2003, iPCS filed a Chapter 11 bankruptcy
petition in the United States Bankruptcy Court for the Northern
District of Georgia for the purpose of effecting a court
administered reorganization. Subsequent to February 23,
2003, the Company no longer consolidated the accounts and
results of operations of iPCS and the accounts of iPCS were
recorded as an investment using the cost method of accounting.
On October 17, 2003, AirGate irrevocably transferred all of
its shares of iPCS common stock to a trust organized under
Delaware law (See Note 12). The beneficial owners of
AirGate common stock on the date of transfer are the
beneficiaries of the trust. No distributions will be made from
the trust to the beneficiaries unless directed by the iPCS board
of directors and/or an order of the iPCS bankruptcy court.
AirGate has no interest in the trust. As a result, on the date
of the transfer, iPCS will be accounted for as a discontinued
operation and the iPCS investment (approximately $184 million credit
balance carrying amount) will be eliminated and recorded as a
non-monetary gain from disposition of discontinuing operations.







Because iPCS is an unrestricted subsidiary,
AirGate is generally unable to provide capital or other
financial support to iPCS. Further, iPCS lenders, noteholders
and creditors do not have a lien on or encumbrance on assets of
AirGate. Management believes that iPCSs bankruptcy
proceedings and related outcomes will not have a material
adverse effect on results of operations, financial condition and
the liquidity of AirGate.




These consolidated financial statements and
related footnotes have been prepared in accordance with
accounting principles generally accepted in the United States of
America. All significant intercompany accounts and transactions
have been eliminated in consolidation.



|    |                                                         
|--- | --------------------------------------------------------
|(b) | Liquidity, Financial Restructuring and
    Going Concern

The financial statements have been prepared on a
going concern basis, which contemplates the realization of
assets and satisfaction of liabilities in the normal course of
business. The financial statements do not include any
adjustments relating to the recoverability and classification of
asset carrying amounts or the amount and classification of
liabilities that might result should the Company be unable to
continue as a going concern.

The PCS market is characterized by significant
risks as a result of rapid changes in technology, intense
competition and the costs associated with the build-out,
on-going operations and growth of a PCS network. The
Companys operations are dependent upon Sprints
ability to perform its obligations under the agreements between
the Company and Sprint (see note 4) under which the Company
has agreed to construct and manage its Sprint PCS network (the
Sprint Agreements). The Companys ability to
attract and maintain a subscriber base of sufficient size and
credit quality is critical to achieving sufficient positive cash
flow. Significant changes in technology, increased competition,
or adverse economic conditions could impair the Companys
ability to achieve sufficient positive cash flow.

F-7



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##### Table of Contents



AIRGATE PCS, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




As shown in the consolidated financial
statements, the Company has generated significant net losses
since inception and has an accumulated deficit of
$1.3 billion and stockholders deficit of
$377.0 million at September 30, 2003. For the year
ended September 30, 2003, the Companys net loss
amounted to $84.8 million, $42.2 million of which was
attributable to AirGate. As of September 30, 2003, AirGate
had working capital of $12.5 million and cash and cash
equivalents of $54.1 million, and no remaining availability
under its credit facility. As a result, AirGate is completely
dependent on available cash and operating cash flow to pay debt
service and meet its other capital needs. If such sources are
not sufficient, alternative funding sources may not be available.




In addition to its capital needs to fund
operating losses, AirGate has invested large amounts to
build-out its networks and for other capital assets. Since
inception, AirGate has invested $302 million to purchase
property and equipment. While much of AirGates networks
are now complete, and capital expenditures are expected to be
lower than prior years, such expenditures will continue to be
necessary.

A number of factors, including slower subscriber
growth, increased competition and our dependence on Sprint and
Sprints changes to various programs and fees, have had an
adverse affect on AirGates business and have led the
Company to revise its business strategy and take actions to cut
costs. These actions included the following:



| |   |                                                                                    
| | - | -----------------------------------------------------------------------------------
| |  | Restructuring the AirGate organization and
    eliminating more than 150 positions;
|
| |  | Reducing capital expenditures;                                                     
|
| |  | Reducing spending for sales and marketing
    activities; and                      
|
| |  | Reducing network operating costs by more closely
    managing connectivity costs.  




In November 2003, AirGate entered into an
amendment to the AirGate credit facility. Some of the changes
effected by the amendment clarify certain ambiguities and modify
the definition and period for calculating EBITDA for purposes of
complying with financial covenants under the credit facility.
Management expects these changes to generally assist AirGate in
complying with these financial covenants for the next twelve
months.







Under our current business plan, the
Companys compliance with the financial covenants under the
AirGate credit facility is not assured and the Companys
ability to generate sufficient cash flow to meet its financial
covenants and payment obligations in 2005 and beyond is
substantially uncertain. In addition, there is substantial risk
that under its current business plan, the Company would not have
sufficient liquidity to meet its cash interest obligations under
the Old AirGate Notes (defined below) in 2006. As a result, the
Company has currently proposed a financial restructuring (the
Recapitalization Plan) which includes, but is not
limited to the following:






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | An offer to exchange all of the outstanding
    13.5% senior subordinated discount notes due 2009 (the
    Old AirGate Notes) for (i) newly issued share
    of common stock representing 56% of the shares of common stock
    to be issued and outstanding immediately after the
    Recapitalization Plan and (ii) $160.0 million
    aggregate principal amount of newly issued
    9 3/8% senior subordinated notes due 2009 (the
    New Notes);
|
| |  | A consent solicitation to remove substantially
    all of the restrictive covenants in the indenture governing the
    Old AirGate Notes, release collateral that secures the
    Companys obligations thereunder and obtain waivers of any
    defaults or events of default that occur in connection with the
    restructuring.                                                                                                                       
|
| |  | A 1:5 reverse stock split.                                                                                                                                                                                                                                                                                                                                                                                                                                

F-8



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##### Table of Contents



AIRGATE PCS, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




In the event that the conditions for the
consummation of the Recapitalization Plan are not satisfied,
including, for example, the failure to meet the minimum tender
condition, the Companys board of directors may elect,
assuming that it receives sufficient acceptances from the
holders of the Old AirGate Notes, to seek as an alternative to
the Recapitalization Plan, the confirmation of a prepackaged
plan of reorganization within the next year. It is anticipated
that any prepackaged plan of reorganization would effect the
same transactions contemplated by the Recapitalization Plan. If
a prepackaged plan of reorganization or bankruptcy case of any
kind is commenced with regard to the Company, it would
constitute a default under the AirGate senior credit facility
and the indenture governing the Old AirGate Notes. Such a
default could result in an acceleration of the debt represented
by the senior credit facility and the Old AirGate Notes.







The completion of the financial restructuring
will improve AirGates cash flow by significantly reducing
debt service payments in 2005 and beyond. If the financial
restructuring is not effected, through the Recapitalization Plan
or the prepackaged plan, management intends to take actions to
enable the Company to meet its debt service requirements and
other capital needs. Such actions may include seeking additional
amendments to our credit facility to avoid future financial
covenant defaults, seeking additional sources of financing, and
further reducing general and administrative, sales and marketing
and capital spending. There can be no assurance that these
actions will be sufficient to enable the Company to generate
sufficient cash flow to meet its financial covenants and payment
obligations.






|    |                               
|--- | ------------------------------
|(2) | Goodwill and Asset Impairments

On November 30 2001, the Company completed
the acquisition of iPCS. Significant amounts of goodwill and
other intangible assets were recorded as part of this
acquisition (note 10). The original purchase price
allocation of this acquisition was recorded in the quarter ended
December 31, 2001. During the quarter ended March 31,
2002, the original purchase price allocation was adjusted, which
resulted in a reclassification of amounts between goodwill,
deferred income tax liabilities, intangibles related to the
amount assigned to the right to provide service under the Sprint
Agreements and other assets and liabilities. The Company
recorded a goodwill impairment charge of $261.2 million
during the quarter ended March 31, 2002, and
$199.7 million during the quarter ended September 30,
2002. During the quarter ended September 30, 2002, the
Company recorded an impairment charge for property and equipment
totaling $44.5 million and impairment of intangible assets
totaling $312.0 million. The purchase of iPCS and the
accounting for the acquisition are described further in
notes 10 and 11.

The wireless telecommunications industry
experienced significant declines in market capitalization
throughout most of 2002. These significant declines in market
capitalization resulted from concerns regarding anticipated
weakness in future subscriber growth, increased subscriber
churn, anticipated future lower average revenue per user
(ARPU) and liquidity concerns. As a result of these
industry trends, the Company experienced significant declines in
its market capitalization subsequent to its acquisition of iPCS.
Additionally, there were significant adverse changes to the
business plan for iPCS. These changes included lower new
subscribers, lower ARPU, increased service and pass through
costs from Sprint and lower roaming margins from Sprint.
Wireless industry acquisitions subsequent to the Companys
acquisition of iPCS have been valued substantially lower on a
price per population and a price per subscriber basis. As a
result of these transactions and industry trends, the Company
believed that the fair value of iPCS and its assets had been
reduced. Accordingly, the Company on two occasions during 2002
performed fair value assessments of iPCS and its assets. In
determining the March 31, 2002 fair value assessment, the
Company utilized a combination of a market approach along with a
discounted cash flow approach. As there were no comparable
transactions during the later half of 2002, the Company utilized
a discounted cash flow approach to determine the valuation at
September 30, 2002. The Company recorded goodwill
impairments of approximately $261.2 million and
$199.7 million during the quarters ended March 31,
2002 and September 30, 2002, respectively, as a result of
these fair value assessments.

F-9



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##### Table of Contents



AIRGATE PCS, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

During the quarter ended September 30, 2002,
the Company recorded an impairment for intangible assets of
$312.0 million reflecting an impairment of iPCS right
to provide service under the Sprint Agreements and the acquired
subscriber base. The right to provide service under iPCS
Sprint Agreements and its acquired subscriber base were recorded
as a result of the iPCS acquisition. The value and lives
assigned to these intangibles were $323.3 million and
205 months and $52.4 million and 30 months,
respectively. As discussed above, the impairment arose from
significant adverse changes to the iPCS business plan. As a
result, the Company adjusted the carrying value of the right
iPCS had to provide service under the Sprint Agreements and the
value of the acquired subscriber base to their fair values at
September 30, 2002.

During the quarter ended September 30, 2002,
the Company recorded an asset impairment for the property and
equipment (principally network assets) of iPCS of
$44.5 million. As discussed above, the impairment arose
from significant adverse changes to the business plan for iPCS
as well as a generally weak secondary market for
telecommunications related equipment.



|    |                                               
|--- | ----------------------------------------------
|(3) | Summary of Significant Accounting
    Policies



| |                        
| | -----------------------
| | (a) Revenue Recognition




The Company recognizes revenue when persuasive
evidence of an arrangement exists, services have been rendered
or products have been delivered, the price to the buyer is fixed
and determinable, and collectibility is reasonably assured.
Effective July 1, 2003 the Company adopted Emerging Issues
Task Force (EITF) No. 00-21, Accounting
for Revenue Arrangements with Multiple Element
Deliverables. The EITF guidance addresses how to account
for arrangements that may involve multiple revenue-generating
activities, i.e., the delivery or performance of multiple
products, services, and/or rights to use assets. In applying
this guidance, separate contracts with the same party, entered
into at or near the same time, will be presumed to be a bundled
transaction, and the consideration will be measured and
allocated to the separate units based on their relative fair
values. The consensus guidance is applicable to agreements
entered into for quarters beginning after June 15, 2003.
The adoption of EITF 00-21 has resulted in substantially
all of the activation fee revenue generated from Company-owned
retail stores and associated costs being recognized at the time
the related wireless handset is sold and it is classified as
equipment revenue and cost of equipment, respectively. Upon
adoption of EITF 00-21, previously deferred revenues and
costs will continue to be amortized over the remaining estimated
life of a subscriber, not to exceed 30 months. Revenue and
costs for activations at other retail locations will continue to
be deferred and amortized over their estimated lives. The impact
of adoption EITF 00-21 had the affect of increasing
equipment revenue by $0.4 million and increasing costs of
equipment by $0.3 million, which otherwise would have been
deferred and amortized.







For activations not recognized under the scope of
EITF 00-21, the Company defers activation fee revenue over
the average life of its subscribers, which is estimated to be
30 months. The Company recognizes service revenue from its
subscribers as they use the service. The Company provides a
reduction of recorded revenue for billing adjustments, and
estimated uncollectible late payment fees and early cancellation
fees. The Company also reduces recorded revenue for rebates and
discounts given to subscribers on wireless handset sales in
accordance with EITF Issue No. 01-9 Accounting for
Consideration Given by a Vendor to a Subscriber (Including a
Reseller of the Vendors Products). For industry
competitive reasons, the Company sells wireless handsets at a
loss. The Company participates in the Sprint national and
regional distribution programs in which national retailers such
as Radio Shack and Best Buy sell Sprint PCS products and
services. In order to facilitate the sale of Sprint PCS products
and services, national retailers purchase wireless handsets from
Sprint for resale and receive compensation from Sprint for
Sprint PCS products and services sold. For industry competitive
reasons, Sprint subsidizes the price of these handsets by
selling the handsets at a price below cost. Under the
Companys Sprint Agreements, when a national retailer sells
a handset purchased from Sprint to a subscriber in the




F-10



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##### Table of Contents



AIRGATE PCS, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Companys territory, the Company is
obligated to reimburse Sprint for the handset subsidy. The
Company does not receive any revenue from the sale of handsets
and accessories by such national retailers. The Company
classifies these handset subsidy charges as a selling and
marketing expense for a new subscriber handset sale and
classifies these subsidies as a cost of service and roaming for
a handset upgrade to an existing subscriber. Handset subsidy
charges included in selling and marketing for the years ended
September 30, 2003, 2002, and 2001 were $9.7 million,
$19.1 million, and $12.8 million, respectively.
Excluding sales commissions, handset subsidy upgrade charges in
cost of service and roaming for the year ended
September 30, 2003 and 2002 were $7.8 million and
$4.8 million, respectively. The Company did not incur
handset subsidy upgrade charges for the year ended
September 30, 2001.




The Company records equipment revenue from the
sale of handsets and accessories to subscribers in its retail
stores upon delivery in accordance with EITF 00-21. The Company
does not record equipment revenue on handsets and accessories
purchased from national third-party retailers such as Radio
Shack and Best Buy, or directly from Sprint by subscribers in
its territory.




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



|    |                                    
|--- | -----------------------------------
|(b) | Allowance for Doubtful
    Accounts

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

Using historical information the Company provides
a reduction in revenues for certain billing adjustments, late
payment fees and early cancellation fees that it anticipates
will not be collectible. The reserve for billing adjustments,
late payment fees and early cancellation fees are included in
the allowance for doubtful accounts balance. If the allowance
for doubtful accounts is not adequate, it could have a material
adverse affect on the Companys liquidity, financial
position and results of operations.



|    |                                                  
|--- | -------------------------------------------------
|(c) | Reserve for First Payment Default
    Subscribers

Prior to March 2003, the Company estimated the
percentage of new subscribers that would never pay a bill and
reserved for the related percentage of monthly revenue through a
reduction in revenues. In 2002, the Company reinstated the
deposit requirement for sub-prime credit customers, and
increased the deposit amount in February 2003. The Company
believes that the re-imposition of and increase in deposit
requirements as well as the continuation of spending limits for
the sub-prime credit customers are sufficient to mitigate the
collection risk. Additionally, the Company has experienced
improvements in the credit quality of its subscriber base.
Accordingly, in March 2003 the Company ceased recording this
reserve. At September 30, 2002, there was approximately
$1.3 million reserved for 7,126 first payment default
subscribers.

F-11



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##### Table of Contents



AIRGATE PCS, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                          
|--- | -------------------------
|(d) | Cash and Cash Equivalents

Cash and cash equivalents includes cash on hand,
demand deposits and money market accounts with original
maturities of three months or less.



|    |            
|--- | -----------
|(e) | Inventories

Inventories consist of wireless handsets and
related accessories held for resale. Inventories are carried at
the lower of cost or market determined by using replacement
costs.



|    |                       
|--- | ----------------------
|(f) | Property and Equipment

Property and equipment are stated at original
cost, less accumulated depreciation and amortization.
Depreciation and amortization are provided using the
straight-line method over the estimated useful lives of the
assets. Estimated useful lives are as follows:

|                                          |  |             
|----------------------------------------- |  | ------------
|                                          |  | Estimated   
|                                          |  | Useful Life 
|                                          |  |             
|Network assets                            |  | 5 to 7 years
|Computer equipment                        |  | 3 to 5 years
|Furniture, fixtures, and office equipment |  | 5 years     
|Towers (included in network assets)       |  | 15 years    

Assets held under capital lease obligations are
amortized over their estimated useful life or the lease term,
whichever is shorter. Amortization of assets held under capital
lease obligations are included in depreciation and amortization
of property and equipment.

Construction in progress includes expenditures
for the purchase of network assets. The Company capitalizes
interest on its construction in progress activities. When
network assets are placed in service, the related assets are
transferred from construction in progress to network assets and
the Company depreciates those assets over their estimated useful
life.



|    |                   
|--- | ------------------
|(g) | Investment in iPCS

The accounts and results of iPCS are consolidated
with AirGate and are included in the Companys consolidated
financial statements subsequent to November 30, 2001 and
prior to February 23, 2003.

Subsequent to February 23, 2003, the date
iPCS filed for bankruptcy the Company no longer consolidates the
accounts and results of iPCS. The Company follows the accounting
literature of Statement of Financial Accounting Standards
(SFAS) No. 94 Consolidation of All
Majority-Owned Subsidiaries and Accounting Research
Bulletin (ARB) No. 51 Consolidated
Financial Statements, when control of a majority-owned
subsidiary did not rest with the majority owners (as, for
instance, where the subsidiary is in legal reorganization or in
bankruptcy), ARB No. 51 precludes consolidation of the
majority-owned subsidiary.

The Company records the accounts of iPCS using
the cost method of accounting subsequent to February 23,
2003. After iPCS filed for bankruptcy, the Company does not have
the ability to exercise significant influence over the
operations of iPCS. The carrying value of the iPCS investment is
reported in long term liabilities on the balance sheet.




On October 17, 2003, AirGate irrevocably
transferred all of its shares of iPCS common stock to a trust for the
benefit of AirGate shareholders. As of the date of the transfer to
the trust, the iPCS investment (approximately $184 million
credit balance carrying amount) will be eliminated and recorded as a
non-monetary gain from disposition of discontinuing operations.




F-12



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##### Table of Contents



AIRGATE PCS, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                
|--- | ---------------
|(h) | Financing Costs

Costs incurred for the AirGate and iPCS credit
facilities and AirGate notes that were deferred and are being
amortized as interest expense over the term of the respective
financing arrangements using the straight-line method.



|    |             
|--- | ------------
|(i) | Income Taxes

Income taxes are accounted for under the asset
and liability method. Deferred income tax assets and liabilities
are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases
and operating loss and tax credit carryforwards. Deferred income
tax assets and liabilities are measured using enacted tax rates
applied to expected taxable income for the years in which those
temporary differences are expected to be recovered or settled.
The effect on deferred income tax assets and liabilities for a
change in tax rates is recognized as income in the period that
includes the enactment date. A valuation allowance is provided
for deferred income tax assets based upon the Companys
assessment of whether it is more likely than not that the
deferred income tax assets will be realized.



|    |                                         
|--- | ----------------------------------------
|(j) | Basic and Diluted Net Loss Per
    Share




Basic net loss per share is computed by dividing
net loss by the weighted-average number of common shares
outstanding during the period. For the years ended
September 30, 2003, 2002, and 2001, all outstanding stock
options and common stock underlying stock purchase warrants as
detailed in Note 8 have been excluded from the computation
of dilutive net loss per share for all periods presented because
their effect would have been antidilutive. The following table
shows those potentially dilutive securities with exercise prices
less than market prices of common stock in the respective period
using the treasury stock method:




|                                                |       |                           |        |        |  |      |         |         |  |  |         |         | 
|----------------------------------------------- | ----- | ------------------------- | ------ | ------ |  | ---- | ------- | ------- |  |  | ------- | ------- | 
|                                                |       |                          
|                                                |       | Years Ended September 30,
|                                                |       |                          
|                                                |       | 2003                      |        | 2002   |  | 2001
|                                                |       |                           |        |        |  |     
|Common stock options                            |       |                           | 22,194 |        |  |      | 222,671 |         |  |  | 510,620 |        
|Common stock underlying stock purchase warrants |       |                           | 40,434 |        |  |      | 40,995  |         |  |  | 90,612  |        
|                                                |       |                           |        |        |  |      |         |         |  |  |         |        
|                                                | Total |                           |        | 62,628 |  |      |         | 263,666 |  |  |         | 601,232 | 
|                                                |       |                           |        |        |  |      |         |         |  |  |         |        



|    |                                                 
|--- | ------------------------------------------------
|(k) | Impairment of Long-Lived Assets and
    Goodwill

The Company accounts for long-lived assets and
goodwill in accordance with the provisions of Statement of
Financial Accounting Standards (SFAS) No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets and SFAS No. 142, Goodwill and
Other Intangible Assets. SFAS No. 144 requires
that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset
to future 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. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell the asset.
SFAS No. 142 requires annual tests for impairment of
goodwill and intangible assets that have indefinite useful lives
and interim tests when an event has occurred that more likely
than not has reduced the fair value of such assets. The Company
no longer has any assets recorded subject to SFAS 142
impairment testing. As of September 30, 2002, the Company
recorded substantial write-offs of long lived assets and
goodwill relating to its iPCS subsidiary (see Notes 2 and
11).

F-13



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##### Table of Contents



AIRGATE PCS, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                              
|--- | -----------------------------
|(l) | New Accounting Pronouncements

In May 2003, the Financial Accounting Standards
Board (FASB) issued SFAS No. 150,
Accounting for Certain Financial Instruments with
Characteristics of Liabilities and Equity, which is
effective at the beginning of the first interim period beginning
after June 15, 2003. However, certain aspects of
SFAS 150 have been deferred. SFAS No. 150
establishes standards for the Companys classification of
liabilities in the financial statements that have
characteristics of both liabilities and equity. The Company will
continue to review SFAS No. 150; however, the Company
does not expect SFAS 150 to have a material impact on the
Companys financial position, results of operations, or
cash flows.

In April 2003, the FASB issued
SFAS No. 149, Amendment of Statement of 133 on
Derivative Instruments and Hedging Activities, which
amends and clarifies financial accounting and reporting for
derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities under
SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement is
effective for hedging of contracts entered into or modified
after June 30, 2003 and for hedging relationships
designated after June 30, 2003 and did not have a material
impact on the Companys results of operations, financial
position, or cash flows.

In January 2003, the FASB issued Interpretation
No. 46, Consolidation of Variable Interest Entities,
an interpretation of ARB No. 51. This interpretation
addresses the consolidation by business enterprises of variable
interest entities as defined in the interpretation. This
interpretation applies immediately to variable interests in
variable interest entities created after January 31, 2003,
and to variable interests in variable interest entities obtained
after January 31, 2003. The Interpretation is generally
effective for interim periods ending after December 15,
2003 for all variable interests in variable interest entities
created prior to January 31, 2003. The adoption of
Interpretation No. 46 is not anticipated to have a material
impact on the Companys financial position, results of
operations, or cash flows.

In December 2002, the FASB issued
SFAS No. 148 Accounting for Stock-Based
Compensation  Transition and Disclosure 
an amendment of FASB Statement No. 123.
SFAS No. 148 provides alternative methods of
transition for a voluntary change to the fair value based method
of accounting for stock-based employee compensation from the
intrinsic value-based method of accounting prescribed by
Accounting Principles Board (APB) Opinion
No. 25, Accounting for Stock Issued to
Employees. As allowed by SFAS No. 123, the
Company has elected to continue to apply the intrinsic
value-based method of accounting, and has adopted the disclosure
requirements of SFAS No. 123 and 148.

In November 2002, the FASB issued Interpretation
No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, which addresses the disclosure to
be made by a guarantor in its interim and annual financial
statements about its obligations under guarantees. This
interpretation also requires the recognition of a liability by a
guarantor at the inception of certain guarantees. Interpretation
No. 45 requires the guarantor to recognize a liability for
the non-contingent component of the guarantee, which is the
obligation to stand ready to perform in the event that specified
triggering events or conditions occur. The initial measurement
of this liability is the fair value of the guarantee at
inception. The recognition of the liability is required even if
it is not probable that payments will be required under the
guarantee or if the guarantee was issued with a premium payment
or as part of a transaction with multiple elements. The Company
guarantees certain lease commitments of its restricted
subsidiaries. The maximum amount of these guarantees is included
in note 13. Also, the handsets sold by the Company are
under a one-year warranty from Sprint. If a customer returns a
handset for warranty, the Company generally provides the
customer with a refurbished handset and sends the warranty
handset to Sprint for repair. Sprint provides a credit to the
Company equal to the retail price of the refurbished handset.
Therefore, the warranty expense for the Company is not deemed
material.

F-14



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##### Table of Contents



AIRGATE PCS, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In July 2002, the FASB issued
SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. SFAS No. 146
provides new guidance on the recognition of costs associated
with exit or disposal activities. The standard requires
companies to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of
commitment to an exit or disposal plan. SFAS No. 146
supercedes previous accounting guidance provided by the EITF
Issue No. 94-3 Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a
Restructuring). EITF Issue No. 94-3 required
recognition of costs at the date of commitment to an exit or
disposal plan. SFAS No. 146 is to be applied
prospectively to exit or disposal activities initiated after
December 31, 2002. The Company adopted
SFAS No. 146 on October 1, 2002. There was no
material impact on adoption of this statement.

In April 2002, the FASB issued
SFAS No. 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13,
and Technical Corrections. Among other things, this
statement rescinds FASB Statement No. 4, Reporting
Gains and Losses from Extinguishment of Debt which
required all gains and losses from extinguishment of debt to be
aggregated and, if material, classified as an extraordinary
item, net of related income tax effect. As a result, the
criteria in APB Opinion No. 30, Reporting the Results
of Operations  Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions, will now
be used to classify those gains and losses. The adoption of
SFAS No. 145 by the Company on October 1, 2002
did not have a material impact on the Companys financial
position, results of operations, or cash flows.



|    |                 
|--- | ----------------
|(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) | Concentration of Risk

The Companys cell sites are located on
towers which are leased from a limited number of tower
companies, with one company owning approximately 34% of the
Companys leased towers. Additionally, the Company derives
substantial revenues and expenses from Sprint and Sprint PCS
(see note 4).

The Company maintains cash and cash equivalents
in accounts with financial institutions in excess of the amount
insured by the Federal Deposit Insurance Corporation. 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.

A significant amount of the Companys
financial transactions result from the Companys
relationship with Sprint. Additionally, Sprint holds
approximately four to eleven days of the Companys
subscriber lockbox receipts prior to remitting those receipts to
the Company weekly. Refer to note 4 for information on the
Companys transactions with Sprint.

Concentrations of credit risk with respect to
accounts receivables are limited due to a large subscriber base.
Initial credit evaluations of subscribers financial
condition are performed and security deposits are generally
obtained for subscribers with a high credit risk profile. The
Company maintains an allowance for doubtful accounts for
potential credit losses.

F-15



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##### Table of Contents



AIRGATE PCS, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                            
|--- | ---------------------------
|(o) | Comprehensive Income (Loss)

No statements of comprehensive income (loss) have
been included in the accompanying consolidated financial
statements since the Company does not have any elements of other
comprehensive income (loss) to report.



|    |                     
|--- | --------------------
|(p) | Advertising Expenses

The Company expenses advertising costs when the
advertisement occurs. Total advertising expenses amounted to
approximately $8.5 million in 2003, $30.9 million in
2002 and $13.0 million in 2001 and are included in selling
and marketing expenses in the accompanying consolidated
statements of operations.



|    |         
|--- | --------
|(q) | Segments

While iPCS was an unrestricted subsidiary of
AirGate, both AirGate and iPCS provided wireless PCS services as
network partners of Sprint. Both AirGate and iPCS offer similar
products and services through similar retail channels to a broad
range of wireless customers in their respective markets.
Consequently, these entities have been aggregated into a single
operating segment in accordance with the provisions of
SFAS No. 131  Disclosures about
Segments of an Enterprise and Related Information.



|    |                                   
|--- | ----------------------------------
|(r) | Stock-based Compensation
    Plans




We have elected to continue to account for our
stock-based compensation plans under APB Opinion No. 25,
Accounting for Stock Issued to Employees, and
disclose pro forma effects of the plans on a net loss and loss
per share basis as provided by SFAS No. 123,
Accounting for Stock-Based Compensation. We did not
recognize compensation expense with respect to options that had
an exercise price equal to the fair market value of the
Companys common stock on the date of grant. Had
compensation cost for these options been recognized based on
fair value at the grant dates under the related provisions of
SFAS No. 123, the pro forma net loss and loss per
share during the fiscal years ended September 30, 2003,
2002 and 2001 would have been as follows (in thousands, except
per share data):




|                                                                                        |             |                           |            |       |   |      |            |        |   |   |            |       |  
|--------------------------------------------------------------------------------------- | ----------- | ------------------------- | ---------- | ----- | - | ---- | ---------- | ------ | - | - | ---------- | ----- | -
|                                                                                        |             |                          
|                                                                                        |             | Years Ended September 30,
|                                                                                        |             |                          
|                                                                                        |             | 2003                      |            | 2002  |   | 2001
|                                                                                        |             |                           |            |       |   |     
|Net loss, as reported                                                                   |             | $                         | (84,757    | )     |   | $    | (996,617   | )      |   | $ | (110,990   | )    
|Add: stock based compensation expense included in
    determination of net loss         |             |                           | 650        |       |   |      | 769        |        |   |   | 1,665      |      
|Less: stock-based compensation expense determined
    under the fair value based method |             |                           | (9,698     | )     |   |      | (9,138     | )      |   |   | (5,585     | )    
|                                                                                        |             |                           |            |       |   |      |            |        |   |   |            |      
|Pro forma net loss                                                                      |             | $                         | (93,805    | )     |   | $    | (1,004,986 | )      |   | $ | (114,910   | )    
|                                                                                        |             |                           |            |       |   |      |            |        |   |   |            |      
|Basic and diluted weighted-average outstanding
    common shares                        |             |                           | 25,908,414 |       |   |      | 23,751,507 |        |   |   | 13,089,285 |      
|Basic and diluted loss per share:                                                       |             |                           |            |       |   |      |            |        |   |   |            |      
|                                                                                        | As reported |                           | $          | (3.27 | ) |      | $          | (41.96 | ) |   | $          | (8.48 | )
|                                                                                        | Pro forma   |                           | $          | (3.62 | ) |      | $          | (42.31 | ) |   | $          | (8.78 | )



|    |                             
|--- | ----------------------------
|(s) | Asset Retirement Obligations




The Companys network is primarily located
on leased property and the Company has certain legal
obligations, principally related to its tower leases, which fall
within the scope of SFAS No. 143 Accounting for
Asset Retirement Obligations. These legal obligations upon
lease termination primarily




F-16



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##### Table of Contents



AIRGATE PCS, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




include certain obligations to remediate leased
tower space and land on which the Companys network
equipment is located. In addition, the Company has leases
related to switch site, retail and administrative locations
subject to the provisions of SFAS No. 143. During the
fiscal year ended September 30, 2003, the Company recorded
an initial asset retirement obligation of approximately
$0.2 million, and capitalized the same amount by increasing
the carrying cost of the related asset. For the year ended
September 30, 2003, the Company recorded approximately
$0.2 million of depreciation and accretion expense.






|    |                  
|--- | -----------------
|(t) | Reclassifications

Certain reclassifications have been made to prior
year amounts to conform to the current year presentation.



|    |                  
|--- | -----------------
|(4) | Sprint Agreements

Under the Sprint Agreements, Sprint is obligated
to provide the Company with significant support services such as
billing, collections, long distance, customer care, network
operations support, inventory logistics support, use of Sprint
brand names, national advertising, national distribution and
product development. Additionally, the Company derives
substantial roaming revenue and expense when Sprints and
Sprints network partners wireless subscribers incur
minutes of use in the Companys territories and when the
Companys subscribers incur minutes of use in Sprint and
other Sprint network partners PCS territories. These
transactions are recorded as roaming revenue, cost of service
and roaming, cost of equipment, and selling and marketing
expense in the accompanying consolidated statements of
operations. Cost of service and roaming transactions include the
8% affiliation fee, long distance charges, roaming expense and
costs of service such as billing, collections, customer service
and pass-through expenses. Cost of equipment transactions relate
to inventory purchased by the Company from Sprint under the
Sprint agreements. Selling and marketing transactions relate to
subsidized costs on handsets and commissions paid by the Company
under Sprints national distribution programs. Amounts
recorded relating to the

F-17



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##### Table of Contents



AIRGATE PCS, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Sprint agreements for the years ended
September 30, 2003, 2002 and 2001 are as follows (dollars
in thousands):

|                                                                  |                                      |                           |   |         |        |      |   |         |        |  |   |        |        | 
|----------------------------------------------------------------- | ------------------------------------ | ------------------------- | - | ------- | ------ | ---- | - | ------- | ------ |  | - | ------ | ------ | 
|                                                                  |                                      |                          
|                                                                  |                                      | Years Ended September 30,
|                                                                  |                                      |                          
|                                                                  |                                      | 2003                      |   | 2002    |        | 2001
|                                                                  |                                      |                           |   |         |        |     
|Amounts included in the Consolidated Statement of
    Operations: |                                      |                           |   |         |        |      |   |         |        |  |   |       
|                                                                  | AirGate roaming revenue              |                           | $ | 63,798  |        |      | $ | 70,002  |        |  | $ | 53,863 |       
|                                                                  |                                      |                           |   |         |        |      |   |         |        |  |   |       
|                                                                  | AirGate cost of service and roaming: |                           |   |         |        |      |   |         |        |  |   |        |       
|                                                                  |                                      | Roaming                   |   | $       | 50,383 |      |   | $       | 52,746 |  |   | $      | 40,472 | 
|                                                                  |                                      | Customer service          |   |         | 40,014 |      |   |         | 40,454 |  |   |        | 15,526 | 
|                                                                  |                                      | Affiliation fees          |   |         | 18,358 |      |   |         | 15,815 |  |   |        | 7,603  | 
|                                                                  |                                      | Long distance             |   |         | 12,485 |      |   |         | 13,846 |  |   |        | 6,556  | 
|                                                                  |                                      | Other                     |   |         | 1,902  |      |   |         | 2,115  |  |   |        | 1,252  | 
|                                                                  |                                      |                           |   |         |        |      |   |         |        |  |   |       
|                                                                  | Total cost of service and roaming    |                           | $ | 123,142 |        |      | $ | 124,976 |        |  | $ | 71,409 |       
|                                                                  |                                      |                           |   |         |        |      |   |         |        |  |   |       
|                                                                  | AirGate cost of equipment            |                           | $ | 18,051  |        |      | $ | 23,662  |        |  | $ | 19,405 |       
|                                                                  |                                      |                           |   |         |        |      |   |         |        |  |   |       
|                                                                  | AirGate selling and marketing        |                           | $ | 12,440  |        |      | $ | 21,728  |        |  | $ | 20,827 |       
|                                                                  |                                      |                           |   |         |        |      |   |         |        |  |   |       
|                                                                  | iPCS roaming revenue                 |                           | $ | 14,724  |        |      | $ | 33,137  |        |  | $ |       |       
|                                                                  |                                      |                           |   |         |        |      |   |         |        |  |   |       
|                                                                  | iPCS cost of service and roaming:    |                           |   |         |        |      |   |         |        |  |   |        |       
|                                                                  |                                      | Roaming                   |   | $       | 12,158 |      |   | $       | 25,723 |  |   | $      |       | 
|                                                                  |                                      | Customer service          |   |         | 11,760 |      |   |         | 19,367 |  |   |        |       | 
|                                                                  |                                      | Affiliation fees          |   |         | 4,911  |      |   |         | 8,011  |  |   |        |       | 
|                                                                  |                                      | Long distance             |   |         | 3,281  |      |   |         | 7,686  |  |   |        |       | 
|                                                                  |                                      | Other                     |   |         | 461    |      |   |         | 781    |  |   |        |       | 
|                                                                  |                                      |                           |   |         |        |      |   |         |        |  |   |       
|                                                                  | Total cost of service and roaming    |                           | $ | 32,571  |        |      | $ | 61,568  |        |  | $ |       |       
|                                                                  |                                      |                           |   |         |        |      |   |         |        |  |   |       
|                                                                  | iPCS cost of equipment               |                           | $ | 6,124   |        |      | $ | 17,097  |        |  | $ |       |       
|                                                                  |                                      |                           |   |         |        |      |   |         |        |  |   |       
|                                                                  | iPCS selling and marketing           |                           | $ | 3,138   |        |      | $ | 9,970   |        |  | $ |       |       
|                                                                  |                                      |                           |   |         |        |      |   |         |        |  |   |       

Amounts included in the Consolidated Balance
Sheet:

|                       |  |                     |         |      |  |   |         |  
|---------------------- |  | ------------------- | ------- | ---- |  | - | ------- | -
|                       |  |                    
|                       |  | As of September 30,
|                       |  |                    
|                       |  | 2003                |         | 2002
|                       |  |                     |         |     
|Receivable from Sprint |  | $                   | 15,809  |      |  | $ | 44,953  |  
|Payable to Sprint      |  |                     | (45,069 | )    |  |   | (88,360 | )

The Company reclassified approximately
$10.0 million of subscriber accounts receivable for the
fiscal year ended September 30, 2002 to a receivable from
Sprint. The Company believes at least $10.0 million was
payable from Sprint, but Sprint acknowledged that only
$5.8 million was owed to AirGate. The Company provided an
allowance to reflect the receivable at its net realizable value
at September 30, 2002. The Company collected this amount
subsequent to September 30, 2002.




Because approximately 95% of our revenue is
collected by Sprint and 64% of cost of service and roaming in
our financial statements are derived from fees and charges by
(or through) Sprint, we have a variety of settlement issues and
other contract disputes open and outstanding from time to time.
Currently,




F-18



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##### Table of Contents



AIRGATE PCS, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




this includes, but is not limited to, the
following items, all of which for accounting purposes have been
reserved or otherwise provided for:






| |   |                                                                                                                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In fiscal year 2002, Sprint PCS asserted it has
    the right to recoup up to $3.9 million in long-distance
    access revenues previously paid by Sprint PCS to AirGate, for
    which Sprint PCS has invoiced $1.2 million. We have
    disputed these amounts.               
|
|
|
| |  | Sprint invoiced AirGate approximately
    $0.4 million with respect to fiscal year 2002 and
    $1.3 million for fiscal year 2003 to reimburse Sprint for
    certain 3G related development expenses. We are disputing
    Sprints right to charge 3G fees in 2002 and beyond.
|
|
|
| |  | Sprint invoiced AirGate software maintenance fees
    of approximately $1.7 million for each of fiscal years 2002
    and 2003. We are disputing Sprints right to charge
    software maintenance fees.                                                                        
|
|
|
| |  | During the fiscal year 2003, Sprint invoiced
    AirGate $2.6 million of information technology (IT)
    expenses including reimbursement for the amortization of IT
    projects completed by Sprint. The Company has disputed
    Sprints right to collect these fees.       
|




The payable to Sprint includes disputed amounts
for which Sprint has invoiced AirGate approximately
$8.9 million. The invoiced amount does not include
$2.7 million for long-distance access revenues claimed but
not invoiced by Sprint, or fees relating to disputed 3G,
software maintenance and information technology after
September 30, 2003.







We intend to vigorously contest these charges and
to closely examine all fees and charges imposed by Sprint. In
addition to these disputes, we have other outstanding issues
with Sprint which could result in set-offs to the items
described above or in payments due from Sprint. For example, we
believe Sprint has failed to calculate, pay and report on
collected revenues in accordance with our agreements with
Sprint, which, together with other cash remittance issues, has
resulted in a shortfall in cash payments to AirGate. Sprint has
unilaterally reduced the reciprocal roaming rate charged among
Sprint and its network partners, in a manner which we believe is
a breach of our agreements with Sprint.







During the year ended September 30, 2003,
AirGate recorded $3.6 million (not including
$1.3 million for monthly service charges as described
below) in credits from Sprint as a reduction of cost of services
and $3.7 million as an increase in revenues. We are
reviewing whether additional amounts are due AirGate and we
continue to discuss with Sprint the proper method for
calculating, paying and reporting on collected revenues and
other matters.







Sprint determines monthly service charges at the
beginning of each calendar year. Sprint takes the position that
at the end of each year, it calculates the costs to provide
these services for its network partners and requires a final
settlement against the charges actually paid. If the costs to
provide these services are less than the amounts paid by the
amounts paid by Sprints network partners, Sprint issues a
credit for these amounts. If the costs to provide the services
are more that the amounts paid by Sprints network
partners, Sprint charges the network partners for these amounts.
During the fiscal year ended September 30, 2003, Sprint
credited AirGate $1.3 million, which was recorded as a
reduction to cost of service.







The Sprint Agreements require the Company to
maintain certain minimum network performance standards and to
meet other performance requirements. AirGate was in compliance
in all material respects with these requirements as of
September 30, 2003.




F-19



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##### Table of Contents



AIRGATE PCS, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                       
|--- | ----------------------
|(5) | Property and Equipment

Property and equipment as of September 30,
2003 and 2002 consists of the following (dollars in thousands):

|                                               |                                   |      |          |         |  |   |          |         | 
|---------------------------------------------- | --------------------------------- | ---- | -------- | ------- |  | - | -------- | ------- | 
|                                               |                                   | 2003 |          | 2002   
|                                               |                                   |      |          |        
|Network assets                                 |                                   | $    | 288,399  |         |  | $ | 461,806  |        
|Computer equipment                             |                                   |      | 6,712    |         |  |   | 10,723   |        
|Furniture, fixtures, and office equipment      |                                   |      | 12,069   |         |  |   | 14,985   |        
|Vehicles                                       |                                   |      |         |         |  |   | 891      |        
|Construction in progress                       |                                   |      | 876      |         |  |   | 23,663   |        
|                                               |                                   |      |          |         |  |   |          |        
|                                               | Total property and equipment      |      |          | 308,056 |  |   |          | 512,068 | 
|Less accumulated depreciation and amortization |                                   |      | (129,986 | )       |  |   | (112,913 | )      
|                                               |                                   |      |          |         |  |   |          |        
|                                               | Total property and equipment, net |      | $        | 178,070 |  |   | $        | 399,155 | 
|                                               |                                   |      |          |         |  |   |          |        

Interest capitalized for the years ended
September 30, 2003, 2002 and 2001 totaled
$0.4 million, $7.1 million and $2.9 million,
respectively.



|    |                                                 
|--- | ------------------------------------------------
|(6) | Long Term Debt and Capital Lease
    Obligations

Long-term debt consists of the following at
September 30, 2003 and 2002 (dollars in thousands):

|                                                                                                                                           |                                                                                |      |         |         |  |   |         |         | 
|------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------ | ---- | ------- | ------- |  | - | ------- | ------- | 
|                                                                                                                                           |                                                                                | 2003 |         | 2002   
|                                                                                                                                           |                                                                                |      |         |        
|AirGate credit facility, net of unaccreted
    discount of $178 and $376, respectively                                                     |                                                                                | $    | 151,297 |         |  | $ | 136,124 |        
|AirGate notes, $300,000 due at maturity, at
    accreted carrying value, net of unamortized premium of $7,644
    and $8,649, respectively |                                                                                |      | 252,987 |         |  |   | 220,164 |        
|iPCS credit facility                                                                                                                       |                                                                                |      |        |         |  |   | 130,000 |        
|iPCS notes, $300,000 due at maturity, at accreted
    carrying value, net of unamortized premium of $38,060                                |                                                                                |      |        |         |  |   | 222,908 |        
|iPCS capital lease obligations                                                                                                             |                                                                                |      |        |         |  |   | 568     |        
|                                                                                                                                           |                                                                                |      |         |         |  |   |         |        
|                                                                                                                                           | Total long-term debt and capital lease obligations                             |      |         | 404,284 |  |   |         | 709,764 | 
|                                                                                                                                           | Current maturities of long-term debt and capital
    lease obligations         |      |         | 17,775  |  |   |         | 354,936 | 
|                                                                                                                                           |                                                                                |      |         |         |  |   |         |        
|                                                                                                                                           | Long-term debt and capital lease obligations,
    excluding current maturities |      | $       | 386,509 |  |   | $       | 354,828 | 
|                                                                                                                                           |                                                                                |      |         |         |  |   |         |        

F-20



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##### Table of Contents



AIRGATE PCS, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

As of September 30, 2003, future scheduled
principal payments under indebtedness for the next five years
and thereafter are as follows (dollars in thousands):

|                                                                                   |                                                   |                |         |               |   |       |         |         |   |   |         |         |  
|---------------------------------------------------------------------------------- | ------------------------------------------------- | -------------- | ------- | ------------- | - | ----- | ------- | ------- | - | - | ------- | ------- | -
|                                                                                   |                                                   | AirGate Credit |         |               |   |      
|Years Ending September 30,                                                         |                                                   | Facility       |         | AirGate Notes |   | Total
|                                                                                   |                                                   |                |         |               |   |      
|2004                                                                               |                                                   | $              | 17,775  |               |   | $     |        |         |   | $ | 17,775  |        
|2005                                                                               |                                                   |                | 23,700  |               |   |       |        |         |   |   | 23,700  |        
|2006                                                                               |                                                   |                | 30,107  |               |   |       |        |         |   |   | 30,107  |        
|2007                                                                               |                                                   |                | 39,893  |               |   |       |        |         |   |   | 39,893  |        
|2008 and Thereafter                                                                |                                                   |                | 40,000  |               |   |       | 300,000 |         |   |   | 340,000 |        
|                                                                                   |                                                   |                |         |               |   |       |         |         |   |   |         |        
|                                                                                   | Total future principal payments on long-term debt |                |         | 151,475       |   |       |         | 300,000 |   |   |         | 451,475 |  
|                                                                                   | Less amount representing unaccreted discounts     |                |         | (178          | ) |       |         | (47,013 | ) |   |         | (47,191 | )
|                                                                                   |                                                   |                |         |               |   |       |         |         |   |   |         |        
|Total future principal payments on long-term
    debt, net of unaccreted discounts |                                                   |                | 151,297 |               |   |       | 252,987 |         |   |   | 404,284 |        
|Less current maturities                                                            |                                                   |                | (17,775 | )             |   |       |        |         |   |   | (17,775 | )      
|                                                                                   |                                                   |                |         |               |   |       |         |         |   |   |         |        
|Long-term debt, excluding current maturities                                       |                                                   | $              | 133,522 |               |   | $     | 252,987 |         |   | $ | 386,509 |        
|                                                                                   |                                                   |                |         |               |   |       |         |         |   |   |         |        



| |                        
| | -----------------------
| | AirGate Credit Facility

On August 16, 1999, AirGate entered into a
$153.5 million senior credit facility. The AirGate credit
facility provides for (i) a $13.5 million senior
secured term loan (the Tranche I Term Loan)
which matures on June 6, 2007, and (ii) a
$140.0 million senior secured term loan (the
Tranche II Term Loan) which matures on
September 30, 2008. Mandatory quarterly payments of
principal are required beginning December 31, 2002 for the
Tranche I Term Loan and March 31, 2004 for the
Tranche II Term Loan payments initially in the amount of
3.75% of the loan balance then outstanding and increasing
thereafter. A commitment fee of 1.50% on unused borrowings under
the AirGate credit facility is payable quarterly and included in
interest expense. For the years ended September 30, 2003,
2002 and 2001, commitment fees totaled $0.1 million,
$0.6 million and $1.5 million, respectively. No
amounts remain available for borrowing under the AirGate credit
facility as of September 30, 2003. The AirGate credit
facility is secured by all the assets of AirGate and its
restricted subsidiaries. In connection with this financing,
AirGate issued Lucent Technologies, in its capacity as
administrative agent and manager, warrants to purchase
139,035 shares of common stock that were exercisable upon
issuance. Additionally, AirGate incurred origination fees and
expenses of $5.0 million, which have been recorded as
financing costs and are amortized to interest expense using the
straight-line method over the life of the agreement. The
interest rate for the AirGate credit facility is determined on a
margin above either the prime lending rate in the United States
or the London Interbank Offer Rate. At September 30, 2003
and 2002, the weighted average interest rate on outstanding
borrowings was 5.05% and 5.6%, respectively.




The AirGate credit facility contains ongoing
financial covenants, including reaching covered population
targets, maximum annual spending on capital expenditures,
attaining minimum subscriber revenues, and maintaining certain
leverage and other ratios such as debt to total capitalization,
debt to EBITDA (as defined in credit facility agreement,
Bank EBITDA) and Bank EBITDA to fixed charges. The
AirGate credit facility restricts the ability of AirGate and its
restricted subsidiaries to: create liens; incur indebtedness;
make certain payments, including payments of dividends and
distributions in respect of capital stock; consolidate, merge
and sell assets; engage in certain transactions with affiliates;
and fundamentally change its business. As of September 30,
2003, AirGate was in compliance in all material respects with
covenants contained in the AirGate credit facility, as amended.




F-21



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##### Table of Contents



AIRGATE PCS, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




In contemplation of the proposed restructuring,
AirGate entered into an amendment to the AirGate credit facility
on November 30, 2003. Certain changes are effective for
periods ended December 31, 2003 and are used in determining
compliance with financial covenants for periods ended
December 31, 2003 and thereafter. These changes include
(i) changes to the definition of Bank EBITDA to provide
that, among other things, in determining Bank EBITDA, certain
additional items will be added back to our consolidated net
income or loss (to the extent deducted in determining such
income or loss), including any charges incurred in connection
with the restructuring, up to $2.0 million per year to
pursue claims against, or dispute claims by, Sprint; up to
$5.0 million in start-up costs in connection with any
outsourcing billing and customer care services, and
(ii) calculating the ratio of total debt to Bank EBITDA and
senior secured debt to Bank EBITDA based on the four most recent
fiscal quarters, rather than the last two quarters annualized.
In addition, the amendment provides for a waiver, effective as
of September 30, 2003, of the requirement that the Company
deliver an opinion of its independent auditors with respect to
the financial statements for the year ended September 30,
2003 that does not contain a going concern or other similar
qualification.




The effectiveness of other changes made by the
amendment is conditioned on, among other things, at least 90% of
the face value of the Old AirGate Notes having been exchanged in
the restructuring. These changes include: (i) deleting the
minimum subscriber covenant, (ii) revising the threshold
requirements for minimum revenues and most of the ratios that we
are required to maintain; (iii) providing AirGate the
ability to incur certain other limited indebtedness and related
lien; make certain limited investments and form subsidiaries
under limited circumstances that are not subject to certain
restrictive covenants contained in the credit facility or
required to guarantee the credit facility and
(iv) permitting AirGate to repurchase, at a discount, the
old notes or the new notes from our cash on hand in an aggregate
amount not to exceed $25 million in value of those notes,
provided that we at the same time incur an equal amount of
permitted subordinated indebtedness.




The amendment will not affect any of the other
provisions of the AirGate credit facility, including those which
restrict AirGates ability to merge, consolidate or sell
substantially all of its assets. In connection with the
amendment, the Company has agreed to prepay $10.0 million
in principal under the credit facility, which will be credited
against principal payments otherwise due in 2004 and 2005 in the
amount of $7.5 million and $2.5 million, respectively.
The prepayment is required only if the Recapitalization Plan is
completed. The amendment will not otherwise affect
AirGates obligation to pay interest, premium, if any, or
principal on the AirGate credit facility, when due.






| |                  
| | -----------------
| | Old AirGate Notes

On September 30, 1999, the Company received
proceeds of $156.1 million from the issuance of the Old
AirGate Notes, which consisted 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). The accreted value
outstanding as of September 30, 2003 of the AirGate notes
was $253.0 million. The Company incurred expenses,
underwriting discounts and commissions of $6.6 million
related to the old notes, which have been recorded as financing
costs and are amortized to interest expense using the
straight-line method, over the life of the agreement. The old
notes contain certain covenants relating to limitations on
AirGates ability to, among other acts, sell assets, incur
additional indebtedness, and make certain payments. The AirGate
notes restrict the ability of AirGate and its restricted
subsidiaries to: create liens; incur indebtedness; make certain
payments, including payments of dividends and distributions in
respect of capital stock; consolidate, merge and sell assets;
engage in certain transactions with affiliates; and
fundamentally change its business. As of September 30,
2003, AirGate was in compliance in all material respects with
all covenants governing the AirGate notes.

F-22



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##### Table of Contents



AIRGATE PCS, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                   
| | ----------------------------------
| | iPCS Credit Facility and
    Notes

iPCS has a $130 million credit facility
maturing on December 31, 2008. iPCS also has 14% notes
due in 2010 of $300 million principal amount at maturity.
As of December 31, 2002, iPCS was in default under certain
covenants contained in its credit facility and the indenture
governing its notes. In addition, on January 30, 2003, iPCS
ceased making interest payments under the iPCS credit facility.
As a result, the senior lenders had the ability to accelerate
iPCS payment obligations under the iPCS credit facility
and the holders of the iPCS notes had the ability to accelerate
iPCS payment obligations under iPCS indenture. On
February 23, 2003, iPCS, Inc. and its subsidiaries, iPCS
Wireless, Inc. and iPCS Equipment, Inc., filed a Chapter 11
bankruptcy petition in the United States Bankruptcy Court for
the Northern District of Georgia for the purpose of effecting a
court-administered reorganization. Immediately prior to
iPCS bankruptcy filing, the lenders under the iPCS credit
facility accelerated iPCS payment obligations as a result
of existing defaults under that facility. As a result of this
acceleration, the iPCS credit facility and notes were classified
as current maturities on the consolidated balance sheet at
September 30, 2002.



|    |                                    
|--- | -----------------------------------
|(7) | Fair Value of Financial Instruments

Fair value estimates and 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, 2003 |         | September 30, 2002  
|                          |  |                    |         |                     
|                          |  | Carrying Amount    |         | Estimated Fair Value |  | Carrying Amount |         | Estimated Fair Value
|                          |  |                    |         |                      |  |                 |         |                     
|Cash and cash equivalents |  | $                  | 54,078  |                      |  | $               | 54,078  |                      |  | $ | 32,475  |  |  | $ | 32,475  | 
|Accounts receivable, net  |  |                    | 26,994  |                      |  |                 | 26,994  |                      |  |   | 38,127  |  |  |   | 38,127  | 
|Receivable from Sprint    |  |                    | 15,809  |                      |  |                 | 15,809  |                      |  |   | 44,953  |  |  |   | 44,953  | 
|Accounts payable          |  |                    | 5,945   |                      |  |                 | 5,945   |                      |  |   | 18,152  |  |  |   | 18,152  | 
|Accrued expenses          |  |                    | 12,104  |                      |  |                 | 12,104  |                      |  |   | 20,950  |  |  |   | 20,950  | 
|Payable to Sprint         |  |                    | 45,069  |                      |  |                 | 45,069  |                      |  |   | 88,360  |  |  |   | 88,360  | 
|AirGate credit facility   |  |                    | 151,297 |                      |  |                 | 147,688 |                      |  |   | 136,124 |  |  |   | 112,302 | 
|iPCS credit facility      |  |                    |        |                      |  |                 |        |                      |  |   | 130,000 |  |  |   | 81,250  | 
|AirGate notes             |  |                    | 252,987 |                      |  |                 | 227,813 |                      |  |   | 220,164 |  |  |   | 25,125  | 
|iPCS notes                |  |                    |        |                      |  |                 |        |                      |  |   | 222,908 |  |  |   | 13,500  | 






|    |                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Cash and cash equivalents, accounts
    receivable net, receivable from Sprint, accounts payable,
    accrued expenses and payable to Sprint.

Management believes that the carrying amounts of
these items are reasonable estimates of their fair value due to
the short-term nature of the instruments.



|    |               
|--- | --------------
|(b) | Long-term debt




Long-term debt is comprised of the AirGate credit
facility, AirGate notes, iPCS credit facility and iPCS notes.
The fair value of the AirGate and iPCS notes are stated at
quoted market prices. As there is no active market for the
AirGate and iPCS credit facilities, management has estimated the
fair values of




F-23



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##### Table of Contents



AIRGATE PCS, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

the AirGate and iPCS credit facilities based upon
the Companys analysis and discussions with individuals
knowledgeable about such matters.



|    |                      
|--- | ---------------------
|(8) | Stockholders Deficit



| |                                       
| | --------------------------------------
| | (a) Common Stock Purchase
    Warrants

On August 16, 1999, AirGate issued stock
purchase warrants to Lucent Technologies in consideration of the
AirGate credit facility. The exercise 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 were exercisable for an aggregate of
128,860 shares of AirGates common stock. AirGate
allocated $0.7 million of the proceeds from the AirGate
credit facility to the fair value of the warrants calculated
using the Black-Scholes option pricing model and recorded an
original issue discount on the AirGate 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. In September 2000, all of such warrants were exercised.

In June 2000, AirGate issued stock purchase
warrants to Lucent Technologies to acquire 10,175 shares of
common stock on terms identical to those discussed in the
previous paragraph, all of which were outstanding as of
September 30, 2003. These warrants expire on
August 15, 2004. The Company recorded a discount on the
AirGate credit facility of $0.3 million, which represents
the fair value of the warrants on the date of grant using a
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.

On September 30, 1999, as part of offering
the AirGate notes, the Company issued warrants to purchase
2.148 shares of common stock for each unit at a price of
$0.01 per share. In January 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 AirGates $300 million of
13.5% senior subordinated discount notes due 2009, was
declared effective by the Securities and Exchange Commission.
The Company allocated $10.9 million of the proceeds from
the units offering to the fair value of the warrants and
recorded an original issue 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
years ended September 30, 2003, 2002 and 2001, accretion of
the discount from the warrants totaling $1.0 million,
$0.9 million and $0.8 million, respectively, was
recorded as interest expense. The warrants became exercisable
beginning upon the effective date of the registration statement
registering such warrants, for an aggregate of
644,400 shares of common stock, and expire October 1,
2009. As of September 30, 2003, warrants representing
18,690 shares of common stock were outstanding. These
warrants require liability classification measured at fair
value. The fair value of the warrants at September 30, 2003
and 2002 were $0.1 million and $0.1 million,
respectively.

As part of the acquisition of iPCS by AirGate,
AirGate assumed warrants previously issued by iPCS in connection
with the iPCS notes. The warrant holders may purchase
475,351 shares of Company common stock with an exercise
price of $34.51 per share all of which were outstanding as
of September 30, 2003. Additionally, the Company assumed
warrants on 183,584 shares of the Companys common
stock previously issued by iPCS in connection with iPCS
amendment of its management agreement with Sprint with an
exercise price of $31.06 per share all of which were
outstanding as of September 30, 2003. The warrants related
to the iPCS notes became exercisable on July 15, 2001 for a
period of ten years after the date of issuance. The warrants
related to the Sprint Agreements were issued as a part of an
amendment to the management agreement iPCS had with Sprint in
connection with iPCS purchase of Sprint owned PCS
territories in Michigan, Iowa and Nebraska and became
exercisable by Sprint on July 15, 2001 and expire on
July 15, 2007. These warrants require liability
classification

F-24



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##### Table of Contents



AIRGATE PCS, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

measured at fair value. The fair value of the
iPCS note warrants at September 30, 2003 and 2002 was
approximately $0.8 million and $0.1 million,
respectively.

The following is a summary of the aggregate
common stock share activity for the Companys warrants for
the three years ended September 30, 2003:

|                           |                                           |                |        |                |  |            |         |             |   |       |         |         |  |  |         |         |  |  |         |         |  
|-------------------------- | ----------------------------------------- | -------------- | ------ | -------------- |  | ---------- | ------- | ----------- | - | ----- | ------- | ------- |  |  | ------- | ------- |  |  | ------- | ------- | -
|                           |                                           | AirGate Lucent |        | AirGate Note   |  | iPCS Note  |         | iPCS Sprint |   |      
|                           |                                           | Warrants      |        | Warrants      |  | Warrants  |         | Warrants   |   |      
|                           |                                           | June 2000      |        | September 1999 |  | July 2000  |         | July 2000   |   | Total
|                           |                                           |                |        |                |  |            |         |             |   |      
|Balance September 30, 2000 |                                           |                | 10,175 |                |  |            | 135,812 |             |   |       |        |         |  |  |        |         |  |  | 145,987 |        
|                           | Shares issued upon exercise of warrants   |                |        |               |  |            |         | (80,641     | ) |       |         |        |  |  |         |        |  |  |         | (80,641 | )
|                           |                                           |                |        |                |  |            |         |             |   |       |         |         |  |  |         |         |  |  |         |        
|Balance September 30, 2001 |                                           |                | 10,175 |                |  |            | 55,171  |             |   |       |        |         |  |  |        |         |  |  | 65,346  |        
|                           | Warrants assumed upon acquisition of iPCS |                |        |               |  |            |         |            |   |       |         | 475,351 |  |  |         | 183,584 |  |  |         | 658,935 |  
|                           | Shares issued upon exercise of warrants   |                |        |               |  |            |         | (15,001     | ) |       |         |        |  |  |         |        |  |  |         | (15,001 | )
|                           |                                           |                |        |                |  |            |         |             |   |       |         |         |  |  |         |         |  |  |         |        
|Balance September 30, 2002 |                                           |                | 10,175 |                |  |            | 40,170  |             |   |       | 475,351 |         |  |  | 183,584 |         |  |  | 709,280 |        
|                           | Shares issued upon exercise of warrants   |                |        |               |  |            |         | (21,480     | ) |       |         |        |  |  |         |        |  |  |         | (21,480 | )
|                           |                                           |                |        |                |  |            |         |             |   |       |         |         |  |  |         |         |  |  |         |        
|Balance September 30, 2003 |                                           |                | 10,175 |                |  |            | 18,690  |             |   |       | 475,351 |         |  |  | 183,584 |         |  |  | 687,800 |        
|                           |                                           |                |        |                |  |            |         |             |   |       |         |         |  |  |         |         |  |  |         |        



|    |                         
|--- | ------------------------
|(b) | Stock Compensation Plans




In July 1999, the Board of Directors approved the
1999 Stock Option Plan, a stock option plan whereby
2,000,000 shares of common stock were reserved for issuance
to employees. Options granted under the plan vest at various
terms up to a five-year period beginning at the grant date and
expire ten years from the date of grant. During the year ended
September 30, 2000, unearned stock compensation of
$2.2 million was recorded for option grants made during
that period representing the difference between the exercise
price at the date of grant and the fair value at the date of
grant. Non-cash stock compensation is recognized over the period
in which the related services are rendered.







On January 31, 2001, the Board of Directors
approved the 2001 Non-Executive Stock Option Plan, under which
150,000 shares of common stock were reserved for issuance
to employees. Options granted under the plan vest ratably over a
four-year period beginning at the grant date and expire ten
years from the date of grant.




On July 31, 2001, the Board of Directors
approved the AirGate PCS, Inc. 2001 Non-Employee Director
Compensation Plan. Pursuant to the plan, non-employee directors
receive an annual retainer, which may be comprised of cash,
restricted stock or options to purchase shares of Company common
stock. Each non-employee director that joins the Companys
board of directors also receives an initial grant of options to
acquire 10,000 shares of Company common stock. The options
vest in three equal annual installments beginning on the first
day of the plan year following the year of grant. In addition,
each participant receives an annual grant of options to acquire
7,500 shares of Company common stock. In lieu of this
annual grant, the recipient may elect to receive three
years worth of annual option grants in a single upfront
grant to acquire 22,500 shares of Company common stock that
vest in three equal annual installments. All options are granted
at an exercise price equal to the fair market value of the
Companys common stock on the date of grant and expire ten
years after the date of grant.

On January 31, 2001, the board of directors
approved the 2001 Employee Stock Purchase Plan (the
ESPP), under which 200,000 shares of common
stock were reserved for purchase. The ESPP was

F-25



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##### Table of Contents



AIRGATE PCS, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

approved by shareholders and became effective
January 31, 2001. The ESPP allows employees to make
voluntary payroll contributions towards the purchase of Company
common stock. At the end of each offering period, participating
employees are able to purchase company common stock at a 15%
discount to the market price of the Companys common stock
at the beginning or end of the offering period, whichever is
lower. As of December 31, 2002, the end of the most recent
offering period, 126,726 shares of common stock had been
issued under the ESPP, and 73,274 shares remain reserved
for future issuance.




On December 18, 2001, the board of directors
approved the AirGate PCS, Inc. 2002 Long-Term Incentive Plan
(the 2002 Plan), under which 1,500,000 shares
of Company common stock were reserved for issuance to select
employees and officers, directors and consultants of the
Company. Options granted under the 2002 Plan vest on such terms
as determined by the Companys compensation committee
(generally ratably over four years), and expire ten years after
the date of grant. The 2002 Plan was approved by shareholders
and became effective on February 26, 2002. Upon approval of
the 2002 Plan by the Companys shareholders, the right to
grant awards under the 1999 Stock Option Plan and the 2001
Non-Executive Stock Option Plan were terminated, and shares
granted under the 2001 Non-Employee Director Plan are reserved
under the authority of the 2002 Plan.







The Company issued 30,000 and 12,067 shares
of restricted stock to employees during the fiscal year ended
September 30, 2003 and 2002, respectively. The restrictions
on the stock lapse over a period of time of up to 4 years.
The Company has recorded the fair value of the shares issued of
$0.02 million and $0.3 million for fiscal years 2003
and 2002, respectively, as unearned stock compensation and is
amortizing such amounts to non-cash stock compensation over the
vesting period.




The weighted-average grant date fair value of
stock option grants for the years ended September 30, 2003,
2002, and 2001 was $0.53, $26.29, and $31.10, respectively. The
fair value of stock options granted was estimated as of the date
of the grant using the Black-Scholes option pricing model with
the following assumptions:

|                          |  |                           |       |      |  |      |       |   |  |  |       |  
|------------------------- |  | ------------------------- | ----- | ---- |  | ---- | ----- | - |  |  | ----- | -
|                          |  |                          
|                          |  | Years Ended September 30,
|                          |  |                          
|                          |  | 2003                      |       | 2002 |  | 2001
|                          |  |                           |       |      |  |     
|Risk-free interest return |  |                           | 3.5   | %    |  |      | 2.3   | % |  |  | 3.5   | %
|Volatility                |  |                           | 112.0 | %    |  |      | 180.0 | % |  |  | 100.0 | %
|Dividend yield            |  |                           | 0     | %    |  |      | 0     | % |  |  | 0     | %
|Expected life in years    |  |                           | 4     |      |  |      | 4     |   |  |  | 4     |  

F-26



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##### Table of Contents



AIRGATE PCS, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table summarizes activity under the
Companys stock option plans:




|                                             |                                        |           |           |                  |   |   |       |       | 
|-------------------------------------------- | -------------------------------------- | --------- | --------- | ---------------- | - | - | ----- | ----- | 
|                                             |                                        | Number of |           | Weighted-Average
|                                             |                                        | Options   |           | Exercise Price  
|                                             |                                        |           |           |                 
|Options outstanding as of September 30, 2000 |                                        |           | 1,504,645 |                  |   | $ | 28.72 |      
|                                             | Granted                                |           |           | 502,587          |   |   |       | 41.35 | 
|                                             | Exercised                              |           |           | (467,556         | ) |   |       | 14.39 | 
|                                             | Forfeited                              |           |           | (82,741          | ) |   |       | 36.66 | 
|                                             |                                        |           |           |                  |   |   |       |      
|Options outstanding as of September 30, 2001 |                                        |           | 1,456,935 |                  |   |   | 37.23 |      
|                                             | Options assumed in acquisition of iPCS |           |           | 478,069          |   |   |       | 31.99 | 
|                                             | Granted                                |           |           | 637,689          |   |   |       | 27.45 | 
|                                             | Exercised                              |           |           | (33,558          | ) |   |       | 26.86 | 
|                                             | Forfeited                              |           |           | (279,372         | ) |   |       | 35.30 | 
|                                             |                                        |           |           |                  |   |   |       |      
|Options outstanding as of September 30, 2002 |                                        |           | 2,259,763 |                  |   |   | 33.95 |      
|                                             | Granted                                |           |           | 471,500          |   |   |       | 0.72  | 
|                                             | Forfeited                              |           |           | (1,454,193       | ) |   |       | 36.47 | 
|                                             |                                        |           |           |                  |   |   |       |      
|Options outstanding as of September 30, 2003 |                                        |           | 1,277,070 |                  |   | $ | 18.32 |      
|                                             |                                        |           |           |                  |   |   |       |      




As previously discussed, the Company maintains
several stock option plans with total reserved shares of
approximately 2,159,706. The number of shares of the
Companys common stock available for future grant under the
Companys stock option plans was 882,636 as of
September 30, 2003.

The following table summarizes information for
stock options outstanding and exercisable at September 30,
2003:




|                |  |                     |           |                     |  |          |      |             |  |          |       |  |  |  |         |  |  |   |       | 
|--------------- |  | ------------------- | --------- | ------------------- |  | -------- | ---- | ----------- |  | -------- | ----- |  |  |  | ------- |  |  | - | ----- | 
|                |  |                     |           |                     |  |         
|                |  | Options Outstanding |           |                    
|                |  |                     |           | Options Exercisable
|                |  |                     |           | Weighted            |  |          |      |            
|                |  |                     |           | Average             |  | Weighted |      |             |  | Weighted
|                |  |                     |           | Remaining           |  | Average  |      |             |  | Average 
|Range of        |  | Number              |           | Contractual         |  | Exercise |      | Number      |  | Exercise
|Exercise Prices |  | Outstanding         |           | Life (in Years)     |  | Price    |      | Exercisable |  | Price   
|                |  |                     |           |                     |  |          |      |             |  |         
|$ 0.26-$ 0.64   |  |                     | 137,300   |                     |  |          | 8.72 |             |  | $        | 0.47  |  |  |  |        |  |  |   |      | 
|$ 0.82-$ 0.82   |  |                     | 274,000   |                     |  |          | 9.21 |             |  | $        | 0.82  |  |  |  |        |  |  |   |      | 
|$ 0.87-$12.32   |  |                     | 203,789   |                     |  |          | 8.65 |             |  | $        | 6.95  |  |  |  | 54,455  |  |  | $ | 7.43  | 
|$12.50-$29.18   |  |                     | 287,887   |                     |  |          | 6.13 |             |  | $        | 21.95 |  |  |  | 239,277 |  |  | $ | 22.36 | 
|$34.52-$36.75   |  |                     | 164,934   |                     |  |          | 5.97 |             |  | $        | 34.76 |  |  |  | 141,339 |  |  | $ | 34.71 | 
|$39.22-$46.66   |  |                     | 149,974   |                     |  |          | 7.12 |             |  | $        | 42.83 |  |  |  | 91,589  |  |  | $ | 42.69 | 
|$46.88-$57.21   |  |                     | 54,186    |                     |  |          | 7.29 |             |  | $        | 50.12 |  |  |  | 30,795  |  |  | $ | 49.63 | 
|$98.50-$98.50   |  |                     | 5,000     |                     |  |          | 6.44 |             |  | $        | 98.50 |  |  |  | 4,000   |  |  | $ | 98.50 | 
|                |  |                     |           |                     |  |          |      |             |  |          |       |  |  |  |         |  |  |   |       | 
|$ 0.26-$98.50   |  |                     | 1,277,070 |                     |  |          | 7.62 |             |  | $        | 18.32 |  |  |  | 561,455 |  |  | $ | 29.38 | 
|                |  |                     |           |                     |  |          |      |             |  |          |       |  |  |  |         |  |  |   |       | 




As of September 30, 2002, 854,845 options
were exercisable with a weighted average exercise price of
$34.59. As of September 30, 2001, 406,445 options were
exercisable with a weighted average exercise price of $30.05.

F-27



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##### Table of Contents



AIRGATE PCS, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                
|--- | ---------------
|(c) | 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, 2003.



|    |                            
|--- | ---------------------------
|(d) | Non-Cash Stock Compensation

The Companys non-cash stock compensation
expense has been recorded to reflect the difference between the
exercise price and the fair market value of the Companys
common stock and restricted stock at the date of grant. The
expense is recognized over the period in which the related
services are rendered. The amounts below have been reflected and
are included in the respective categories shown below in the
Consolidated Statements of Operations for the years ending
September 30, 2003, 2002 and 2001 (dollars in thousands):

|                            |  |      |     |      |  |      |     |  |  |   |       | 
|--------------------------- |  | ---- | --- | ---- |  | ---- | --- |  |  | - | ----- | 
|                            |  | 2003 |     | 2002 |  | 2001
|                            |  |      |     |      |  |     
|Cost of service and roaming |  | $    | 154 |      |  | $    | 168 |  |  | $ | 177   | 
|Selling and marketing       |  |      | 89  |      |  |      | 89  |  |  |   | 89    | 
|General and administrative  |  |      | 407 |      |  |      | 512 |  |  |   | 1,399 | 
|                            |  |      |     |      |  |      |     |  |  |   |       | 
|Total                       |  | $    | 650 |      |  | $    | 769 |  |  | $ | 1,665 | 
|                            |  |      |     |      |  |      |     |  |  |   |       | 



|    |             
|--- | ------------
|(9) | Income Taxes

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 years ended
September 30, 2003, 2002 and 2001, differed from the
amounts computed by applying the statutory U.S. Federal
income tax rate of 34% to loss before income tax benefit as a
result of the following (dollars in thousands):




|                                                                       |                          |                           |         |      |  |      |          |         |   |   |         |   | 
|---------------------------------------------------------------------- | ------------------------ | ------------------------- | ------- | ---- |  | ---- | -------- | ------- | - | - | ------- | - | 
|                                                                       |                          |                          
|                                                                       |                          | Years Ended September 30,
|                                                                       |                          |                          
|                                                                       |                          | 2003                      |         | 2002 |  | 2001
|                                                                       |                          |                           |         |      |  |     
|Computed expected income tax benefit                                 |                          | $                         | (28,817 | )    |  | $    | (348,629 | )       |   | $ | (37,737 | )
|(Increase) decrease in income tax benefit
    resulting from:          |                          |                           |         |      |  |      |          |         |   |   |         |  
|State income tax benefits, net of Federal effect                       |                          |                           | (3,390  | )    |  |      | (23,466  | )       |   |   | (6,120  | )
|Stock option deductions                                                |                          |                           |        |      |  |      | (1,585   | )       |   |   | (2,224  | )
|Increase in the valuation allowance for deferred
    income tax assets |                          |                           | 28,953  |      |  |      | 184,197  |         |   |   | 44,697  |  
|Nondeductible interest expense                                         |                          |                           | 2,902   |      |  |      | 4,244    |         |   |   | 1,308   |  
|Asset impairments and amortization                                     |                          |                           | 1,873   |      |  |      | 154,015  |         |   |   |        |  
|Other, net                                                             |                          |                           | (1,521  | )    |  |      | 2,463    |         |   |   | 76      |  
|                                                                       |                          |                           |         |      |  |      |          |         |   |   |         |  
|                                                                       | Total income tax benefit |                           | $       |     |  |      | $        | (28,761 | ) |   | $       |  | 
|                                                                       |                          |                           |         |      |  |      |          |         |   |   |         |  




During the year ended September 30, 2002,
the Company recorded a tax benefit of approximately
$28.8 million for the reduction of the valuation allowance
in connection with the acquisition of iPCS.

F-28



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##### Table of Contents



AIRGATE PCS, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Differences between financial accounting and tax
bases of assets and liabilities giving rise to deferred income
tax assets and liabilities are as follows at September 30,
2003 and 2002 (dollars in thousands):

|                                                                                                     |                                                               |      |         |          |   |  |         |          |  
|---------------------------------------------------------------------------------------------------- | ------------------------------------------------------------- | ---- | ------- | -------- | - |  | ------- | -------- | -
|                                                                                                     |                                                               | 2003 |         | 2002    
|                                                                                                     |                                                               |      |         |         
|Deferred income tax assets:                                                                          |                                                               |      |         |          |   |  |         |         
|                                                                                                     | Net operating loss carryforwards (excluding iPCS
    in 2003) |      | $       | 109,379  |   |  | $       | 156,544  |  
|                                                                                                     | Capitalized start-up costs                                    |      |         | 1,341    |   |  |         | 2,576    |  
|                                                                                                     | Accrued expenses                                              |      |         | 2,580    |   |  |         | 14,145   |  
|                                                                                                     | Investment in iPCS                                            |      |         | 88,879   |   |  |         |         |  
|                                                                                                     | Deferred interest expense                                     |      |         | 34,107   |   |  |         | 36,133   |  
|                                                                                                     |                                                               |      |         |          |   |  |         |         
|                                                                                                     | Gross deferred income tax assets                              |      |         | 236,286  |   |  |         | 209,398  |  
|                                                                                                     | Less valuation allowance for deferred income tax
    assets   |      |         | (216,414 | ) |  |         | (184,197 | )
|                                                                                                     |                                                               |      |         |          |   |  |         |         
|                                                                                                     | Net deferred income tax assets                                |      |         | 19,872   |   |  |         | 25,201   |  
|Deferred income tax liabilities, principally due
    to differences in depreciation and amortization |                                                               |      | (19,872 | )        |   |  | (25,201 | )       
|                                                                                                     |                                                               |      |         |          |   |  |         |         
|                                                                                                     | 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
that 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 not more likely than not.




The valuation allowance for deferred income tax
assets as of September 30, 2003 and 2002 was
$216.4 million and $184.2 million, respectively. The
net change in the total valuation allowance for the years ended
September 30, 2003, 2002, and 2001 was an increase of
$32.2 million, $184.2 million, and $44.7 million,
respectively. For the year ended September 30, 2003 the net
increase in the valuation allowance included a decrease of
$85.7 million related to the deconsolidation of iPCS for
financial reporting purposes, an increase of $88.9 million
related to the difference between the Companys tax basis
in its interest in iPCS and its financial statement carrying
amount, offset by an increase of $29.0 million related to
the operations of the Company.







At September 30, 2003 the Company has net
operating loss carryforwards for federal income tax purposes of
approximately $500.0 million which include approximately
$210.0 million in net operating losses of iPCS through the
date of deconsolidation. These net operating losses will expire
in various amounts beginning in the year 2019. Additional tax
net operating losses of iPCS for the post-deconsolidation period
will be included in the Companys consolidated federal and
state tax returns. Effective October 17, 2003, iPCS is no
longer considered a subsidiary for federal income tax purposes
(see Note 12) and the carryforward net operating
losses of the Company will be reduced by those net operating
losses originated by iPCS. Additionally, approximately
$19.0 million included above as Investment in
iPCS, will not be retained by the Company.




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 acquisition of iPCS on November 30,
2001. The amount of this annual limitation is approximately
$73.7 million per year, including the iPCS limitation of
$37.2 million.

F-29



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##### Table of Contents



AIRGATE PCS, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The net operating loss carryforwards include
deductions of approximately $11.2 million related to the
exercise of stock options, which will be credited to additional
paid in capital if recognized.



|     |                       
|---- | ----------------------
|(10) | Merger with iPCS, Inc.

On November 30, 2001, the Company completed
the acquisition of iPCS. In light of the consolidation in the
wireless communications industry in general and among Sprint PCS
network partners in particular, the Companys Board of
Directors believed that the merger represented a strategic
opportunity to significantly expand the size and scope of the
Companys operations. The Companys Board of Directors
believed that, following the merger, the Company would have
greater financial flexibility, operational efficiencies and
growth potential than the Company would have solely on its own.
In connection with the iPCS acquisition, the Company issued
12.4 million shares of Company common stock valued at
$57.16 per share on November 30, 2001, which totaled
$706.6 million. The Company reserved an additional
1.1 million shares for issuance upon exercise of
outstanding iPCS options and warrants valued at
$47.7 million using a Black-Scholes option pricing model.
The transaction was accounted for under the purchase method of
accounting. Accordingly, the Company allocated the purchase
price to the fair value of identifiable assets and liabilities.
Subsequently, certain former shareholders of iPCS sold
4.0 million shares of Company common stock in an
underwritten offering on December 18, 2001. The accounts of
iPCS are included in the Companys consolidated financial
statements as of September 30, 2002 and the results of
operations include iPCS subsequent to November 30, 2001
through February 23, 2003, the date iPCS filed for
Chapter 11 bankruptcy protection (see Note 12).

The Company considered itself the acquiring
entity for the following reasons: the Company was the issuer of
the equity shares in the merger; Company stockholders,
subsequent to the merger, held 53 percent of the combined
entity; senior management of the combined entity subsequent to
the merger was comprised of former senior management of the
Company; Company stockholders, subsequent to the merger, held
the majority voting right to elect the governing body of the
combined company; and the Company prior to the merger was the
larger of the two entities.

The total purchase price and the fair values
assigned to identifiable assets and liabilities as of
November 30, 2001 are summarized below (dollars in
thousands).

|                                                                   |                      |              |         |           | 
|------------------------------------------------------------------ | -------------------- | ------------ | ------- | --------- | 
|                                                                   |                      | As of       
|                                                                   |                      | November 30,
|                                                                   |                      | 2001        
|                                                                   |                      |             
|Stock issued                                                       |                      | $            | 706,645 |          
|Value of options and warrants converted                            |                      |              | 47,727  |          
|Costs associated with acquisition                                  |                      |              | 7,730   |          
|Liabilities assumed                                                |                      |              | 394,165 |          
|                                                                   |                      |              |         |          
|                                                                   | Total purchase price |              | $       | 1,156,267 | 
|                                                                   |                      |              |         |          
|Tangible assets (including $213,101 of property
    and equipment) |                      | $            | 313,843 |          
|Intangible assets                                                  |                      |              | 379,589 |          
|Goodwill                                                           |                      |              | 462,835 |          
|                                                                   |                      |              |         |          
|                                                                   | Total                |              | $       | 1,156,267 | 
|                                                                   |                      |              |         |          

F-30



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##### Table of Contents



AIRGATE PCS, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

As a result of the acquisition of iPCS, the
Company recorded goodwill of $462.8 million and intangible
assets of $379.6 million (dollars in thousands):

|                                                         |  |          |         |              |  |  |            | 
|-------------------------------------------------------- |  | -------- | ------- | ------------ |  |  | ---------- | 
|                                                         |  | Value    |         | Amortization
|                                                         |  | Assigned |         | Period      
|                                                         |  |          |         |             
|Acquired subscriber base                                 |  | $        | 52,400  |              |  |  | 30 months  | 
|Non-competition agreements                               |  |          | 3,900   |              |  |  | 6 months   | 
|Right to provide service under the Sprint
    Agreements |  |          | 323,289 |              |  |  | 205 months | 
|                                                         |  |          |         |              |  |  |            | 
|                                                         |  | $        | 379,589 |              |  |  |            | 
|                                                         |  |          |         |              |  |  |            | 

The unaudited pro forma condensed consolidated
statements of operations for the years ended September 30,
2002 and 2001, set forth below, present the results of
operations as if the acquisition had occurred at the beginning
of each period and are not necessarily indicative of future
results or actual results that would have been achieved had the
acquisition occurred as of the beginning of each period (dollars
in thousands, except per share amounts).

|                                     |  |                           |            |      |  |   |          |  
|------------------------------------ |  | ------------------------- | ---------- | ---- |  | - | -------- | -
|                                     |  |                          
|                                     |  | Years Ended September 30,
|                                     |  |                          
|                                     |  | 2002                      |            | 2001
|                                     |  |                           |            |     
|Total revenues                       |  | $                         | 483,612    |      |  | $ | 259,214  |  
|                                     |  |                           |            |      |  |   |          |  
|Net loss                             |  | $                         | (1,045,361 | )    |  | $ | (246,032 | )
|                                     |  |                           |            |      |  |   |          |  
|Basic and diluted net loss per share |  | $                         | (40.57     | )    |  | $ | (9.67    | )
|                                     |  |                           |            |      |  |   |          |  



|     |                               
|---- | ------------------------------
|(11) | Goodwill and Intangible Assets

The changes in the carrying amount of goodwill as
of September 30, 2002 are as follows. There is no goodwill
remaining after September 30, 2002 (dollars in thousands):

|                                             |                                                                                                      |   |   |          |  
|-------------------------------------------- | ---------------------------------------------------------------------------------------------------- | - | - | -------- | -
|Balance of goodwill as of September 30, 2001 |                                                                                                      | $ |  |         
|                                             | Goodwill acquired on November 30, 2001
    (preliminary purchase price allocation)                   |   |   | 387,392  |  
|                                             | Adjustments to preliminary purchase price
    allocation recorded during period ended March 31, 2002 |   |   | 73,528   |  
|                                             | Goodwill impairments                                                                                 |   |   | (460,920 | )
|                                             |                                                                                                      |   |   |         
|Balance as of September 30, 2002             |                                                                                                      | $ |  |         
|                                             |                                                                                                      |   |   |         

The adjustment to the preliminary purchase price
resulted from the receipt of the final purchase price
allocation. These adjustments reduced the intangible amount
assigned to the right to provide service under the Sprint
Agreements by $94 million, increased goodwill by
$73.5 million, adjusted other assets and liabilities by
$6.9 million, and reduced the deferred income tax liability
by $27.4 million.

The carrying amount for the intangible assets are
shown below and include the amortization period and the gross
carrying amount, impairment loss, amortization expense and the
deconsolidation of iPCS as of September 30, 2003, 2002 and
2001 (dollars in thousands):

|                                                                            |  |              |            | 
|--------------------------------------------------------------------------- |  | ------------ | ---------- | 
|                                                                            |  | Amortization
|                                                                            |  | Period      
|                                                                            |  |             
|Non-competition agreements  iPCS
    acquisition                           |  |              | 6 months   | 
|Non-competition agreements  AirGate
    store acquisition                  |  |              | 24 months  | 
|Acquired subscriber base  iPCS
    acquisition                             |  |              | 30 months  | 
|Right to provide service under the Sprint
    agreements  iPCS acquisition |  |              | 205 months | 

F-31



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##### Table of Contents



AIRGATE PCS, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                 |                         |                   |       |                      |   |             |     |                  |   |       |        |         |   |   |         |          |   |   |         |          |  
|-------------------------------- | ----------------------- | ----------------- | ----- | -------------------- | - | ----------- | --- | ---------------- | - | ----- | ------ | ------- | - | - | ------- | -------- | - | - | ------- | -------- | -
|                                 |                         |                   |       |                      |   |             |     | Right to Provide |   |      
|                                 |                         |                   |       |                      |   | Acquired    |     | Service Under    |   |      
|                                 |                         | Non-Competition   |       | Non-Competition      |   | Subscriber  |     | the Sprint       |   |      
|                                 |                         | Agreements  iPCS |       | Agreements  AirGate |   | Base  iPCS |     | Agreements      |   |      
|                                 |                         | Acquisition       |       | Store Acquisition    |   | Acquisition |     | iPCS Acquisition |   | Total
|                                 |                         |                   |       |                      |   |             |     |                  |   |      
|Balance as of November 30, 2001  |                         | $                 | 3,900 |                      |   | $           | 159 |                  |   | $     | 52,400 |         |   | $ | 323,289 |          |   | $ | 379,748 |         
|                                 | Amortization expense    |                   |       | (3,900               | ) |             |     | (127             | ) |       |        | (17,465 | ) |   |         | (17,886  | ) |   |         | (39,378  | )
|                                 | Impairment              |                   |       |                     |   |             |     |                 |   |       |        | (6,640  | ) |   |         | (305,403 | ) |   |         | (312,043 | )
|                                 |                         |                   |       |                      |   |             |     |                  |   |       |        |         |   |   |         |          |   |   |         |         
|Balance as of September 30, 2002 |                         |                   |      |                      |   |             | 32  |                  |   |       | 28,295 |         |   |   |        |          |   |   | 28,327  |         
|                                 | Amortization expense    |                   |       |                     |   |             |     | (32              | ) |       |        | (6,789  | ) |   |         |         |   |   |         | (6,821   | )
|                                 | Deconsolidation of iPCS |                   |       |                     |   |             |     |                 |   |       |        | (21,506 | ) |   |         |         |   |   |         | (21,506  | )
|                                 |                         |                   |       |                      |   |             |     |                  |   |       |        |         |   |   |         |          |   |   |         |         
|Balance as of September 30, 2003 |                         | $                 |      |                      |   | $           |    |                  |   | $     |       |         |   | $ |        |          |   | $ |        |         
|                                 |                         |                   |       |                      |   |             |     |                  |   |       |        |         |   |   |         |          |   |   |         |         






|     |                     
|---- | --------------------
|(12) | iPCS Deconsolidation




On November 30, 2001, AirGate acquired iPCS,
Inc. Subsequent to November 30, 2001, the results of
operations and accounts of iPCS were consolidated with the
Company in accordance with generally accepted accounting
principles. On February 23, 2003, iPCS filed a
Chapter 11 bankruptcy case in the United States Bankruptcy
Court for the Northern District of Georgia for the purpose of
effecting a court administered reorganization. Subsequent to
February 23, 2003, the Company no longer consolidated the
accounts and results of operations of iPCS and the accounts of
iPCS were recorded as an investment using the cost method of
accounting. On October 17, 2003, AirGate irrevocably
transferred all of its shares of iPCS common stock to a trust
organized under Delaware law. The beneficial owners of AirGate
common stock on the date of transfer are the beneficiaries of
the trust. No distributions will be made from the trust to the
beneficiaries unless directed by the iPCS board of directors
and/or an order of the iPCS bankruptcy court. AirGate has no
interest in the trust. As a result, on the date of the transfer,
iPCS will be accounted for as a discontinued operation and the iPCS
investment (approximately $184 million credit balance carrying
amount) will be eliminated and recorded as a non-monetary gain from
disposition of discontinuing operations.




The following reflects the condensed balance
sheet information for iPCS, summarizing the deconsolidation
adjustment to record the investment in iPCS on the cost basis as
of February 23, 2003 (dollars in thousands):




|                                          |                      |              |         |         | 
|----------------------------------------- | -------------------- | ------------ | ------- | ------- | 
|                                          |                      | As of       
|                                          |                      | February 23,
|Condensed iPCS Balance Sheet Information: |                      | 2003        
|                                          |                      |             
|Cash and cash equivalents                 |                      | $            | 10,031  |        
|Other current assets                      |                      |              | 32,084  |        
|                                          |                      |              |         |        
|                                          | Total current assets |              |         | 42,115  | 
|Property and equipment, net               |                      |              | 174,103 |        
|Other noncurrent assets                   |                      |              | 24,807  |        
|                                          |                      |              |         |        
|                                          | Total assets         |              | $       | 241,025 | 
|                                          |                      |              |         |        
|Current liabilities                       |                      | $            | 416,564 |        
|Long-term debt and capital lease          |                      |              | 409     |        
|Other long-term liabilities               |                      |              | 8,167   |        
|                                          |                      |              |         |        
|                                          | Total liabilities    |              |         | 425,140 | 
|                                          |                      |              |         |        
|                                          | Investment in iPCS   |              | $       | 184,115 | 
|                                          |                      |              |         |        




F-32



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##### Table of Contents



AIRGATE PCS, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




The following reflects the condensed balance
sheet information as of September 30, 2003 for AirGate
separately identifying iPCS as an investment, and the AirGate
condensed statement of operations information for the twelve
months ended September 30, 2003 and 2002 separately
identifying iPCSs operating results. The Company has
pushed down to iPCS the effects of purchase accounting related
to the iPCS acquisition. The results of iPCS are included from
November 30, 2001, its date of acquisition, through
February 23, 2003 (dollars in thousands):







|                                                 |                                             |               |          |         |  |  | 
|------------------------------------------------ | ------------------------------------------- | ------------- | -------- | ------- |  |  | 
|                                                 |                                             | As of         |          |        
|                                                 |                                             | September 30, |          |        
|                                                 |                                             | 2003          |          |        
|                                                 |                                             |               |          |        
|                                                 |                                             |               |          |        
|Condensed AirGate Balance Sheet
    Information: |                                             |               |          |         |  | 
|Cash and cash equivalents                        |                                             | $             | 54,078   |         |  | 
|Other current assets                             |                                             |               | 47,187   |         |  | 
|                                                 |                                             |               |          |         |  | 
|                                                 | Total current assets                        |               |          | 101,265 |  |  | 
|Property and equipment, net                      |                                             |               | 178,070  |         |  | 
|Other noncurrent assets                          |                                             |               | 11,581   |         |  | 
|                                                 |                                             |               |          |         |  | 
|                                                 | Total assets                                |               | $        | 290,916 |  |  | 
|                                                 |                                             |               |          |         |  | 
|Current liabilities                              |                                             | $             | 88,747   |         |  | 
|Long-term debt                                   |                                             |               | 386,509  |         |  | 
|Other long-term liabilities                      |                                             |               | 8,542    |         |  | 
|Investment in iPCS                               |                                             |               | 184,115  |         |  | 
|                                                 |                                             |               |          |         |  | 
|                                                 | Total liabilities                           |               |          | 667,913 |  |  | 
|                                                 |                                             |               |          |         |  | 
|Stockholders deficit                            |                                             |               | (376,997 | )       |  | 
|                                                 |                                             |               |          |         |  | 
|                                                 | Total liabilities and stockholders deficit |               | $        | 290,916 |  |  | 
|                                                 |                                             |               |          |         |  | 







|                                                                                      |                         |                     |         |         |   |   |          |         |  
|------------------------------------------------------------------------------------- | ----------------------- | ------------------- | ------- | ------- | - | - | -------- | ------- | -
|                                                                                      |                         |                    
|                                                                                      |                         | For the Years Ended
|                                                                                      |                         | September 30,      
|                                                                                      |                         |                    
|Condensed AirGate Statement of Operations Information:                                |                         | 2003                |         | 2002   
|                                                                                      |                         |                     |         |        
|Revenue                                                                               |                         | $                   | 331,348 |         |   | $ | 313,544  |        
|Cost of revenue                                                                       |                         |                     | 208,887 |         |   |   | 231,931  |        
|Selling and marketing                                                                 |                         |                     | 51,769  |         |   |   | 79,099   |        
|General and administrative                                                            |                         |                     | 23,347  |         |   |   | 18,143   |        
|Depreciation and amortization                                                         |                         |                     | 46,494  |         |   |   | 40,764   |        
|Loss on disposal of property and equipment                                            |                         |                     | 518     |         |   |   | 1,074    |        
|                                                                                      |                         |                     |         |         |   |   |          |        
|                                                                                      | Operating expense       |                     |         | 331,015 |   |   |          | 371,011 |  
|                                                                                      |                         |                     |         |         |   |   |          |        
|                                                                                      | Operating income (loss) |                     |         | 333     |   |   |          | (57,467 | )
|                                                                                      | Interest expense, net   |                     |         | (42,519 | ) |   |          | (35,313 | )
|                                                                                      |                         |                     |         |         |   |   |          |        
|Loss before operations of iPCS                                                        |                         |                     | (42,186 | )       |   |   | (92,780  | )      
|Operations of iPCS, net of income tax benefit of
    $0 for 2003 and $28,761 for 2002 |                         |                     | (42,571 | )       |   |   | (903,837 | )      
|                                                                                      |                         |                     |         |         |   |   |          |        
|Net loss                                                                              |                         | $                   | (84,757 | )       |   | $ | (996,617 | )      
|                                                                                      |                         |                     |         |         |   |   |          |        




F-33



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##### Table of Contents



AIRGATE PCS, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Effective the quarter ended December 31,
2003, all prior year financial statements will present the
historical losses of iPCS, the effects of purchase accounting
and the related income tax benefit as loss from discontinued
operations.






|     |                              
|---- | -----------------------------
|(13) | Commitments and Contingencies



| |                             
| | ----------------------------
| | (a)     Operating
    Leases

The Company is obligated under non-cancelable
operating lease agreements for office space, cell sites,
vehicles and office equipment. Future minimum annual lease
payments under non-cancelable operating lease agreements with
remaining terms greater than one year for the next five years
and in the aggregate as of September 30, 2003, are as
follows (dollars in thousands):

|                           |                                            |   |        |        | 
|-------------------------- | ------------------------------------------ | - | ------ | ------ | 
|                          
|Years Ending September 30,
|2004                       |                                            | $ | 18,899 |       
|2005                       |                                            |   | 14,396 |       
|2006                       |                                            |   | 9,485  |       
|2007                       |                                            |   | 6,632  |       
|2008                       |                                            |   | 5,159  |       
|Thereafter                 |                                            |   | 5,691  |       
|                           |                                            |   |        |       
|                           | Total future minimum annual lease payments |   | $      | 60,262 | 
|                           |                                            |   |        |       

Rent expense for operating leases was
$25.7 million, $32.7 million and $15.2 million
for the years ended September 30, 2003, 2002 and 2001,
respectively.



|    |           
|--- | ----------
|(b) | Litigation




In May 2002, putative class action complaints
were filed in the United States District Court for the Northern
District of Georgia against AirGate PCS, Inc., Thomas M.
Dougherty, Barbara L. Blackford, Alan B. Catherall, Credit
Suisse First Boston, Lehman Brothers, UBS Warburg LLC, William
Blair & Company, Thomas Wiesel Partners LLC and TD
Securities. The complaints do not specify an amount or range of
damages that the plaintiffs are seeking. The complaints seek
class certification and allege that the prospectus used in
connection with the secondary offering of Company stock by
certain former iPCS shareholders on December 18, 2001
contained materially false and misleading statements and omitted
material information necessary to make the statements in the
prospectus not false and misleading. The alleged omissions
included (i) failure to disclose that in order to complete
an effective integration of iPCS, drastic changes would have to
be made to the Companys distribution channels,
(ii) failure to disclose that the sales force in the
acquired iPCS markets would require extensive restructuring and
(iii) failure to disclose that the churn or
turnover rate for subscribers would increase as a
result of an increase in the amount of sub-prime credit quality
subscribers the Company added from its merger with iPCS. On
July 15, 2002, certain plaintiffs and their counsel filed a
motion seeking appointment as lead plaintiffs and lead counsel.
Subsequently, the court denied this motion without prejudice and
two of the plaintiffs and their counsel filed a renewed motion
seeking appointment as lead plaintiffs and lead counsel. On
September 12, 2003, the court again denied the motion
without prejudice and on December 2, 2003, certain
plaintiffs and their counsel filed a modified renewed motion.







While there is no pending litigation with Sprint,
we have a variety of disputes with Sprint which are described in
note 4.




We are also subject to a variety of other claims
and suits that arise from time to time in the ordinary course of
business.

F-34



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##### Table of Contents



AIRGATE PCS, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

While management currently believes that
resolving all of these matters, individually or in the
aggregate, will not have a material adverse impact on our
liquidity, financial condition or results of operations, the
litigation and other claims noted above are subject to inherent
uncertainties and managements view may change in the
future. If an unfavorable outcome were to occur, there exists
the possibility of a material adverse impact on our liquidity,
financial condition and results of operation for the period in
which the effect becomes reasonably estimable.



|    |            
|--- | -----------
|(c) | 401(k) Plan

Employer contributions under the Companys
401(k) plans for the years ended September 30, 2003, 2002
and 2001 were $0.1 million, $0.7 million, and
$0.6 million, respectively.



|    |      
|--- | -----
|(d) | Other

The Company is committed to make expenditures for
certain outdoor advertising and marketing sponsorships
subsequent to September 30, 2003 totaling $0.5 million
and $0.2 million, respectively.




During the fourth quarter of 2003, the Company
incurred expenses of $3.0 million in connection with its
recapitalization plan. The Company has commitments of
$4.3 million that is contingent on closing the
recapitalization transaction.






|     |                                                                         
|---- | ------------------------------------------------------------------------
|(14) | Related Party Transactions and Transactions
    Between AirGate and iPCS

See Note 4 for a discussion of transactions
with Sprint.



| |                                          
| | -----------------------------------------
| | Transactions Between AirGate and
    iPCS

The Company formed AirGate Service Company, Inc.
(ServiceCo) to provide management services to both
AirGate and iPCS. ServiceCo is a wholly-owned restricted
subsidiary of AirGate. ServiceCo expenses were allocated between
AirGate and iPCS based on the percentage of subscribers (the
ServiceCo Allocation), which was approximately 60%
for AirGate and 40% for iPCS. Personnel who provided general
management services to AirGate and iPCS were leased to
ServiceCo. Generally, the management personnel included the
corporate staff in the Companys principal corporate
offices in Atlanta and the accounting staff in Geneseo,
Illinois. Expenses related primarily to one company are
allocated to that company. Expenses that are related to
ServiceCo or both companies, such as rents associated with the
Atlanta and Geneseo offices, consulting costs incurred for
ServiceCo and other expenses related to ServiceCo management
services, were allocated in accordance with the ServiceCo
Allocation.

On January 27, 2003, iPCS retained a chief
restructuring officer to oversee the restructuring of iPCS and
manage the day-to-day operations of iPCS. To facilitate the
orderly transition of management services to the chief
restructuring officer, AirGate and iPCS executed an amendment to
the Services Agreement that generally would allow individual
services to be terminated by either party upon 30 days
prior notice. iPCS began terminating services provided by
ServiceCo in March, 2003. All remaining services were terminated
by iPCS by September 30, 2003. For the years ended
September 30, 2003 and 2002, iPCS paid a net total of
$2.9 million and $1.7 million, respectively for
ServiceCo expenses, which had the effect of reducing AirGate
expenses by that amount.

AirGate has completed all transactions in the
normal course of business with its unrestricted subsidiary iPCS.
These transactions are comprised of roaming revenue and
expenses, inventory sales and purchases and sales of network
operating equipment as described further below.




In the normal course of business under
AirGates and iPCS respective Sprint agreements,
AirGates subscribers incur minutes of use in iPCS
territory causing AirGate to incur roaming expense to Sprint. In




F-35



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##### Table of Contents



AIRGATE PCS, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




addition, iPCS subscribers incur minutes of
use in AirGates territory for which AirGate receives
roaming revenue from Sprint. AirGate received $0.2 million
of roaming revenue with respect to use by iPCS subscribers of
AirGates network and incurred $0.3 million of roaming
expense with respect to use by AirGates subscribers of
iPCS network for the year ended September 30, 2003,
compared to $0.4 million of roaming revenue and
$0.4 million of roaming expense for the year ended
September 30, 2002. The reciprocal roaming rate charged and
other terms are established by Sprint under AirGates and
iPCS respective Sprint agreements.




In order to optimize the most efficient use of
certain models of handset inventories in relation to regional
demand for the year ended September 30, 2003, AirGate
purchased approximately $0.3 million of wireless handset
inventories from iPCS at cost. At September 30, 2003,
AirGate was not carrying any wireless handset inventory
purchased from iPCS.




During the year ended September 30, 2002,
AirGate sold approximately $0.1 million of wireless handset
inventories to iPCS. Additionally, AirGate purchased
approximately $0.2 million of wireless handset inventory
from iPCS. At September 30, 2002, neither AirGate nor iPCS
were carrying any wireless handset inventory purchased from each
other.




During the year ended September 30, 2002,
AirGate sold approximately $0.2 million of network
operating equipment to iPCS. Additionally, iPCS sold AirGate
approximately $0.7 million of network operating equipment.

All of the transactions prior to
February 23, 2003 have been eliminated in consolidation.

The terms and conditions of each of the
transactions described above are comparable to those that could
have been obtained in transactions with unaffiliated entities.



| |                                         
| | ----------------------------------------
| | Transactions Involving Board
    Members

Timothy M. Yager was a member of the AirGate
board of directors until December 16, 2002. Prior to
joining the AirGate board, Mr. Yager was the chief
executive officer of iPCS. Pursuant to his employment agreement
with iPCS, iPCS purchased consulting services from
Mr. Yager during the year ended September 30, 2003. On
January 27, 2003, Mr. Yager was appointed chief
restructuring officer to oversee the restructuring of iPCS and
his company, YMS Management, LLC, entered into a management
services agreement to manage the day-to-day operations of iPCS.
In connection with his appointment as chief restructuring
officer, Mr. Yager and iPCS agreed to terminate the
provisions of his employment agreement providing for consulting
services to iPCS and payments thereunder to Mr. Yager.

F-36



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##### Table of Contents



AIRGATE PCS, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|     |                                                  
|---- | -------------------------------------------------
|(15) | Selected Quarterly Financial Data
    (Unaudited)

|                               |                                        |                                                   |  |         |         |         |  |         |          |       |  |       |         |   |  |        |          |   |  |        |          |  
|------------------------------ | -------------------------------------- | ------------------------------------------------- |  | ------- | ------- | ------- |  | ------- | -------- | ----- |  | ----- | ------- | - |  | ------ | -------- | - |  | ------ | -------- | -
|                               |                                        | First                                             |  | Second  |         | Third   |  | Fourth  |          |      
|                               |                                        | Quarter                                           |  | Quarter |         | Quarter |  | Quarter |          | Total
|                               |                                        |                                                   |  |         |         |         |  |         |          |      
|                               |                                        |                                                  
|                               |                                        | (Dollars in thousands, except per share amounts):
|Year ended September 30, 2003: |                                        |                                                   |  |         |         |         |  |         |          |       |  |       |         |   |  |        |          |   |  |       
|                               |                                        | Total revenue                                     |  | $       | 133,101 |         |  | $       | 104,433  |       |  | $     | 83,186  |   |  | $      | 89,317   |   |  | $      | 410,037  |  
|                               |                                        | Operating income (loss)                           |  |         | (28,409 | )       |  |         | (5,255   | )     |  |       | 2,485   |   |  |        | 1,740    |   |  |        | (29,439  | )
|                               |                                        | Net loss                                          |  |         | (47,674 | )       |  |         | (21,022  | )     |  |       | (8,247  | ) |  |        | (7,814   | ) |  |        | (84,757  | )
|                               | Net loss per share  basic and diluted |                                                   |  | (1.85   | )       |         |  | (0.81   | )        |       |  | (0.32 | )       |   |  | (0.29  | )        |   |  | (3.27  | )       
|Year ended September 30, 2002: |                                        |                                                   |  |         |         |         |  |         |          |       |  |       |         |   |  |        |          |   |  |       
|                               |                                        | Total revenue                                     |  | $       | 81,699  |         |  | $       | 114,897  |       |  | $     | 122,809 |   |  | $      | 137,152  |   |  | $      | 456,557  |  
|                               |                                        | Operating loss                                    |  |         | (36,724 | )       |  |         | (298,856 | )     |  |       | (34,592 | ) |  |        | (598,643 | ) |  |        | (968,815 | )
|                               |                                        | Net loss                                          |  |         | (29,644 | )       |  |         | (301,910 | )     |  |       | (50,079 | ) |  |        | (614,984 | ) |  |        | (996,617 | )
|                               | Net loss per share  basic and diluted |                                                   |  | (1.68   | )       |         |  | (11.71  | )        |       |  | (1.94 | )       |   |  | (23.83 | )        |   |  | (41.96 | )       



---



|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | For 2003, the selected quarterly financial data
    amounts include iPCS for the period between October 1, 2002
    and February 23, 2003. For 2002, the selected quarterly
    financial data amounts include iPCS for the period between
    December 1, 2001 and September 30, 2002. The second
    quarter 2002 financial statements include a $261.2 million
    goodwill impairment charge. The fourth quarter 2002 financial
    statements include impairment charges of $312.0 million
    related to intangible assets, $199.7 million related to
    goodwill and $44.5 million related to property and
    equipment.



|     |                                                  
|---- | -------------------------------------------------
|(16) | Condensed Consolidating Financial
    Information

AGW Leasing Company, Inc. (AGW) is a
wholly-owned restricted subsidiary of AirGate. AGW has fully and
unconditionally guaranteed the AirGate notes and the AirGate
credit facility. AGW was formed to hold the real estate
interests for the Companys PCS network and retail
operations. 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.

AirGate Network Services LLC (ANS)
was created as a wholly-owned restricted subsidiary of AirGate.
ANS has fully and unconditionally guaranteed the AirGate notes
and AirGate credit facility. ANS was formed to provide
construction management services for the Companys PCS
network. ANS jointly and severably guarantees AirGates
long-term debt.

AirGate Service Company, Inc. (Service
Co) is a wholly-owned restricted subsidiary of AirGate.
Service Co has fully and unconditionally guaranteed the AirGate
notes and the AirGate credit facility. Service Co was formed to
provide management services to AirGate and iPCS. Service Co
jointly and severably guarantees AirGates long-term debt.




Prior to October 17, 2003, iPCS was a
wholly-owned unrestricted subsidiary of AirGate and operated as
a separate business. As an unrestricted subsidiary, iPCS
provided no guarantee to either the AirGate notes or the AirGate
credit facility and AirGate and its restricted subsidiaries
provided no guarantee to the iPCS notes or the iPCS credit
facility. The results of operation of iPCS were consolidated
through February 23, 2003. See notes 3(g) and 12 for a
description of the bankruptcy, deconsolidation and disposition
of iPCS.




F-37



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##### Table of Contents



AIRGATE PCS, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




AGW, ANS, Service Co are 100% owned by AirGate
and no other persons have equity interests in such entities.







The condensed consolidating financial information
for the Company as of September 30, 2003 and for the year
ended September 30, 2003 is as follows (dollars in
thousands):







|                                                         |  |           |          |          |  |           |         |          |  |              |         |              |  |   |         |   |  |   |          |   |  |   |          |  
|-------------------------------------------------------- |  | --------- | -------- | -------- |  | --------- | ------- | -------- |  | ------------ | ------- | ------------ |  | - | ------- | - |  | - | -------- | - |  | - | -------- | -
|                                                         |  |           |          | AGW      |  | AirGate   |         | AirGate  |  |              |         |             
|                                                         |  |           |          | Leasing  |  | Network   |         | Service  |  |              |         | Combined    
|                                                         |  | AirGate   |          | Company, |  | Services, |         | Company, |  |              |         | Company     
|                                                         |  | PCS, Inc. |          | Inc.     |  | LLC       |         | Inc.     |  | Eliminations |         | Consolidated
|                                                         |  |           |          |          |  |           |         |          |  |              |         |             
|Cash and cash equivalents                                |  | $         | 54,078   |          |  | $         |        |          |  | $            |        |              |  | $ |        |   |  | $ |         |   |  | $ | 54,078   |  
|Other current assets                                     |  |           | 108,136  |          |  |           |        |          |  |              | 529     |              |  |   |        |   |  |   | (61,478  | ) |  |   | 47,187   |  
|                                                         |  |           |          |          |  |           |         |          |  |              |         |              |  |   |         |   |  |   |          |   |  |   |          |  
|Total current assets                                     |  |           | 162,214  |          |  |           |        |          |  |              | 529     |              |  |   |        |   |  |   | (61,478  | ) |  |   | 101,265  |  
|Property and equipment, net                              |  |           | 141,129  |          |  |           |        |          |  |              | 36,941  |              |  |   |        |   |  |   |         |   |  |   | 178,070  |  
|Other noncurrent assets                                  |  |           | 11,581   |          |  |           |        |          |  |              |        |              |  |   |        |   |  |   |         |   |  |   | 11,581   |  
|                                                         |  |           |          |          |  |           |         |          |  |              |         |              |  |   |         |   |  |   |          |   |  |   |          |  
|Total assets                                             |  | $         | 314,924  |          |  | $         |        |          |  | $            | 37,470  |              |  | $ |        |   |  | $ | (61,478  | ) |  | $ | 290,916  |  
|                                                         |  |           |          |          |  |           |         |          |  |              |         |              |  |   |         |   |  |   |          |   |  |   |          |  
|Current liabilities                                      |  | $         | 89,036   |          |  | $         |        |          |  | $            | 61,189  |              |  | $ |        |   |  | $ | (61,478  | ) |  | $ | 88,747   |  
|Intercompany                                             |  |           | (108,890 | )        |  |           | 64,639  |          |  |              |        |              |  |   | 44,251  |   |  |   |         |   |  |   |         |  
|Long-term debt                                           |  |           | 386,509  |          |  |           |        |          |  |              |        |              |  |   |        |   |  |   |         |   |  |   | 386,509  |  
|Other long-term liabilities                              |  |           | 8,542    |          |  |           |        |          |  |              |        |              |  |   |        |   |  |   |         |   |  |   | 8,542    |  
|Investment in subsidiaries                               |  |           | 316,724  |          |  |           |        |          |  |              |        |              |  |   |        |   |  |   | (132,609 | ) |  |   | 184,115  |  
|                                                         |  |           |          |          |  |           |         |          |  |              |         |              |  |   |         |   |  |   |          |   |  |   |          |  
|Total liabilities                                        |  |           | 691,921  |          |  |           | 64,639  |          |  |              | 61,189  |              |  |   | 44,251  |   |  |   | (194,087 | ) |  |   | 667,913  |  
|                                                         |  |           |          |          |  |           |         |          |  |              |         |              |  |   |         |   |  |   |          |   |  |   |          |  
|Stockholders equity (deficit)                           |  |           | (376,997 | )        |  |           | (64,639 | )        |  |              | (23,719 | )            |  |   | (44,251 | ) |  |   | 132,609  |   |  |   | (376,997 | )
|                                                         |  |           |          |          |  |           |         |          |  |              |         |              |  |   |         |   |  |   |          |   |  |   |          |  
|Total liabilities and stockholders equity
    (deficit) |  | $         | 314,924  |          |  | $         |        |          |  | $            | 37,470  |              |  | $ |        |   |  | $ | (61,478  | ) |  | $ | 290,916  |  
|                                                         |  |           |          |          |  |           |         |          |  |              |         |              |  |   |         |   |  |   |          |   |  |   |          |  




F-38



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##### Table of Contents



AIRGATE PCS, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                               |  |           |         |          |  |           |         |          |  |              |        |              |  |               |         |              |  |              |        |   |  |   |         |   |  |   |         |   |  |   |        |   |  |   |         |  
|------------------------------ |  | --------- | ------- | -------- |  | --------- | ------- | -------- |  | ------------ | ------ | ------------ |  | ------------- | ------- | ------------ |  | ------------ | ------ | - |  | - | ------- | - |  | - | ------- | - |  | - | ------ | - |  | - | ------- | -
|                               |  |           |         | AGW      |  | AirGate   |         | AirGate  |  |              |        |              |  |               |         |              |  |             
|                               |  |           |         | Leasing  |  | Network   |         | Service  |  |              |        |              |  | iPCS Non-     |         |              |  | Combined    
|                               |  | AirGate   |         | Company, |  | Services, |         | Company, |  |              |        | AirGate      |  | Guarantor     |         |              |  | Company     
|                               |  | PCS, Inc. |         | Inc.     |  | LLC       |         | Inc.     |  | Eliminations |        | Consolidated |  | Subsidiary(1) |         | Eliminations |  | Consolidated
|                               |  |           |         |          |  |           |         |          |  |              |        |              |  |               |         |              |  |             
|Revenue                        |  | $         | 331,348 |          |  | $         |        |          |  | $            |       |              |  | $             |        |              |  | $            |       |   |  | $ | 331,348 |   |  | $ | 79,364  |   |  | $ | (675   | ) |  | $ | 410,037 |  
|Cost of revenue                |  |           | 189,819 |          |  |           | 16,640  |          |  |              | 24     |              |  |               | 3,428   |              |  |              | (1,024 | ) |  |   | 208,887 |   |  |   | 63,398  |   |  |   | (675   | ) |  |   | 271,610 |  
|Selling and marketing          |  |           | 44,446  |          |  |           | 2,591   |          |  |              | 1      |              |  |               | 5,539   |              |  |              | (808   | ) |  |   | 51,769  |   |  |   | 16,417  |   |  |   |       |   |  |   | 68,186  |  
|General and administrative     |  |           | 13,955  |          |  |           | 549     |          |  |              | 1      |              |  |               | 9,955   |              |  |              | (1,113 | ) |  |   | 23,347  |   |  |   | 6,881   |   |  |   |       |   |  |   | 30,228  |  
|Depreciation and amortization  |  |           | 36,940  |          |  |           |        |          |  |              | 9,554  |              |  |               |        |              |  |              |       |   |  |   | 46,494  |   |  |   | 20,989  |   |  |   |       |   |  |   | 67,483  |  
|Loss on property and equipment |  |           | 518     |          |  |           |        |          |  |              |       |              |  |               |        |              |  |              |       |   |  |   | 518     |   |  |   | 1,451   |   |  |   |       |   |  |   | 1,969   |  
|                               |  |           |         |          |  |           |         |          |  |              |        |              |  |               |         |              |  |              |        |   |  |   |         |   |  |   |         |   |  |   |        |   |  |   |         |  
|Total operating expense        |  |           | 285,678 |          |  |           | 19,780  |          |  |              | 9,580  |              |  |               | 18,922  |              |  |              | (2,945 | ) |  |   | 331,015 |   |  |   | 109,136 |   |  |   | (675   | ) |  |   | 439,476 |  
|                               |  |           |         |          |  |           |         |          |  |              |        |              |  |               |         |              |  |              |        |   |  |   |         |   |  |   |         |   |  |   |        |   |  |   |         |  
|Operating income (loss)        |  |           | 45,670  |          |  |           | (19,780 | )        |  |              | (9,580 | )            |  |               | (18,922 | )            |  |              | 2,945  |   |  |   | 333     |   |  |   | (29,772 | ) |  |   |       |   |  |   | (29,439 | )
|                               |  |           |         |          |  |           |         |          |  |              |        |              |  |               |         |              |  |              |        |   |  |   |         |   |  |   |         |   |  |   |        |   |  |   |         |  
|Loss in subsidiaries           |  |           | (87,729 | )        |  |           |        |          |  |              |       |              |  |               |        |              |  |              | 45,158 |   |  |   | (42,571 | ) |  |   |        |   |  |   | 42,571 |   |  |   |        |  
|Interest expense, net          |  |           | (42,698 | )        |  |           |        |          |  |              | 179    |              |  |               |        |              |  |              |       |   |  |   | (42,519 | ) |  |   | (12,799 | ) |  |   |       |   |  |   | (55,318 | )
|                               |  |           |         |          |  |           |         |          |  |              |        |              |  |               |         |              |  |              |        |   |  |   |         |   |  |   |         |   |  |   |        |   |  |   |         |  
|Loss before income tax         |  |           | (84,757 | )        |  |           | (19,780 | )        |  |              | (9,401 | )            |  |               | (18,922 | )            |  |              | 48,103 |   |  |   | (84,757 | ) |  |   | (42,571 | ) |  |   | 42,571 |   |  |   | (84,757 | )
|                               |  |           |         |          |  |           |         |          |  |              |        |              |  |               |         |              |  |              |        |   |  |   |         |   |  |   |         |   |  |   |        |   |  |   |         |  
|Income tax                     |  |           |        |          |  |           |        |          |  |              |       |              |  |               |        |              |  |              |       |   |  |   |        |   |  |   |        |   |  |   |       |   |  |   |        |  
|                               |  |           |         |          |  |           |         |          |  |              |        |              |  |               |         |              |  |              |        |   |  |   |         |   |  |   |         |   |  |   |        |   |  |   |         |  
|Net loss                       |  | $         | (84,757 | )        |  | $         | (19,780 | )        |  | $            | (9,401 | )            |  | $             | (18,922 | )            |  | $            | 48,103 |   |  | $ | (84,757 | ) |  | $ | (42,571 | ) |  | $ | 42,571 |   |  | $ | (84,757 | )
|                               |  |           |         |          |  |           |         |          |  |              |        |              |  |               |         |              |  |              |        |   |  |   |         |   |  |   |         |   |  |   |        |   |  |   |         |  







|                                               |  |           |         |          |  |           |   |          |  |              |      |              |  |               |   |              |  |              |   |  |  |   |         |   |  |   |         |   |  |   |   |  |  |   |         |  
|---------------------------------------------- |  | --------- | ------- | -------- |  | --------- | - | -------- |  | ------------ | ---- | ------------ |  | ------------- | - | ------------ |  | ------------ | - |  |  | - | ------- | - |  | - | ------- | - |  | - | - |  |  | - | ------- | -
|                                               |  |           |         | AGW      |  | AirGate   |   | AirGate  |  |              |      |              |  |               |   |              |  |             
|                                               |  |           |         | Leasing  |  | Network   |   | Service  |  |              |      |              |  | iPCS Non-     |   |              |  | Combined    
|                                               |  | AirGate   |         | Company, |  | Services, |   | Company, |  |              |      | AirGate      |  | Guarantor     |   |              |  | Company     
|                                               |  | PCS, Inc. |         | Inc.     |  | LLC       |   | Inc.     |  | Eliminations |      | Consolidated |  | Subsidiary(1) |   | Eliminations |  | Consolidated
|                                               |  |           |         |          |  |           |   |          |  |              |      |              |  |               |   |              |  |             
|Operating activities                           |  | $         | 50,300  |          |  | $         |  |          |  | $            | (118 | )            |  | $             |  |              |  | $            |  |  |  | $ | 50,182  |   |  | $ | (7,634  | ) |  | $ |  |  |  | $ | 42,548  |  
|Investing activities                           |  |           | (16,023 | )        |  |           |  |          |  |              |     |              |  |               |  |              |  |              |  |  |  |   | (16,023 | ) |  |   | (19,952 | ) |  |   |  |  |  |   | (35,975 | )
|Financing activities                           |  |           | 15,032  |          |  |           |  |          |  |              |     |              |  |               |  |              |  |              |  |  |  |   | 15,032  |   |  |   | (2      | ) |  |   |  |  |  |   | 15,030  |  
|                                               |  |           |         |          |  |           |   |          |  |              |      |              |  |               |   |              |  |              |   |  |  |   |         |   |  |   |         |   |  |   |   |  |  |   |         |  
|Increase (decrease) cash equivalents           |  |           | 49,309  |          |  |           |  |          |  |              | (118 | )            |  |               |  |              |  |              |  |  |  |   | 49,191  |   |  |   | (27,588 | ) |  |   |  |  |  |   | 21,603  |  
|Cash and cash equivalents at beginning of year |  |           | 4,769   |          |  |           |  |          |  |              | 118  |              |  |               |  |              |  |              |  |  |  |   | 4,887   |   |  |   | 27,588  |   |  |   |  |  |  |   | 32,475  |  
|                                               |  |           |         |          |  |           |   |          |  |              |      |              |  |               |   |              |  |              |   |  |  |   |         |   |  |   |         |   |  |   |   |  |  |   |         |  
|Cash and cash equivalents at end of year       |  | $         | 54,078  |          |  | $         |  |          |  | $            |     |              |  | $             |  |              |  | $            |  |  |  | $ | 54,078  |   |  | $ |        |   |  | $ |  |  |  | $ | 54,078  |  
|                                               |  |           |         |          |  |           |   |          |  |              |      |              |  |               |   |              |  |              |   |  |  |   |         |   |  |   |         |   |  |   |   |  |  |   |         |  






---






|    |                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------
|(1) | The Company has pushed down to iPCS the effects
    of purchase accounting related to the iPCS acquisition.




F-39



---



##### Table of Contents



AIRGATE PCS, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




The condensed consolidating financial information
for the Company as of September 30, 2002 and for the year
ended September 30, 2002 is as follows (dollars in
thousands):







|                                                         |  |           |          |          |  |               |         |                 |  |              |         |              |  |               |         |              |  |              |          |   |  |   |          |   |  |   |          |   |  |   |          |   |  |   |          |  
|-------------------------------------------------------- |  | --------- | -------- | -------- |  | ------------- | ------- | --------------- |  | ------------ | ------- | ------------ |  | ------------- | ------- | ------------ |  | ------------ | -------- | - |  | - | -------- | - |  | - | -------- | - |  | - | -------- | - |  | - | -------- | -
|                                                         |  |           |          | AGW      |  |               |         |                 |  |              |         |              |  |               |         |              |  |             
|                                                         |  |           |          | Leasing  |  | AirGate       |         |                 |  |              |         |              |  | iPCS Non-     |         |              |  | Combined    
|                                                         |  | AirGate   |          | Company, |  | Network       |         | AirGate Service |  |              |         | AirGate      |  | Guarantor     |         |              |  | Company     
|                                                         |  | PCS, Inc. |          | Inc.     |  | Services, LLC |         | Company, Inc.   |  | Eliminations |         | Consolidated |  | Subsidiary(1) |         | Eliminations |  | Consolidated
|                                                         |  |           |          |          |  |               |         |                 |  |              |         |              |  |               |         |              |  |             
|Cash and cash equivalents                                |  | $         | 4,769    |          |  | $             |        |                 |  | $            | 118     |              |  | $             |        |              |  | $            |         |   |  | $ | 4,887    |   |  | $ | 27,588   |   |  | $ |         |   |  | $ | 32,475   |  
|Other current assets                                     |  |           | 122,869  |          |  |               |        |                 |  |              | 529     |              |  |               |        |              |  |              | (60,579  | ) |  |   | 62,819   |   |  |   | 35,593   |   |  |   | (1,114   | ) |  |   | 97,298   |  
|                                                         |  |           |          |          |  |               |         |                 |  |              |         |              |  |               |         |              |  |              |          |   |  |   |          |   |  |   |          |   |  |   |          |   |  |   |          |  
|Total current assets                                     |  |           | 127,638  |          |  |               |        |                 |  |              | 647     |              |  |               |        |              |  |              | (60,579  | ) |  |   | 67,706   |   |  |   | 63,181   |   |  |   | (1,114   | ) |  |   | 129,773  |  
|Property and equipment, net                              |  |           | 168,163  |          |  |               |        |                 |  |              | 45,614  |              |  |               |        |              |  |              |         |   |  |   | 213,777  |   |  |   | 185,378  |   |  |   |         |   |  |   | 399,155  |  
|Intangible assets, net                                   |  |           | 33       |          |  |               |        |                 |  |              |        |              |  |               |        |              |  |              |         |   |  |   | 33       |   |  |   | 28,294   |   |  |   |         |   |  |   | 28,327   |  
|Other noncurrent assets                                  |  |           | 13,699   |          |  |               |        |                 |  |              |        |              |  |               |        |              |  |              |         |   |  |   | 13,699   |   |  |   | 3,340    |   |  |   |         |   |  |   | 17,039   |  
|                                                         |  |           |          |          |  |               |         |                 |  |              |         |              |  |               |         |              |  |              |          |   |  |   |          |   |  |   |          |   |  |   |          |   |  |   |          |  
|Total assets                                             |  | $         | 309,533  |          |  | $             |        |                 |  | $            | 46,261  |              |  | $             |        |              |  | $            | (60,579  | ) |  | $ | 295,215  |   |  | $ | 280,193  |   |  | $ | (1,114   | ) |  | $ | 574,294  |  
|                                                         |  |           |          |          |  |               |         |                 |  |              |         |              |  |               |         |              |  |              |          |   |  |   |          |   |  |   |          |   |  |   |          |   |  |   |          |  
|Current liabilities                                      |  | $         | 82,175   |          |  | $             |        |                 |  | $            | 60,579  |              |  | $             |        |              |  | $            | (60,579  | ) |  | $ | 82,175   |   |  | $ | 413,112  |   |  | $ | (1,114   | ) |  | $ | 494,173  |  
|Intercompany                                             |  |           | (70,188  | )        |  |               | 44,859  |                 |  |              |        |              |  |               | 25,329  |              |  |              |         |   |  |   |         |   |  |   |         |   |  |   |         |   |  |   |         |  
|Long-term debt                                           |  |           | 354,264  |          |  |               |        |                 |  |              |        |              |  |               |        |              |  |              |         |   |  |   | 354,264  |   |  |   | 564      |   |  |   |         |   |  |   | 354,828  |  
|Investment in subsidiaries                               |  |           | 226,049  |          |  |               |        |                 |  |              |        |              |  |               |        |              |  |              | (84,506  | ) |  |   | 141,543  |   |  |   |         |   |  |   | (141,543 | ) |  |   |         |  
|Other long-term liabilities                              |  |           | 10,180   |          |  |               |        |                 |  |              |        |              |  |               |        |              |  |              |         |   |  |   | 10,180   |   |  |   | 8,060    |   |  |   |         |   |  |   | 18,240   |  
|                                                         |  |           |          |          |  |               |         |                 |  |              |         |              |  |               |         |              |  |              |          |   |  |   |          |   |  |   |          |   |  |   |          |   |  |   |          |  
|Total liabilities                                        |  |           | 602,480  |          |  |               | 44,859  |                 |  |              | 60,579  |              |  |               | 25,329  |              |  |              | (145,085 | ) |  |   | 588,162  |   |  |   | 421,736  |   |  |   | (142,657 | ) |  |   | 867,241  |  
|                                                         |  |           |          |          |  |               |         |                 |  |              |         |              |  |               |         |              |  |              |          |   |  |   |          |   |  |   |          |   |  |   |          |   |  |   |          |  
|Stockholders equity (deficit)                           |  |           | (292,947 | )        |  |               | (44,859 | )               |  |              | (14,318 | )            |  |               | (25,329 | )            |  |              | 84,506   |   |  |   | (292,947 | ) |  |   | (141,543 | ) |  |   | 141,543  |   |  |   | (292,947 | )
|                                                         |  |           |          |          |  |               |         |                 |  |              |         |              |  |               |         |              |  |              |          |   |  |   |          |   |  |   |          |   |  |   |          |   |  |   |          |  
|Total liabilities and stockholders equity
    (deficit) |  | $         | 309,533  |          |  | $             |        |                 |  | $            | 46,261  |              |  | $             |        |              |  | $            | (60,579  | ) |  | $ | 295,215  |   |  | $ | 280,193  |   |  | $ | (1,114   | ) |  | $ | 574,294  |  
|                                                         |  |           |          |          |  |               |         |                 |  |              |         |              |  |               |         |              |  |              |          |   |  |   |          |   |  |   |          |   |  |   |          |   |  |   |          |  






---






|    |                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------
|(1) | The Company has pushed down to iPCS the effects
    of purchase accounting related to the iPCS acquisition.




F-40



---



##### Table of Contents



AIRGATE PCS, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                           |  |           |          |          |  |               |         |                 |  |              |        |              |  |               |         |              |  |              |        |   |  |   |          |   |  |   |           |   |  |   |         |   |  |   |            |  
|------------------------------------------ |  | --------- | -------- | -------- |  | ------------- | ------- | --------------- |  | ------------ | ------ | ------------ |  | ------------- | ------- | ------------ |  | ------------ | ------ | - |  | - | -------- | - |  | - | --------- | - |  | - | ------- | - |  | - | ---------- | -
|                                           |  |           |          | AGW      |  |               |         |                 |  |              |        |              |  |               |         |              |  |             
|                                           |  |           |          | Leasing  |  | AirGate       |         |                 |  |              |        |              |  | iPCS Non-     |         |              |  | Combined    
|                                           |  | AirGate   |          | Company, |  | Network       |         | AirGate Service |  |              |        | AirGate      |  | Guarantor     |         |              |  | Company     
|                                           |  | PCS, Inc. |          | Inc.     |  | Services, LLC |         | Company, Inc.   |  | Eliminations |        | Consolidated |  | Subsidiary(1) |         | Eliminations |  | Consolidated
|                                           |  |           |          |          |  |               |         |                 |  |              |        |              |  |               |         |              |  |             
|Revenue                                    |  | $         | 313,544  |          |  | $             |        |                 |  | $            |       |              |  | $             |        |              |  | $            |       |   |  | $ | 313,544  |   |  | $ | 144,080   |   |  | $ | (1,067  | ) |  | $ | 456,557    |  
|Cost of revenue                            |  |           | 214,714  |          |  |               | 15,219  |                 |  |              |       |              |  |               | 3,140   |              |  |              | (1,142 | ) |  |   | 231,931  |   |  |   | 124,031   |   |  |   | (1,067  | ) |  |   | 354,895    |  
|Selling and marketing                      |  |           | 73,692   |          |  |               | 2,754   |                 |  |              |       |              |  |               | 4,169   |              |  |              | (1,516 | ) |  |   | 79,099   |   |  |   | 37,511    |   |  |   |        |   |  |   | 116,610    |  
|General and administrative                 |  |           | 6,092    |          |  |               | 585     |                 |  |              |       |              |  |               | 18,020  |              |  |              | (6,554 | ) |  |   | 18,143   |   |  |   | 7,708     |   |  |   |        |   |  |   | 25,851     |  
|Depreciation and amortization              |  |           | 32,407   |          |  |               |        |                 |  |              | 8,357  |              |  |               |        |              |  |              |       |   |  |   | 40,764   |   |  |   | 68,765    |   |  |   |        |   |  |   | 109,529    |  
|Loss on disposal of property and equipment |  |           | 717      |          |  |               |        |                 |  |              | 357    |              |  |               |        |              |  |              |       |   |  |   | 1,074    |   |  |   |          |   |  |   |        |   |  |   | 1,074      |  
|Impairment of goodwill                     |  |           |         |          |  |               |        |                 |  |              |       |              |  |               |        |              |  |              |       |   |  |   |         |   |  |   | 460,920   |   |  |   |        |   |  |   | 460,920    |  
|Impairment of property and equipment       |  |           |         |          |  |               |        |                 |  |              |       |              |  |               |        |              |  |              |       |   |  |   |         |   |  |   | 44,450    |   |  |   |        |   |  |   | 44,450     |  
|Impairment of intangible assets            |  |           |         |          |  |               |        |                 |  |              |       |              |  |               |        |              |  |              |       |   |  |   |         |   |  |   | 312,043   |   |  |   |        |   |  |   | 312,043    |  
|                                           |  |           |          |          |  |               |         |                 |  |              |        |              |  |               |         |              |  |              |        |   |  |   |          |   |  |   |           |   |  |   |         |   |  |   |            |  
|Total operating expenses                   |  |           | 327,622  |          |  |               | 18,558  |                 |  |              | 8,714  |              |  |               | 25,329  |              |  |              | (9,212 | ) |  |   | 371,011  |   |  |   | 1,055,428 |   |  |   | (1,067  | ) |  |   | 1,425,372  |  
|                                           |  |           |          |          |  |               |         |                 |  |              |        |              |  |               |         |              |  |              |        |   |  |   |          |   |  |   |           |   |  |   |         |   |  |   |            |  
|Operating income (loss)                    |  |           | (14,078  | )        |  |               | (18,558 | )               |  |              | (8,714 | )            |  |               | (25,329 | )            |  |              | 9,212  |   |  |   | (57,467  | ) |  |   | (911,348  | ) |  |   |        |   |  |   | (968,815   | )
|Loss in subsidiaries                       |  |           | (945,335 | )        |  |               |        |                 |  |              |       |              |  |               |        |              |  |              | 41,498 |   |  |   | (903,837 | ) |  |   |          |   |  |   | 903,837 |   |  |   |           |  
|Interest expense, net                      |  |           | (37,204  | )        |  |               |        |                 |  |              | 1,891  |              |  |               |        |              |  |              |       |   |  |   | (35,313  | ) |  |   | (21,250   | ) |  |   |        |   |  |   | (56,563    | )
|                                           |  |           |          |          |  |               |         |                 |  |              |        |              |  |               |         |              |  |              |        |   |  |   |          |   |  |   |           |   |  |   |         |   |  |   |            |  
|Loss before income tax benefit             |  |           | (996,617 | )        |  |               | (18,558 | )               |  |              | (6,823 | )            |  |               | (25,329 | )            |  |              | 50,710 |   |  |   | (996,617 | ) |  |   | (932,598  | ) |  |   | 903,837 |   |  |   | (1,025,378 | )
|Income tax benefit                         |  |           |         |          |  |               |        |                 |  |              |       |              |  |               |        |              |  |              |       |   |  |   |         |   |  |   | 28,761    |   |  |   |        |   |  |   | 28,761     |  
|                                           |  |           |          |          |  |               |         |                 |  |              |        |              |  |               |         |              |  |              |        |   |  |   |          |   |  |   |           |   |  |   |         |   |  |   |            |  
|Net loss                                   |  | $         | (996,617 | )        |  | $             | (18,558 | )               |  | $            | (6,823 | )            |  | $             | (25,329 | )            |  | $            | 50,710 |   |  | $ | (996,617 | ) |  | $ | (903,837  | ) |  | $ | 903,837 |   |  | $ | (996,617   | )
|                                           |  |           |          |          |  |               |         |                 |  |              |        |              |  |               |         |              |  |              |        |   |  |   |          |   |  |   |           |   |  |   |         |   |  |   |            |  






---






|    |                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------
|(1) | The Company has pushed down to iPCS the effects
    of purchase accounting related to the iPCS acquisition.




F-41



---



##### Table of Contents



AIRGATE PCS, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                               |  |           |         |          |  |               |   |                 |  |              |      |              |  |               |   |              |  |              |   |  |  |   |         |   |  |   |         |   |  |   |   |  |  |   |         |  
|---------------------------------------------- |  | --------- | ------- | -------- |  | ------------- | - | --------------- |  | ------------ | ---- | ------------ |  | ------------- | - | ------------ |  | ------------ | - |  |  | - | ------- | - |  | - | ------- | - |  | - | - |  |  | - | ------- | -
|                                               |  |           |         | AGW      |  |               |   |                 |  |              |      |              |  |               |   |              |  |             
|                                               |  |           |         | Leasing  |  | AirGate       |   |                 |  |              |      |              |  | iPCS Non-     |   |              |  | Combined    
|                                               |  | AirGate   |         | Company, |  | Network       |   | AirGate Service |  |              |      | AirGate      |  | Guarantor     |   |              |  | Company     
|                                               |  | PCS, Inc. |         | Inc.     |  | Services, LLC |   | Company, Inc.   |  | Eliminations |      | Consolidated |  | Subsidiary(1) |   | Eliminations |  | Consolidated
|                                               |  |           |         |          |  |               |   |                 |  |              |      |              |  |               |   |              |  |             
|Operating activities                           |  | $         | (24,735 | )        |  | $             |  |                 |  | $            | 275  |              |  | $             |  |              |  | $            |  |  |  | $ | (24,460 | ) |  | $ | (20,782 | ) |  | $ |  |  |  | $ | (45,242 | )
|Investing activities                           |  |           | (22,993 | )        |  |               |  |                 |  |              |     |              |  |               |  |              |  |              |  |  |  |   | (22,993 | ) |  |   | (55,723 | ) |  |   |  |  |  |   | (78,716 | )
|Financing activities                           |  |           | 62,452  |          |  |               |  |                 |  |              |     |              |  |               |  |              |  |              |  |  |  |   | 62,452  |   |  |   | 79,691  |   |  |   |  |  |  |   | 142,143 |  
|                                               |  |           |         |          |  |               |   |                 |  |              |      |              |  |               |   |              |  |              |   |  |  |   |         |   |  |   |         |   |  |   |   |  |  |   |         |  
|Increase in cash or cash equivalents           |  |           | 14,724  |          |  |               |  |                 |  |              | 275  |              |  |               |  |              |  |              |  |  |  |   | 14,999  |   |  |   | 3,186   |   |  |   |  |  |  |   | 18,185  |  
|Cash and cash equivalents at beginning of year |  |           | (9,955  | )        |  |               |  |                 |  |              | (157 | )            |  |               |  |              |  |              |  |  |  |   | (10,112 | ) |  |   | 24,402  |   |  |   |  |  |  |   | 14,290  |  
|                                               |  |           |         |          |  |               |   |                 |  |              |      |              |  |               |   |              |  |              |   |  |  |   |         |   |  |   |         |   |  |   |   |  |  |   |         |  
|Cash and cash equivalents at end of year       |  | $         | 4,769   |          |  | $             |  |                 |  | $            | 118  |              |  | $             |  |              |  | $            |  |  |  | $ | 4,887   |   |  | $ | 27,588  |   |  | $ |  |  |  | $ | 32,475  |  
|                                               |  |           |         |          |  |               |   |                 |  |              |      |              |  |               |   |              |  |              |   |  |  |   |         |   |  |   |         |   |  |   |   |  |  |   |         |  






---






|    |                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------
|(1) | The Company has pushed down to iPCS the effects
    of purchase accounting related to the iPCS acquisition.




The condensed consolidating financial information
for the Company for the year ended September 30, 2001 is as
follows (dollars in thousands):

|                                                |  |           |          |               |  |               |         |              |  |              |         |   |  |   |        |  |  |   |          |  
|----------------------------------------------- |  | --------- | -------- | ------------- |  | ------------- | ------- | ------------ |  | ------------ | ------- | - |  | - | ------ |  |  | - | -------- | -
|                                                |  |           |          |               |  | AirGate       |         |              |  | Combined    
|                                                |  | AirGate   |          | AGW Leasing   |  | Network       |         |              |  | Company     
|                                                |  | PCS, Inc. |          | Company, Inc. |  | Services, LLC |         | Eliminations |  | Consolidated
|                                                |  |           |          |               |  |               |         |              |  |             
|Revenue                                         |  | $         | 172,087  |               |  | $             |        |              |  | $            |        |   |  | $ |       |  |  | $ | 172,087  |  
|Cost of revenue                                 |  |           | 124,199  |               |  |               | 12,928  |              |  |              |        |   |  |   |       |  |  |   | 137,127  |  
|Selling and marketing                           |  |           | 69,922   |               |  |               | 1,784   |              |  |              |        |   |  |   |       |  |  |   | 71,706   |  
|General and administrative                      |  |           | 15,962   |               |  |               | 866     |              |  |              | 313     |   |  |   |       |  |  |   | 17,141   |  
|Depreciation and amortization                   |  |           | 23,354   |               |  |               |        |              |  |              | 7,313   |   |  |   |       |  |  |   | 30,667   |  
|                                                |  |           |          |               |  |               |         |              |  |              |         |   |  |   |        |  |  |   |          |  
|Total operating expenses                        |  |           | 233,437  |               |  |               | 15,578  |              |  |              | 7,626   |   |  |   |       |  |  |   | 256,641  |  
|                                                |  |           |          |               |  |               |         |              |  |              |         |   |  |   |        |  |  |   |          |  
|Operating loss                                  |  |           | (61,350  | )             |  |               | (15,578 | )            |  |              | (7,626  | ) |  |   |       |  |  |   | (84,554  | )
|Loss in subsidiaries                            |  |           | (21,213  | )             |  |               |        |              |  |              |        |   |  |   | 21,213 |  |  |   |         |  
|Interest expense, net                           |  |           | (28,427  | )             |  |               |        |              |  |              | 1,991   |   |  |   |       |  |  |   | (26,436  | )
|                                                |  |           |          |               |  |               |         |              |  |              |         |   |  |   |        |  |  |   |          |  
|Loss before income taxes                        |  |           | (110,990 | )             |  |               | (15,578 | )            |  |              | (5,635  | ) |  |   | 21,213 |  |  |   | (110,990 | )
|                                                |  |           |          |               |  |               |         |              |  |              |         |   |  |   |        |  |  |   |          |  
|Income taxes                                    |  |           |         |               |  |               |        |              |  |              |        |   |  |   |       |  |  |   |         |  
|Net loss                                        |  | $         | (110,990 | )             |  | $             | (15,578 | )            |  | $            | (5,635  | ) |  | $ | 21,213 |  |  | $ | (110,990 | )
|                                                |  |           |          |               |  |               |         |              |  |              |         |   |  |   |        |  |  |   |          |  
|Operating activities                            |  | $         | (53,024  | )             |  | $             |        |              |  | $            | 12,174  |   |  | $ |       |  |  | $ | (40,850  | )
|Investing activities                            |  |           | (59,693  | )             |  |               |        |              |  |              | (12,079 | ) |  |   |       |  |  |   | (71,772  | )
|Financing activities                            |  |           | 68,528   |               |  |               |        |              |  |              |        |   |  |   |       |  |  |   | 68,528   |  
|                                                |  |           |          |               |  |               |         |              |  |              |         |   |  |   |        |  |  |   |          |  
|Increase (decrease) in cash or cash equivalents |  |           | (44,189  | )             |  |               |        |              |  |              | 95      |   |  |   |       |  |  |   | (44,094  | )
|Cash and cash equivalents at beginning of year  |  |           | 58,636   |               |  |               |        |              |  |              | (252    | ) |  |   |       |  |  |   | 58,384   |  
|                                                |  |           |          |               |  |               |         |              |  |              |         |   |  |   |        |  |  |   |          |  
|Cash and cash equivalents at end of year        |  | $         | 14,447   |               |  | $             |        |              |  | $            | (157    | ) |  | $ |       |  |  | $ | 14,290   |  
|                                                |  |           |          |               |  |               |         |              |  |              |         |   |  |   |        |  |  |   |          |  

F-42



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##### Table of Contents



INDEPENDENT AUDITORS REPORT

The Board of Directors

AirGate PCS, Inc.:





Under date of December 5, 2003, we reported
on the consolidated balance sheets of AirGate PCS, Inc. and
subsidiaries as of September 30, 2003 and 2002, and the
related consolidated statements of operations,
stockholders deficit, and cash flows for each of the years
in the three-year period ended September 30, 2003. In
connection with our audits of the aforementioned consolidated
financial statements, we also audited the related financial
statement schedule included in the annual report on
Form 10-K, as listed in the index under Item 15(b).
This financial statement schedule is the responsibility of the
Companys management. Our responsibility is to express an
opinion on this financial statement schedule based on our audits.




In our opinion, such financial statement
schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.




The accompanying consolidated financial
statements and financial statement schedule have been prepared
assuming the Company will continue as a going concern. As
discussed in Note 1 to the consolidated financial
statements, the Company has suffered significant recurring
losses since inception and has an accumulated deficit of
$1.3 billion and a stockholders deficit of
$377.0 million at September 30, 2003. The
Companys continuation as a going concern is dependent on
its ability to restructure or otherwise amend the terms of its
debt; and if unsuccessful, the Company may seek bankruptcy court
or other protection from its creditors within the next year.
These conditions raise substantial doubt about the
Companys ability to continue as a going concern.
Managements plans in regard to these matters are described
in Note 1. The consolidated financial statements and
financial statement schedule do not include any adjustments that
might result from the outcome of this uncertainty.






| |             
| | ------------
| | /s/ KPMG LLP

Atlanta, Georgia




December 5, 2003





F-43



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##### Table of Contents



AIRGATE PCS, INC. AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF VALUATION AND
QUALIFYING ACCOUNTS

For the Years Ended September 30, 2003,
2002 and 2001





|                   |                                 |                        |   |            |  |       |  |            |     |            |       |        |     |  |        |         |      |  |   |         | 
|------------------ | ------------------------------- | ---------------------- | - | ---------- |  | ----- |  | ---------- | --- | ---------- | ----- | ------ | --- |  | ------ | ------- | ---- |  | - | ------- | 
|                   |                                 |                        |   |            |  |       |  |           
|                   |                                 |                        |   | Additions  |  |       |  |           
|                   |                                 |                        |   |            |  |       |  |           
|                   |                                 | Balance at             |   | Charges to |  |       |  |            |     | Balance at
|                   |                                 | Beginning of           |   | Costs and  |  |       |  |            |     | End of    
|Classification     |                                 | Period                 |   | Expenses   |  | Other |  | Deductions |     | Period    
|                   |                                 |                        |   |            |  |       |  |            |     |           
|                   |                                 |                       
|                   |                                 | (Dollars in thousands)
|September 30, 2003 |                                 |                        |   |            |  |       |  |            |     |            |       |        |     |  |        |         |      |  |   |        
|                   | Allowance for Doubtful Accounts |                        | $ | 11,256     |  |       |  | 6,912      | (1) |            |       | 19,844 | (2) |  |        | (28,997 | )(3) |  | $ | 4,635   | 
|                   |                                 |                        |   |            |  |       |  |            |     |            |       |        |     |  | (4,380 | )(9)    |      |  |   |        
|                   | Income Tax Valuation Allowance  |                        | $ | 184,197    |  |       |  | 28,953     | (6) |            |       | 88,879 | (7) |  |        | (85,615 | )(8) |  | $ | 216,414 | 
|September 30, 2002 |                                 |                        |   |            |  |       |  |            |     |            |       |        |     |  |        |         |      |  |   |        
|                   | Allowance for Doubtful Accounts |                        | $ | 2,759      |  |       |  | 26,933     | (1) |            |       | 23,406 | (2) |  |        | (45,888 | )(3) |  | $ | 11,256  | 
|                   |                                 |                        |   |            |  |       |  |            |     |            | 4,046 | (4)    |     |  |        |         |      |  |   |        
|                   | Income Tax Valuation Allowance  |                        | $ | 81,459     |  |       |  | 184,197    | (6) |            |       |       |     |  |        | (81,459 | )(5) |  | $ | 184,197 | 
|September 30, 2001 |                                 |                        |   |            |  |       |  |            |     |            |       |        |     |  |        |         |      |  |   |        
|                   | Allowance for Doubtful Accounts |                        | $ | 563        |  |       |  | 8,125      | (1) |            |       | 2,874  | (2) |  |        | (8,803  | )(3) |  | $ | 2,759   | 
|                   | Income Tax Valuation Allowance  |                        | $ | 36,762     |  |       |  | 44,697     | (6) |            |       |       |     |  |        |        |      |  | $ | 81,459  | 






---



|    |                                                                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Amounts represent provisions for doubtful
    accounts charged to cost of service and roaming.                                                                                     
|   
|(2) | Amounts represent provisions for late payment
    fees, early cancellation fees, first payment default customers,
    and other billing adjustments charged to subscriber revenues.
|   
|(3) | Amounts represent write-offs of uncollectible
    customer accounts.                                                                                                               
|   
|(4) | Amount represents the allowance for doubtful
    accounts of iPCS, Inc. as of November 30, 2001, the date of
    acquisition.                                                      
|   
|(5) | Amount represents a decrease in the valuation
    allowance associated with acquisition of iPCS, Inc. on
    November 30, 2001.                                                    
|   
|(6) | Amounts represent increases in the valuation
    allowance for deferred income tax assets to reduce them to the
    amount believed to be realizable.                              
|   
|(7) | Amount represents the difference between the
    Companys tax basis in its interest in iPCS and its
    financial statement carrying amount.                                      
|   
|(8) | Amount represents a decrease in the valuation
    allowance upon deconsolidation of iPCS on February 23, 2003.                                                                     
|   
|(9) | Amount represents the allowance for doubtful
    accounts of iPCS, Inc. as of February 23, 2003, the date of
    bankruptcy and deconsolidation.                                   

F-44