<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 1, 1999
REGISTRATION NO. 333-78507
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AIRONET WIRELESS COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 3577 34-1758180
(State or other (Primary Standard
jurisdiction of Industrial (I.R.S. Employer
incorporation or Classification Code
organization) Number) Identification No.)
</TABLE>
------------------------
3875 EMBASSY PARKWAY
AKRON, OH 44333
(330) 664-7900
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------
ROGER J. MURPHY, JR.
PRESIDENT & CHIEF EXECUTIVE OFFICER
3875 EMBASSY PARKWAY
AKRON, OH 44333
(330) 664-7900
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
<TABLE>
<S> <C>
JAY R. FAEGES, ESQ. TIMOTHY C. MAGUIRE, ESQ.
GOODMAN WEISS MILLER LLP TESTA, HURWITZ & THIBEAULT, LLP
100 ERIEVIEW PLAZA, 27TH FLOOR 125 HIGH STREET
CLEVELAND, OHIO 44122 BOSTON, MASSACHUSETTS 02110
TELEPHONE: (216) 696-3366 TELEPHONE (617) 248-7000
FAX: (216) 363-5835 FAX: (617) 248-7100
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
number for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON THE DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON THE DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE SECURITIES AND EXCHANGE COMMISSION
DECLARES OUR REGISTRATION STATEMENT EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JULY 1, 1999
PROSPECTUS
6,000,000 SHARES
AIRONET LOGO
COMMON STOCK
This is an initial public offering of shares of common stock of Aironet
Wireless Communications, Inc. Of the 6,000,000 shares offered, we are selling
4,000,000 shares, and Telxon Corporation is selling 2,000,000 shares. We have
been approved for admission for trading and quotation of our common stock on the
Nasdaq National Market under the symbol "AIRO." There is currently no public
market for these shares. We expect that the public offering price will be
between $9.00 and $11.00 per share.
----------------------------
PRICE $ PER SHARE
----------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
---------- --------
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds, before expenses, to Aironet....................... $ $
Proceeds, before expenses, to Telxon........................ $ $
</TABLE>
The underwriters have a 30 day option to purchase up to 600,000 additional
shares of common stock from us and up to 300,000 additional shares of common
stock from Telxon to cover over-allotments, if any.
The underwriters expect to deliver the shares against payment in
Minneapolis, Minnesota,
on , 1999.
----------------------------
INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 7.
----------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
DAIN RAUSCHER WESSELS
a division of Dain Rauscher Incorporated
PRUDENTIAL SECURITIES
CIBC WORLD MARKETS
, 1999
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
PAGE
---
<S> <C>
Prospectus Summary.............. 3
Risk Factors.................... 7
Forward-Looking Statements...... 19
Use of Proceeds................. 20
Dividend Policy................. 20
Capitalization.................. 21
Dilution........................ 22
Selected Financial Data......... 23
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations.................... 24
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Business........................ 36
Management...................... 52
Certain Transactions............ 59
Principal and Selling
Stockholders.................. 64
Description of Capital Stock.... 66
Shares Eligible for Future
Sale.......................... 70
Underwriting.................... 72
Legal Matters................... 74
Experts......................... 74
Additional Information.......... 74
Index to Consolidated Financial
Statements.................... F-1
</TABLE>
-------------------------
You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. This prospectus is not an offer to sell, nor is
it seeking an offer to buy, these securities in any state where the offer or
sale is not permitted.
2
<PAGE> 4
[FRONT COVER FOLDOUT]
[This is a graphic which contains the following text:
Centered at the top of the page are the words:
"AIRONET WIRELESS LOCAL AREA NETWORK SOLUTIONS"
Descending on the left and right side of the page is the following text:
"Aironet's wireless LAN solutions extend networks, enabling users to maintain a
wireless connection to computer networks. Aironet wirelessly connects networks
ranging in size and complexity from enterprise-wide LANs to small businesses,
anywhere throughout a building or around a campus.
- --------------------------------------------------------------------------------
HIGH-SPEED Aironet was first to deliver standards-based wireless LAN and bridge
products at Ethernet-like speeds of 11 Mbps. Our high-speed products deliver
broadband support for data intensive applications, as well as high-speed
Internet access, Voice-over-IP, and streaming video.
- --------------------------------------------------------------------------------
STANDARDS-BASED To assure that today's products will interoperate with other
standards-based products, all of our new wireless LAN products comply with the
IEEE 802.11 wireless LAN standard.
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MOBILE COMPUTING Our wireless LAN products are designed to support the specific
needs of mobile computing, so users can move freely around a building or campus
and stay seamlessly connected to the network and Internet.
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EASE OF USE Featuring plug and play deployment and compatibility with most
major network operating systems and protocols, Aironet products are easy and
economical to install, expand, re-configure or re-deploy.
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COMPREHENSIVE SOLUTIONS Aironet offers a broad product portfolio including:
access points, client adapter cards, wireless bridge products and network
management software. We offer both Frequency Hopping and Direct Sequence
products -- so we can provide the most appropriate solution to our customers
based on their specific environments and needs.
- --------------------------------------------------------------------------------
LOWER COST OF OWNERSHIP Aironet wireless networks can offer significant total
cost savings over time compared to wired alternatives in typical environments
where network connections are frequently relocated.
There is a graphic centered between the text depicting a cut-away of an office
and a warehouse with wireless LANs in use and depicting three office buildings
networked by wireless bridge products. The Aironet logo is on the bottom inside
right of the page.]
<PAGE> 5
PROSPECTUS SUMMARY
This brief summary highlights selected information in this prospectus. It
is not complete and does not contain all of the information that is important to
you. You should read the entire prospectus carefully.
AIRONET
We are a leading provider of high speed, standards-based wireless local
area networking solutions designed to provide wireless network connectivity and
Internet access to personal computer users within a building or campus
environment. Our products utilize advanced radio frequency and data
communication technologies to wirelessly connect users to data networks ranging
in size and complexity from enterprise-wide LANs to home networks. In an
enterprise setting, our wireless LAN solutions are used as extensions to
existing enterprise networks, enabling personal computer users to maintain a
wireless network connection anywhere throughout a building or around a campus.
Our flagship wireless LAN solution, the 4800 Turbo DS series, is the first
commercially available wireless LAN product to operate at Ethernet-like speeds
of 11 Mbps in the unlicensed 2.4 GHz radio frequency band. The 4800 Turbo DS
series provides bandwidth sufficient for data-intensive applications and high
speed Internet access, as well as emerging applications such as streaming video
and Voice-over-IP.
We offer comprehensive solutions to our customers based on both Direct
Sequence and Frequency Hopping spread spectrum radio technologies. As a result,
we are able to offer our customers the wireless LAN solution best suited to
their specific environment and applications. Our broad product portfolio
includes PC Cards, PCI and ISA network interface cards, access points, bridges
and network management and device driver software. As a major contributor to,
and proponent of the Institute of Electrical and Electronic Engineers 802.11
industry standard for wireless LANs, we have designed our primary products to
interoperate with other standards-based products. Our IEEE 802.11 based products
operate in the unlicensed 2.4 GHz radio frequency band and support major network
operating systems, standard software and hardware interfaces and network
protocols, such as TCP/IP. As a result, our products can be interfaced easily
into existing network and Internet infrastructures.
Over the past several years, many organizations have benefited from
wireless networking solutions. These solutions enable mobile computing, reduce
network infrastructure costs and improve overall operational efficiency.
Wireless LANs have been widely adopted in several vertical markets, such as the
retail, warehousing and distribution industries. Recent developments, including
the wide adoption of the IEEE 802.11 industry standard for wireless LANs, the
availability of faster data rates of at least 10 Mbps and the availability of
wireless single piece PC Card adapters, have collectively resulted in the
emergence and growth of wireless LAN solutions in broader networking markets.
Today, the desire for pervasive network and Internet connectivity, the
preference for mobile computing and the need to deploy and reconfigure networks
rapidly and cost-effectively, are all factors contributing to the increase in
market demand for wireless LAN solutions.
According to International Data Corporation, an information technology
research firm, worldwide wireless LAN product shipments are projected to
increase at a 30% compound annual growth rate from 866,000 units in 1997 to over
4,000,000 units by 2003. International Data Corporation projects wireless LAN
revenues to reach $1.6 billion in 2003.
3
<PAGE> 6
Our objective is to become a dominant worldwide developer and provider of
high speed wireless LAN products. We intend to achieve our objective by
implementing the following strategies:
- leveraging our leadership in 2.4 GHz spread spectrum, MAC chip, and
network architecture technologies to maintain our competitive advantage
in the areas of data rate and throughput, range and network management;
- strengthening brand awareness of our products by continuing to promote
the Aironet brand as synonymous with high speed, cost-effective wireless
LAN products that are standards-based, easily deployable and reliable;
- delivering solutions based on the IEEE 802.11 and other wireless LAN
standards, and actively participating in workgroups that define wireless
network standards to influence the direction of these standards; and
- expanding channel distribution by strengthening relationships with
existing channel partners and adding new channel partners, both in
domestic and international markets.
We market our wireless LAN products in the United States and abroad through
an indirect sales and marketing organization consisting primarily of
distributors, resellers and OEMs. Our U.S. distributors include Business Partner
Solutions, Inc., and we have recently added Ingram Micro Inc. and Tech Data
Corporation as U.S. distributors.
OUR RELATIONSHIP WITH TELXON
At our incorporation in 1993, Telxon Corporation was our sole stockholder
and only customer. Since that time, Telxon has reduced its ownership, and
Telxon's ownership will be further reduced after this offering. Telxon accounts
for a significant portion of our total revenues. Our headquarters and assembly
facilities are leased from Telxon.
ABOUT US
We were incorporated in 1993 under the name Spider, Inc. Our operations
include Aironet Canada Limited. Aironet Canada Limited was formerly named
Telesystems SLW Inc. Our principal offices are located at 3875 Embassy Parkway,
Akron, Ohio 44333, and our telephone number is (330) 664-7900.
"Aironet," "Aironet Wireless Communications" and LOGOare our registered
trademarks, and AIRONET LOGO, 4800 Turbo DS, Microcellular Architecture,
AP4800-E, PC4800, LM4800, PCI4800, ISA4800, UC4800, MC4800, AP4500-E, AP4500-T,
PC4500, LM4500, PCI4500, ISA4500, UC4500, MC4500, AP3500-E, AP3500-T, PC3500,
LM3500, PCI3500, ISA3500, UC3500 and MC3500 are our trademarks. This prospectus
also contains the registered and unregistered trademarks of others.
4
<PAGE> 7
THE OFFERING
<TABLE>
<S> <C>
Common stock offered.................................... 6,000,000 shares, 4,000,000 by Aironet
and 2,000,000 by Telxon, the selling
stockholder.
Common stock to be outstanding after the offering....... 13,567,181 shares, of which Telxon will
own 5,276,500 shares equaling 38.89%.
Underwriters' over-allotment option..................... 900,000 shares, 600,000 from us and
300,000 from Telxon.
Use of proceeds......................................... We expect to use our proceeds for general
corporate purposes, including working
capital, and to repay approximately $2.5
million of indebtedness outstanding under
our existing working capital credit line.
See "Use of Proceeds."
Nasdaq National Market symbol........................... AIRO
Rights Agreement........................................ Under the terms of a Rights Agreement to
be implemented prior to this offering,
each share of common stock will also
evidence one common stock purchase right.
The purchase right may only be exercised
after specified events related to third
parties acquiring our shares or the
company without the approval of our Board
of Directors. See "Rights Agreement."
</TABLE>
The number of shares of our common stock to be outstanding immediately
after the offering is calculated using the number of shares outstanding on March
31, 1999. This number does not take into account options and warrants
outstanding at March 31, 1999 to purchase 2,404,904 shares of our common stock.
Except as otherwise stated, the information in this prospectus assumes no
exercise of the underwriters' over-allotment option, which entitles the
underwriters to purchase an additional 900,000 shares, of which we would issue
600,000 shares and no exercise of stock options or warrants outstanding as of
March 31, 1999 to purchase up to 2,404,904 shares.
5
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL DATA
The following financial information was derived from our financial
statements. These tables highlight selected information, but they do not include
all the financial information that is important to you. You should read
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations," as well as our consolidated financial statements and the notes to
those statements, which are included later in this prospectus.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MARCH 31,
-----------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
Non-affiliate.......................... $ 2,637 $ 5,456 $14,484 $20,249 $28,303
Affiliate product...................... 30,539 38,867 46,844 19,104 9,529
Affiliate royalty...................... -- -- -- 5,781 7,421
------- ------- ------- ------- -------
Total revenues...................... 33,176 44,323 61,328 45,134 45,253
------- ------- ------- ------- -------
Gross profit:
Non-affiliate.......................... 678 2,499 6,096 8,535 9,709
Affiliate product...................... 8,905 7,925 9,771 4,517 1,745
Affiliate royalty...................... -- -- -- 5,781 7,421
------- ------- ------- ------- -------
Total gross profit.................. 9,583 10,424 15,867 18,833 18,875
------- ------- ------- ------- -------
Total operating expenses................. 8,517 10,898 12,808 14,323 19,588
Income (loss) from operations............ 1,066 (474) 3,059 4,510 (713)
Net income (loss)........................ $(1,488) $(2,628) $ 889 $ 2,501 $(1,077)
Net income (loss) per common share:
Basic.................................. $ (0.18) $ (0.33) $ 0.11 $ 0.31 $ (0.12)
Diluted................................ $ (0.18) $ (0.33) $ 0.11 $ 0.30 $ (0.12)
Weighted average shares used in
calculating net income (loss) per
share:
Basic.................................. 8,085 8,085 8,085 8,123 9,325
Diluted................................ 8,085 8,085 8,085 8,319 9,325
</TABLE>
The following table presents our summary consolidated balance sheet. The
March 31, 1999 information has been adjusted as if the 4,000,000 shares to be
sold by us in the offering had taken place at that date, at an assumed initial
public offering price of $10 per share, after deducting underwriting discounts
and commissions and our estimated offering expenses.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
---------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 6,137 $39,837
Total assets................................................ 27,198 60,898
Total stockholders' equity.................................. 14,597 50,797
</TABLE>
6
<PAGE> 9
RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the risks described below and the other information in this prospectus before
deciding to invest in shares of our common stock. If any of the following risks
or uncertainties actually occur, our business could be adversely affected. In
that event, the trading price of our common stock could decline, and you could
lose all or a part of your investment.
This prospectus also contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in the forward-looking statements as a result of various risks and
uncertainties, including those described below and elsewhere in this prospectus.
WE ARE DEPENDENT ON TELXON FOR A SIGNIFICANT PORTION OF OUR REVENUES, AND THE
LOSS OF THIS REVENUE FOR ANY REASON WOULD ADVERSELY AFFECT OUR BUSINESS
We are dependent upon Telxon as a significant source of revenues. For
fiscal years 1997, 1998 and 1999, Telxon-related revenues were 76%, 55% and 37%
of our total revenues. Telxon has recently reported losses and refinancing
requirements and has announced pending stockholder litigation filed against it
and a pending SEC investigation relating to, among other things, Telxon's recent
restatement of some of its financial statements. One or more of these matters
could, depending on their outcomes, adversely affect Telxon's demand for our
products and our resulting revenues. Telxon has not recently provided us with a
forecast of future purchases of our products. If Telxon's demand for our
products declines for any reason, it could reduce our revenues, which would have
an adverse effect on our business. Likewise, the public's perception of the
effect on us of Telxon's refinancing requirements, losses, pending stockholder
litigation and pending SEC investigation could depress the market price of our
common stock.
TELXON MAY CONTINUE TO BE ABLE TO ASSERT INFLUENCE OR CONTROL OVER US, AND THIS
COULD PREVENT OTHER SHAREHOLDERS FROM REALIZING BENEFITS IN SOME CIRCUMSTANCES
Until March 1997, we were a wholly owned subsidiary of Telxon and until
March 1998, Telxon owned 90% of our capital stock. Telxon currently owns
approximately 76% of our capital stock and, after this offering, will own
approximately 39%. As a result of Telxon's significant ownership, Telxon may
continue to be able to exert substantial influence or effective control over our
management and affairs through matters submitted to stockholder vote, such as
the election or removal of directors and any merger, consolidation or sale of
assets or any takeover attempt. This concentration of ownership may have the
effect of delaying, deferring or preventing a change in control, impeding a
merger, takeover or other business combination or discouraging a potential
acquirer from making a tender offer in which stockholders might receive a
premium over the prevailing market price for their shares. These consequences in
turn could have an adverse effect on the market price of our common stock.
OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE OUR BUSINESS AND
PROSPECTS
We were incorporated in 1993 and therefore have only a short operating
history for you to evaluate. Your evaluation of our business and results of
operations must take into account this short operating history, which may not be
indicative of future results. Only since March 1998 has our business operated
without the financial support of Telxon. Our operations before that time were
funded by Telxon and, therefore, operating results from that period are less
significant in evaluating our future prospects. Therefore, our financial
statements may not represent our performance as an independent company for those
periods.
7
<PAGE> 10
We have experienced quarterly and annual fluctuations in our operating
results. From our incorporation in 1993 until March 1998, we were dependent on
Telxon to provide us with funding for operating deficits. We no longer receive
this funding from Telxon.
Our business and prospects should also be considered in light of the risks
frequently encountered by companies in their early stages of development in new
and rapidly evolving markets.
Because of our short existence, our limited operating history as an
independent company, fluctuations in our past results, past operating deficits
and the early stage of development of our market, we cannot assure you that we
will sustain profitability.
CONFLICTS OF INTEREST MAY ARISE FROM OUR RELATIONSHIP WITH TELXON WHICH MIGHT
PREVENT US FROM REALIZING BENEFITS IN SOME SITUATIONS
Telxon is our single largest stockholder and our largest customer. John W.
Paxton, Sr. currently serves on our Board of Directors and has been nominated to
that position by Telxon. Mr. Paxton is also Chief Executive Officer and Chairman
of the Board of Directors of Telxon. Our President and Chief Executive Officer,
Roger J. Murphy, Jr., is a former employee of Telxon and began serving us as our
Chief Operating Officer when we were a wholly owned subsidiary of Telxon.
Conflicts of interest may arise between us and Telxon in a number of areas
relating to our past and ongoing relationship. These include:
- potential competitive business activities;
- indemnity arrangements;
- tax and intellectual property matters;
- potential acquisitions or financing transactions;
- sales or other dispositions by Telxon of shares of our common stock held
by it following this offering; and
- the exercise by Telxon of its ability to influence our management and
affairs.
We have also entered into a mutual covenant not to sue and a mutual
non-disclosure agreement with Telxon. The outcome of any matter affected by a
potential conflict of interest may be less favorable to us than if the conflict
had not been present.
TELXON IS THE LANDLORD OF OUR HEADQUARTERS AND MANUFACTURING FACILITIES AND,
UNTIL RECENTLY, PROVIDED US WITH IMPORTANT ADMINISTRATIVE SERVICES
Prior to this offering, Telxon provided us with a variety of important
general and administrative services. For example, our employees participated in
a variety of Telxon's benefit plans and we were covered by some of Telxon's
insurance policies. The provision of these services was governed by a written
agreement between Telxon and us executed in March 1998. After this offering, our
employees will no longer be eligible to participate in Telxon's material benefit
plans and we will no longer be covered by Telxon's insurance. We are in the
process of replacing these programs and insurance coverage. Currently, we lease
our headquarters and manufacturing facilities from Telxon. Telxon's recently
reported losses, refinancing requirements and pending stockholder litigation and
SEC investigation could, depending on their outcome, adversely affect Telxon's
ability to fulfill its obligations under these leases, and that could disrupt
our business operations.
8
<PAGE> 11
FLUCTUATIONS IN OUR OPERATING RESULTS MAY ADVERSELY AFFECT THE TRADING PRICE OF
OUR COMMON STOCK
Our quarterly and annual operating revenues, expenses and operating results
may fluctuate due to a number of factors, including:
- the timing and cancellation of customer orders;
- our ability to introduce new products and technologies on a timely basis;
- market acceptance of our and our customers' products;
- introduction of products by our competitors;
- the level of orders received which can be shipped in a quarter;
- the timing of our investments in research and development;
- the timing and provision of pricing protection and returns from our
distributors;
- whether our customers buy from a distributor, an OEM or directly from us;
- cost and availability of components and subassemblies;
- competitive pressures on selling prices; and
- finished product availability and quality;
- general economic conditions.
- changes in product mix;
Our business is characterized by short-term orders and shipment schedules.
We have experienced difficulties efficiently managing our production and
inventory levels because, among other reasons, customers can typically cancel or
reschedule orders without significant penalty. Since we do not have a
substantial, noncancellable backlog, we typically plan our production and
inventory levels based on internal forecasts of customer demand, which are
highly unpredictable and can fluctuate substantially. Significant customer
cancellations or unforeseen fluctuations in customer demand could cause us to
over or under produce products, which could lead to overstocking or to
frustrating customer expectations, either of which could negatively affect
operating results or cause significant variations in our operating results from
quarter to quarter.
DECLINING SELLING PRICES OF NETWORKING EQUIPMENT MAY ADVERSELY AFFECT OUR
REVENUES
Historically, average selling prices of networking equipment have decreased
over the life of a product. As a result, the average selling prices of our
products should be expected to decrease in the future, which may adversely
affect our operating results if we do not correspondingly decrease our costs.
OUR OPERATING RESULTS WILL SUFFER IF SALES DO NOT INCREASE AS ANTICIPATED TO
SUPPORT THE EXPENSES OF EXPANDING OUR BUSINESS
Because our operating expenses for personnel, new product development and
inventory continue to increase, we must continue to generate increased sales to
offset these increased expenses. We have limited ability to reduce expenses
quickly in response to any revenue shortfalls. In response to anticipated long
lead times to obtain inventory and materials from our contract manufacturers and
suppliers, we have in the past and may continue to need to order in advance of
anticipated customer demand. This advance ordering has and may continue to
result in higher inventory levels and we have and will continue to depend on an
increase in customer demand. Any significant shortfall in customer demand would
adversely impact our quarterly and annual operating results.
9
<PAGE> 12
IF THE WIRELESS NETWORKING MARKET DOES NOT CONTINUE TO EVOLVE, OR IF OUR PRODUCT
DEVELOPMENT DOES NOT KEEP PACE WITH ITS EVOLUTION, DEMAND FOR OUR PRODUCTS MAY
DECLINE SIGNIFICANTLY
The wireless networking market is at an early stage of development, is
rapidly evolving and its future is uncertain. Demand and market acceptance for
recently introduced wireless networking products and services like ours are
subject to a high level of uncertainty. It is likely that new wireless LAN
products will not be generally accepted unless they operate at higher speeds and
are sold at competitive prices. We cannot predict whether the wireless
networking market will continue to develop in a way that sufficient demand for
our products will emerge and become sustainable. Our prospects must be evaluated
in light of the uncertainties relating to the new and evolving market in which
we operate. If the wireless networking market does not develop sufficiently, or
if our products are not sufficiently accepted, our business, financial condition
and operating results will suffer.
WE MAY NOT SUCCEED OR MAY LOSE SIGNIFICANT MARKET SHARE AS A RESULT OF THE
INTENSE COMPETITION IN THE WIRELESS LAN MARKET
The market for our products is very competitive, and we expect that
competition will increase in the future. Increased competition could adversely
affect our revenues and profitability through pricing pressure, loss of market
share and other factors. This market has historically been dominated by
relatively few companies, including Lucent, Proxim and BreezeCom. We believe we
will encounter competition from a number of other companies that develop, or
have announced plans to develop, wireless networking products. We believe that
our success will depend in part on our ability to compete favorably in the
following areas:
- expertise and familiarity with 2.4 GHz spread spectrum technology,
wireless data communication protocols and LAN technology;
- product performance, features, functionality and reliability;
- price/performance characteristics;
- timeliness of new product introductions;
- adoption of emerging industry standards;
- customer service and support;
- size and scope of distribution network; and
- brand name.
We have also historically faced competitive pressure from companies that
have increased their brand awareness by dedicating significant resources to
marketing and advertising.
We face the risk that our competitors may introduce faster, more
competitively priced products. Many of our current and potential competitors
have significantly greater financial, marketing, research, technical and other
resources. If we are unable to compete successfully, we could experience price
reductions, reduced operating margins and loss of market share, any of which
could have a material adverse effect on our business and operating results.
OUR SUCCESS DEPENDS ON THE TIMELY DEVELOPMENT OF NEW PRODUCTS
We derive substantially all of our product revenues from sales of products
for wireless networking solutions. This market is characterized by:
- intense competition;
- rapid technological change;
- short product life cycles; and
- emerging industry standards.
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<PAGE> 13
We have in the past experienced delays in product development which
resulted in delayed commercial introduction of new products. These kinds of
delays could be repeated and could have an adverse effect on our business. The
development of new wireless LAN products is highly complex. Our success in
developing and introducing new products depends on a number of factors,
including:
- accurate new product definition;
- timely completion and introduction of new product designs;
- achievement of cost efficiencies in design and manufacturing; and
- market acceptance of the new products.
We cannot guarantee that we will be successful in these efforts or that our
competitors will not be more successful, which, in either case, would have a
material adverse effect on our business and results of operations.
WE RELY ON LIMITED SOURCES OF KEY COMPONENTS AND IF WE ARE UNABLE TO OBTAIN
THESE COMPONENTS WHEN NEEDED, WE WILL NOT BE ABLE TO DELIVER OUR PRODUCTS TO OUR
CUSTOMERS ON TIME
We rely on Atmel Corporation, M/A-COM, Raytheon Company, Hewlett-Packard
Company, Harris Semiconductor and Sawtek, Inc. as our critical sole source
suppliers. Although we have been informed by some of these suppliers that they
have redundant manufacturing facilities, there is no assurance that they will be
able to manufacture or provide these components in a timely way. Should any
supply disruption occur, we may not be able to develop an alternative source for
these components.
We have experienced limited delays and shortages in the supply of other
less critical components which have slowed the manufacturing schedule of our
products or caused us to revise or adjust these schedules. We could experience
delays and shortages in the future. We generally do not maintain a significant
inventory of components and do not have long-term supply contracts with our
suppliers. Our reliance on sole or limited source suppliers involves several
risks, including:
- suppliers could increase component prices significantly, without notice
and with immediate effect;
- suppliers could discontinue the manufacture or supply of components or
delay delivery of components used in our products for reasons such as
inventory shortages, new product offerings, increased cost of materials,
destruction of manufacturing facilities, labor disputes and bankruptcy;
and
- in order to compensate for potential component shortages or
discontinuance, we may in the future decide to hold more inventory than
is immediately required, resulting in increased inventory costs.
Though we have not in the past experienced any significant delays in
shipping or sales of product due to delays or shortages of components, if our
suppliers were unable to deliver or ration components to us, we could experience
interruptions and delays in product manufacturing, shipping and sales. This
could result in our inability to fulfill customer orders, the cancellation of
orders for our products, substantial delays in our product shipments, increased
manufacturing costs and increased product prices. Further, we might not be able
to develop alternative sources for these components in a timely way, if at all,
and might not be able to modify our products to accommodate alternative
components.
These factors could damage our relationships with current and prospective
customers lasting longer than any underlying shortage or discontinuance. Any of
these risks, if realized, could materially and adversely affect our business
operating results and financial condition.
11
<PAGE> 14
A LIMITED NUMBER OF CUSTOMERS ACCOUNT FOR A SIGNIFICANT PORTION OF OUR REVENUES
AND DECREASED DEMAND BY THESE CUSTOMERS WOULD ADVERSELY AFFECT OUR REVENUES
Historically, a relatively small number of customers, especially Telxon,
have accounted for a significant portion of our total revenues in any particular
period. Three of our customers, including Telxon, accounted for over 10% each of
our total revenues for fiscal year 1999. In fiscal year 1999, Telxon accounted
for 37% of our total revenues. Our four largest non-affiliate customers
accounted for 60% of our non-affiliate revenues or 38% of our total revenues for
the same period. We have no long-term volume purchase commitments from any of
our customers. We anticipate that sales of our products to relatively few
customers will continue to account for a significant portion of our total
revenues, because our customers generally resell our products to end users. Due
to these factors, some of the following may reduce our operating results:
- reduction, delay or cancellation of orders from one or more of our
significant customers;
- development by one or more of our significant customers of other,
competitive sources of supply;
- selection by one or more of our significant customers of equipment
manufactured by one of our competitors as a preferred solution;
- loss of one or more of our significant customers or a disruption in our
sales and distribution channels to these customers; or
- failure of one of our significant customers to make timely payment of our
invoices.
We cannot be certain that these significant customers will continue
purchasing levels of previous periods and a decline in these levels for any
reason would negatively affect our revenues.
WE MUST EXPAND OUR DISTRIBUTION CHANNELS IN ORDER TO INCREASE SALES OF OUR
PRODUCTS
To increase revenues, we believe we must increase the number of our
distribution partners. Our strategy includes an effort to reach a greater number
of end users through indirect channels. We are currently investing, and plan to
continue to invest, significant resources to develop these indirect channels.
This could adversely affect our operating results if we do not generate the
revenues necessary to offset these investments. We will be dependent upon the
acceptance of our products by distributors and their active marketing and sales
efforts relating to our products. The distributors to whom we sell our products
are independent and are not obligated to deal with us exclusively or to purchase
any specified amount of our products. Because we do not generally fulfill orders
by end users of our products sold through distributors, we will be dependent
upon the ability of distributors to accurately forecast demand and maintain
appropriate levels of inventory. If we are unable to expand our distribution
channels, we may not be able to increase sales of our product.
OUR DISTRIBUTORS MAY NOT GIVE PRIORITY TO OUR PRODUCTS WHICH MIGHT RESULT IN
LOWER PRODUCT SALES
We expect that our distributors will also sell competing products. These
distributors may not continue, or may not give a high priority to, marketing and
supporting our products. This and other channel conflicts could result in
diminished sales through the indirect channel and adversely affect our operating
results. Additionally, because lower prices are typically charged on sales made
through indirect channels, increased indirect sales could adversely affect our
average selling prices and result in lower gross margins.
COMPLIANCE WITH EXISTING AND POTENTIAL INDUSTRY STANDARDS MAY BE DIFFICULT AND
COSTLY
We have developed and continue to develop our products to comply with
existing industry standards and anticipated future standards. We may not
introduce products that comply with future
12
<PAGE> 15
industry standards on a timely basis. In particular, we expend, and intend to
continue to expend, substantial resources in developing products and product
features that are designed to conform to the IEEE 802.11 wireless LAN standard,
as well as to other industry standards that have not yet been formally adopted.
Further, our high speed 4800 Turbo DS series of products is designed to conform
with the proposed high speed addition to the IEEE 802.11 standard. Our products
may fail to meet future industry standards or the standards ultimately adopted
by the industry may vary from those anticipated by us.
We participated in the promulgation of the IEEE 802.11 standard through two
of our senior officers who are members of the IEEE 802.11 Standards Committee.
Companies participating in the promulgation of the IEEE 802.11 standard have
represented to the IEEE that they will grant licenses to their patents on a fair
and equitable basis if those patents are required to implement products that
comply with the standard. Our ability to market IEEE 802.11 compliant products
may depend upon our ability to obtain these licenses from the other
participating companies. Our failure to obtain any required license at a
commercially reasonable cost could have a material adverse effect on our
competitive position and results of operations.
EXISTING AND POTENTIAL WIRELESS LAN STANDARDS MAY NOT ACHIEVE MARKET ACCEPTANCE
AND MAY LOWER BARRIERS TO MARKET ENTRY, EITHER OF WHICH WOULD HAVE A NEGATIVE
IMPACT ON OUR BUSINESS
Because we develop our products to comply with industry standards, sales of
our products could decline if these standards do not gain market acceptance or
if consumers ultimately prefer to purchase products which do not comply with
these standards, or which comply with new or competing standards, or which are
based on proprietary designs.
Also, product standardization may have the effect of lowering barriers to
entry in the markets in which we seek to sell our products, by diminishing
product differentiation. This would increase competition based upon criteria
such as the relative size and marketing skills of competitors and we may not
compete favorably.
COMPLIANCE WITH VARYING GOVERNMENT REGULATIONS IN MULTIPLE JURISDICTIONS WHERE
WE SELL PRODUCTS MAY BE DIFFICULT AND COSTLY
In the United States, our products are subject to various Federal
Communications Commission rules and regulations. Current FCC regulations permit
license-free operation in certain FCC-certified bands in the radio frequency
spectrum. FCC rules require compliance with administrative and technical
requirements as a condition to the operation or marketing of devices that emit
radio frequency energy, such as our products. Our products comply with Part 15
of the current FCC regulations permitting license-free operation of radio
devices in the 902-928 MHz and 2.4-2.4835 GHz radio frequency bands. The Part 15
regulations are designed to minimize the probability of interference to the
other users of those frequency bands and accord Part 15 systems secondary
status. In order of priority, the primary users of those band widths are the
following:
- devices which use radio waves to produce heat rather than to communicate;
- governmental uses;
- vehicle monitoring systems; and
- amateur radio.
In the event of interference between a primary user in those band widths
and a Part 15 user, the primary user can require the Part 15 user to curtail
transmissions that create interference. Our products
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<PAGE> 16
are also subject to regulatory requirements in markets outside the United
States, where we have limited experience in gaining regulatory approval. The
regulatory environment in which we operate subjects us to several risks,
including:
- if users must cease use of our products because their operation causes
interference to authorized users of the radio frequency spectrum, or
authorized users cause interference which must be accepted by users of
our products, market acceptance of our products and our results of
operations could be adversely affected;
- regulatory changes, including changes in the allocation of available
radio frequency spectrum or requirements for licensed operation, may
significantly impact our operations by rendering current products
non-compliant or restricting the applications and markets served by our
products; and
- we may not be able to comply with all applicable regulations in each of
the countries where our products are sold or proposed to be sold, and we
may need to modify our products to meet local regulations.
OUR SUCCESS DEPENDS ON OBTAINING AND PROTECTING INTELLECTUAL PROPERTY
Our success depends in part on our ability to obtain and preserve patent
and other intellectual property rights covering our products and development and
testing tools. The process of seeking patent protection can be time consuming
and expensive. We cannot assure you that:
- patents will issue from currently pending or future applications;
- our existing patents or any new patents will be sufficient in scope to
provide meaningful protection or any commercial advantage to us;
- foreign intellectual property laws will protect our intellectual property
rights; or
- others will not independently develop similar products, duplicate our
products or design around any patents issued to us.
Intellectual property rights are uncertain and involve complex legal and
factual questions. Though we are not aware of any third party intellectual
property rights that would prevent our use and sale of our products, we may
unknowingly infringe the proprietary rights of others. Any infringement could
result in significant liability to us. If we do infringe the proprietary rights
of others, we could be forced to either seek a license to those intellectual
property rights or alter our products so that they no longer infringe those
proprietary rights. A license could be very expensive to obtain or may not be
available at all. Similarly, changing our products or processes to avoid
infringing the rights of others may be costly or impractical.
We also rely on trade secrets, proprietary know-how and confidentiality
provisions in agreements with employees and consultants to protect our
intellectual property. Other parties may not comply with the terms of their
agreements with us, and we may not be able to adequately enforce our rights
against these parties.
WE COULD BECOME SUBJECT TO LITIGATION REGARDING INTELLECTUAL PROPERTY RIGHTS
WHICH COULD SERIOUSLY HARM OUR BUSINESS
Any dispute regarding intellectual property, whether ours or that of
another company, may result in legal proceedings. These types of proceedings may
be costly and time consuming for us, even if we eventually prevail. If we do not
prevail, we might be forced to pay significant damages, the prevailing party's
litigation expenses and obtain a license or stop making the subject product.
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<PAGE> 17
IF WE FAIL TO MANAGE OUR GROWTH, OUR BUSINESS, FINANCIAL CONDITION AND PROSPECTS
COULD BE SERIOUSLY HARMED
We have expanded our operations in recent years, and we anticipate that
further expansion will be required to address potential growth in our customer
base and market opportunities, as well as to provide corporate services
previously provided to us by Telxon. This expansion has placed, and future
expansion is expected to place, a significant strain on our management,
technical, operational, administrative and financial resources. We have recently
hired new employees, including a number of key managerial and operations
personnel, who have not yet been fully integrated into our operations.
Our current and planned expansion of personnel, systems, procedures and
controls may be inadequate to support our future operations. We may be unable to
attract, retain, motivate and manage required personnel, including finance,
administrative and operations staff, or to successfully identify, manage and
exploit existing and potential market opportunities because of inadequate
staffing. We may also be unable to manage further growth in our multiple
relationships with our OEMs, distributors and other third parties. If we are
unable to manage growth effectively, our business, financial condition and
results of operations could be adversely affected.
OUR INTERNATIONAL OPERATIONS MAY BE ADVERSELY AFFECTED BY ADDITIONAL RISKS
UNIQUE TO THOSE MARKETS
Revenues from customers outside North America accounted for approximately
30% of our total revenues for fiscal year 1999. We anticipate that revenues from
customers outside North America will continue to account for a significant
portion of our total revenues for the foreseeable future. Expansion of our
international operations has required, and will continue to require, significant
management attention and resources. In addition, we remain heavily dependent on
distributors to market, sell and support our products internationally. Our
international operations are subject to additional risks, including the
following:
- difficulties of staffing and managing foreign operations;
- longer customer payment cycles and greater difficulties in collecting
accounts receivable;
- unexpected changes in regulatory requirements, exchange rates, trading
policies, tariffs and other barriers;
- uncertainties of laws and enforcement relating to the protection of
intellectual property;
- language barriers;
- potential adverse tax consequences; and
- political and economic instability.
We currently sell products to customers in Russia and Japan. During fiscal
year 1999, product sales to Russia totaled $98,000 or 0.2% of total revenues.
Product sales to Japan totaled $6.8 million or 15% of total revenues. One
customer in Japan represented $6.4 million or 14% of total revenues in fiscal
year 1999. These countries have recently experienced significant problems with
their economies, which have adversely affected the value of their currency,
availability of credit and their ability to engage in foreign trade in general.
In addition, we are unable to determine the effect that recent economic
downturns in Asia, particularly Japan, or the adoption and use of the Euro, the
single European currency introduced in January 1999, will have on our business.
Any of these factors could have a material adverse effect on our business,
operating results and financial condition.
Similarly, we cannot accurately predict the impact that any future
fluctuations in foreign currency exchange rates may have on our operating
results and financial condition.
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<PAGE> 18
RISKS RELATING TO YEAR 2000 ISSUES MAY ADVERSELY AFFECT OUR BUSINESS
Many existing computer systems and software products do not properly
recognize dates after December 31, 1999. This "Year 2000" problem could result
in miscalculations, data corruption, system failures or disruptions of
operations. We reasonably expect that at worst these disruptions could result in
our inability to process transactions, manufacture and ship products, send
invoices or engage in similar normal business activities for an indefinite
period of time, which could impair our viability.
The Year 2000 problem could also affect embedded systems, such as building
security systems, machine controllers, telephone switches and other equipment.
Our systems may suffer from date related problems, and if so, we may need to
upgrade or replace our computer systems, software and other equipment, which
could result in significant expenditures.
Neither our current products nor our prior products utilize internal
calendars that are dependent upon the input of, or reference to, a specific
date, and we do not anticipate designing any products that are date dependent.
Furthermore, the purchasing patterns of our customers or potential customers may
be affected by Year 2000 issues as companies expend significant resources to
correct their current systems for Year 2000 compliance. These expenditures may
result in reduced funds available for network equipment and other purchases,
which could have a material adverse effect on our business, operating results
and financial condition.
We rely on numerous third parties who may not be Year 2000 compliant. This
includes our contract manufacturers, our sole and limited source component
suppliers and other vendors, and our distributors, resellers and OEMs. Failure
of any of these third parties to be Year 2000 compliant could require us to
incur significant unanticipated expenses to remedy any resulting problems or to
replace the affected third party. This could reduce our revenues and could have
a material adverse effect on our business, operating results and financial
condition. To date, we have not developed contingency plans for those
eventualities.
WE ARE DEPENDENT ON KEY PERSONNEL AND IF WE ARE UNABLE TO HIRE OR RETAIN NEEDED
PERSONNEL, OUR ABILITY TO DO BUSINESS PROFITABLY COULD BE HARMED
There are a limited number of skilled design, process and testing engineers
and marketing professionals involved in the wireless data communication
industry. The competition for these employees is intense. Skilled professionals
often move among the various competitors in this industry. Our future growth
depends in large part on retaining our current employees and attracting new
technical, marketing and management personnel. The loss of key employees or
failure to attract new key employees could materially affect our business.
RECENTLY HIRED KEY EMPLOYEES MAY NOT SUCCESSFULLY INTEGRATE INTO OUR MANAGEMENT
TEAM
We have recently hired a number of our officers, including our Senior Vice
President and Chief Financial Officer in January 1999, Senior Vice President,
Sales and Marketing in August 1998 and Vice President, Marketing in January
1999. These individuals have not previously worked together and are in the
process of integrating as a management team, together and with existing
management. There can be no assurances that they will be able to effectively
work together or successfully manage any growth we experience.
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<PAGE> 19
THERE MAY BE POTENTIAL HEALTH AND SAFETY RISKS RELATED TO OUR PRODUCTS WHICH
COULD NEGATIVELY AFFECT PRODUCT SALES
There has been recent public concern regarding the potential health and
safety risks of electromagnetic emissions. Our wireless networking products emit
electromagnetic radiation, but we do not believe that our products pose a safety
concern. If safety or health issues do arise, product sales could decline or
cease. These issues could have a material adverse effect on our business and
results of operations. Even if safety concerns ultimately prove to be without
merit, negative publicity could have a material adverse effect on our ability to
market products.
OUR COMMON STOCK PRICE MAY BE VOLATILE
The stock market has experienced significant price and volume fluctuations,
and the market prices of technology companies have been highly volatile.
Investors in this offering may not be able to resell their shares at or above
the initial public offering price.
THERE IS NO PRIOR PUBLIC MARKET FOR OUR COMMON STOCK AND THE OFFERING PRICE MAY
NOT PREVAIL IN THE MARKET
There has not been a public market for our common stock. We cannot predict
the extent to which investor interest in Aironet will lead to the development of
a trading market or how liquid that market might become. The initial public
offering price for the shares is determined by negotiations between us and the
representatives of our underwriters and may not be indicative of the prices that
will prevail in the trading market.
INVESTORS WILL INCUR IMMEDIATE DILUTION
The initial public offering price of our common stock is substantially
higher than the net tangible book value per share of the common stock
immediately after this offering. Therefore, if you purchase our common stock in
this offering, you will incur immediate and substantial dilution of
approximately $6.58 in the net tangible book value per share of common stock
from the price you pay for a share of common stock in the offering based upon an
assumed initial public offering price of $10 per share. The exercise of
outstanding options and warrants may result in further dilution.
WE DO NOT ANTICIPATE THE PAYMENT OF DIVIDENDS
We do not currently anticipate paying cash dividends in the foreseeable
future.
YOU WILL NOT HAVE CONTROL OVER MANAGEMENT'S USE OF THE PROCEEDS FROM THIS
OFFERING
We expect to use the net proceeds from the offering for repayment of bank
debt and general corporate purposes, including working capital, product
development and expansion of our engineering, sales and marketing capabilities,
as well as our general and administrative functions. We may use a portion of the
proceeds to license or acquire complementary technologies. However, we will have
broad discretion in how we use the net proceeds from the offering, and we may
ultimately decide to use the proceeds for purposes other than the above and may
not use proceeds for any one or more of the above purposes. You will not have
the opportunity to evaluate the economic, financial or other information on
which we base our decisions on how to use the net proceeds or to approve these
decisions.
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<PAGE> 20
DELAWARE LAW AND OUR CORPORATE DOCUMENTS INCLUDE ANTI-TAKEOVER PROVISIONS WHICH
MAY LIMIT THE VALUE STOCKHOLDERS CAN REALIZE FROM OUR STOCK
Our corporate documents and applicable provisions of the Delaware General
Corporation Law could discourage, delay or prevent a third party or significant
stockholder from acquiring or gaining control of us. These provisions:
- authorize the issuance of preferred stock with rights senior to those of
common stock, which our Board of Directors can create and issue without
prior stockholder approval;
- prohibit stockholder action by written consent;
- establish advance notice requirements for submitting nominations for
election to the Board of Directors and for proposing matters that can be
acted upon by stockholders at a meeting; and
- establish staggered terms for members of the Board of Directors.
In addition, we are a party to a Rights Agreement, pursuant to which each
share of our common stock includes a companion purchase right. Under
circumstances controlled by our Board of Directors, the purchase rights may
impose severe impediments to any person seeking to acquire us or gain control
over us. Any of these anti-takeover provisions could lower the market price of
the common stock and could deprive our stockholders of the opportunity to
receive a premium for their shares in the event that we are sold.
OVER SIX MILLION OF OUR TOTAL OUTSTANDING SHARES ARE RESTRICTED FROM IMMEDIATE
RESALE BUT MAY BE SOLD INTO THE MARKET IN THE NEAR FUTURE, WHICH COULD CAUSE THE
MARKET PRICE OF OUR COMMON STOCK TO DROP SIGNIFICANTLY, EVEN IF OUR BUSINESS IS
DOING WELL
Immediately after the offering, the public market for the common stock will
include only the 6,000,000 shares that we and Telxon are selling in the
offering. At that time, there will be an additional 7,567,181 shares of common
stock outstanding, which includes 5,276,500 shares owned by Telxon. As described
below, the persons that hold those additional shares will be able to sell some
of them in the public market following the offering. If these stockholders sell
a large number of shares of our common stock, the market price of common stock
could decline dramatically. Moreover, the perception in the public market that
these stockholders might sell shares of common stock could depress the market
price of the common stock. Likewise, the public's perception of the effect on us
of Telxon's refinancing requirements, losses, pending stockholder litigation and
pending SEC investigation could depress the market price of our common stock.
All of our officers, directors, stockholders, warrant holders and each
holder of more than 5,000 options have executed lock up agreements in which they
agreed not to sell any shares of common stock during the period ending 180 days
after the date of this prospectus. This restriction can be waived by the
underwriters at any time without notice to us, our stockholders or the public in
general.
As a result of contractual restrictions and the provisions of Rules 144 and
701, additional shares will be available for sale in the public market as
follows:
- no shares will be eligible for immediate sale after completion of this
offering;
- no shares will be eligible for sale 90 days after the effective date of
this offering unless the underwriters elect to waive the lock up
agreements discussed above;
- approximately 6,380,903 shares will be eligible for sale if the
underwriters elect to waive the lock up agreements at any time after this
offering or upon expiration of the lock up agreements; and
- the remainder of the restricted shares will be eligible for sale from
time to time thereafter, subject in some cases to compliance with Rule
144.
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<PAGE> 21
In addition, shares purchased pursuant to an employee stock option exercise
may become available for resale pursuant to the provisions of Rule 701, which
permits affiliates and non-affiliates to sell their Rule 701 shares without
having to comply with Rule 144's holding period restrictions, in each case
commencing 90 days after the date of this prospectus. In addition,
non-affiliates may sell Rule 701 shares without complying with the public
information, volume and notice provisions of Rule 144.
After the offering, we anticipate that we will register approximately
3,918,817 shares of common stock that we have issued or may issue under our
stock plans. Once we register these shares, they can be sold in the public
market upon issuance, subject to the lock up agreements described above.
Sales of large numbers of shares of common stock could cause the price of
the common stock to decline. For a more detailed description, see "Shares
Eligible for Future Sale" and "Underwriting."
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements relating to, among
other things, future results of operations, growth plans, sales, gross margin
and expense trends, capital requirements and general industry and business
conditions applicable to us. These forward-looking statements are based largely
on our current expectations and are subject to a number of risks and
uncertainties. When used in this prospectus, the words "anticipate," "believe,"
"estimate," "expect," "plans," "intends" and similar expressions are generally
intended to identify forward-looking statements. Actual results could differ
materially from these forward-looking statements. In addition to the other risks
described elsewhere in this "Risk Factors" discussion, important factors to
consider in evaluating these forward-looking statements include changes in
external competitive market factors, changes in our business strategy and our
ability to execute our strategy in response to unanticipated changes in the
wireless LAN industry or the economy in general and various other factors that
may prevent us from competing successfully in existing or future markets. In
light of these and other risks and uncertainties, there can be no assurance that
the forward-looking statements contained in this prospectus will in fact be
realized.
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USE OF PROCEEDS
We estimate that our net proceeds from the offering will be approximately
$36.2 million assuming an initial public offering price of $10 per share, after
deducting underwriting discounts and commissions and estimated offering expenses
that we will pay from the proceeds. We will not receive any proceeds from the
sale of shares offered by Telxon, the selling stockholder. We intend to use the
proceeds of this offering in part to repay our outstanding debt under our $5.0
million working capital credit line with Huntington National Bank, of
approximately $2.5 million as of March 31, 1999. This debt currently bears
interest at either the bank's prime rate or London Interbank Overnight Rate plus
2% annually, and the credit line expires on July 1, 2000. This debt was used for
working capital and to repay amounts we owed Telxon for working capital
advances. We have not identified any other specific expenditures which will be
made with the net proceeds from this offering, but we expect to use the proceeds
for general corporate purposes, which may include:
- expansion of our engineering organization and product development
programs;
- expansion of our marketing and sales capabilities;
- expansion of our general and administrative functions;
- investment in complementary technology through licensing arrangements and
otherwise; and
- working capital.
Pending the uses described above, we intend to invest our net proceeds from
this offering in short-term, interest-bearing, investment grade securities.
DIVIDEND POLICY
We currently intend to retain all earnings to fund our development and
growth, and therefore do not anticipate paying any dividends in the foreseeable
future. Further, we have agreed under our working capital credit line not to pay
dividends. In April 1999, our Board of Directors declared a dividend of stock
purchase rights in connection with and subject to the adoption of our Rights
Agreement. In March 1997, when we were a wholly owned subsidiary of Telxon, we
declared a one time dividend to Telxon of $1.1 million. This dividend was paid
in April 1997.
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<PAGE> 23
CAPITALIZATION
The following table provides a description of our capitalization as of
March 31, 1999 and as it would have appeared if the initial public offering had
been completed on that date. We have assumed that the shares of common stock
sold in this offering by us are sold at a public offering price of $10 per share
after deducting underwriting discounts, commissions and estimated offering
expenses. You should read this table in conjunction with Management's Discussion
and Analysis of Financial Condition and Results of Operations and our
consolidated financial statements and the notes to those statements, all of
which are included later in this prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1999
----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 6,137 $39,837
======= =======
Line of credit.............................................. $ 2,500 $ --
Stockholders' equity:
Preferred Stock, $.01 par value: no shares authorized..... -- --
Common Stock, $.01 par value: 15,000,000 shares authorized
actual, and 60,000,000 shares authorized pro forma as
adjusted; 9,567,181 shares issued and outstanding
actual, and 13,567,181 shares issued and outstanding
pro forma as adjusted.................................. 96 136
Additional paid-in capital.................................. 19,101 55,261
Accumulated other comprehensive loss........................ (727) (727)
Accumulated deficit......................................... (3,873) (3,873)
------- -------
Total stockholders' equity................................ 14,597 50,797
------- -------
Total capitalization................................... $17,097 $50,797
======= =======
</TABLE>
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DILUTION
Our net tangible book value as of March 31, 1999 was $11.4 million or $1.19
per share. Net tangible book value per share is equal to our total stockholders'
equity, less goodwill and other intangible assets, divided by the number of
shares of our common stock outstanding as of March 31, 1999. After giving effect
to our issuance and sale of 4.0 million shares of common stock in this offering
at an assumed offering price of $10 per share, and after deducting underwriting
discounts and commissions and estimated offering expenses, our consolidated net
tangible book value as of March 31, 1999 on a pro forma basis would have been
$47.6 million or $3.51 per share. This represents an immediate and substantial
increase in net tangible book value to existing stockholders of $2.32 per share
and an immediate and substantial dilution of $6.49 per share to new public
investors purchasing shares in this offering. The following table illustrates
the per share dilution to new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $10.00
Net tangible book value per share as of March 31, 1999.... $1.19
Increase per share attributable to this offering.......... $2.32
-----
As adjusted net tangible book value per share after this
offering.................................................. 3.51
------
Dilution per share to new investors......................... $ 6.49
======
Dilution as a percentage of the offering price.............. 64.9%
======
</TABLE>
The following table summarizes the difference between the existing
stockholders and the new investors with respect to the number of shares of
common stock purchased from us, the total consideration paid and the average
price paid per share. These calculations are made before deducting estimated
underwriting discounts and commissions and estimated offering expenses.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............ 9,567,181 71% $19,196,851 32% $ 2.01
New investors.................... 4,000,000 29% 40,000,000 68% 10.00
---------- --- ----------- ---
Total.................. 13,567,181 100% $59,196,851 100%
========== === =========== ===
</TABLE>
The foregoing excludes the underwriters' over-allotment option, outstanding
employee stock options to purchase 965,500 shares of common stock at $1.86 per
share, 577,500 shares at $3.50 per share and 400,000 shares at $9.00 per share,
and warrants to purchase 461,904 shares at $3.50 per share. New investors will
experience further dilution if any of these options or warrants are exercised.
22
<PAGE> 25
SELECTED FINANCIAL DATA
The following table highlights selected financial information but does not
necessarily include all of the financial information that is important to you
when considering purchasing shares of our common stock. You should also read
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and the notes to those
statements, all of which appear later in this prospectus. We derived the data
for the annual periods presented from our consolidated financial statements
audited by PricewaterhouseCoopers LLP. Our unaudited financial statements have
been prepared on the same basis as our audited financial statements and, in the
opinion of our management, include all adjustments, consisting only of normal
recurring adjustments, other than specific non-recurring stock based
compensation transactions discussed in Note 9 to the consolidated financial
statements, necessary for a fair presentation of the information set forth
therein. Our historical results are not necessarily indicative of our operating
results to be expected in the future.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MARCH 31,
-------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues:
Non-affiliate............................................. $ 2,637 $ 5,456 $14,484 $20,249 $28,303
Affiliate product......................................... 30,539 38,867 46,844 19,104 9,529
Affiliate royalty......................................... -- -- -- 5,781 7,421
-------- -------- ------- ------- -------
Total revenues.......................................... 33,176 44,323 61,328 45,134 45,253
-------- -------- ------- ------- -------
Cost of revenues:
Non-affiliate............................................. 1,959 2,957 8,388 11,714 18,594
Affiliate................................................. 21,634 30,942 37,073 14,587 7,784
-------- -------- ------- ------- -------
Total cost of revenues.................................. 23,593 33,899 45,461 26,301 26,378
-------- -------- ------- ------- -------
Gross profit:
Non-affiliate............................................. 678 2,499 6,096 8,535 9,709
Affiliate product......................................... 8,905 7,925 9,771 4,517 1,745
Affiliate royalty......................................... -- -- -- 5,781 7,421
-------- -------- ------- ------- -------
Total gross profit...................................... 9,583 10,424 15,867 18,833 18,875
-------- -------- ------- ------- -------
Operating expenses:
Sales and marketing....................................... 990 1,358 3,084 4,470 6,654
Research and development.................................. 4,887 5,977 5,311 5,683 6,582
General and administrative................................ 1,774 2,697 3,547 3,304 5,486
Goodwill amortization..................................... 866 866 866 866 866
-------- -------- ------- ------- -------
Total operating expenses................................ 8,517 10,898 12,808 14,323 19,588
-------- -------- ------- ------- -------
Income (loss) from operations............................... 1,066 (474) 3,059 4,510 (713)
Interest expense (income), net.............................. (26) (42) 131 46 (27)
-------- -------- ------- ------- -------
Income (loss) before income taxes........................... 1,092 (432) 2,928 4,464 (686)
-------- -------- ------- ------- -------
Provision for income taxes.................................. 2,580 2,196 2,039 1,963 391
-------- -------- ------- ------- -------
Net income (loss)....................................... $ (1,488) $ (2,628) $ 889 $ 2,501 $(1,077)
-------- -------- ------- ------- -------
Net income (loss) per common share:
Basic..................................................... $ (0.18) $ (0.33) $ 0.11 $ 0.31 $ (0.12)
======== ======== ======= ======= =======
Diluted................................................... $ (0.18) $ (0.33) $ 0.11 $ 0.30 $ (0.12)
======== ======== ======= ======= =======
Weighted average shares used in calculating net income
(loss) per share:
Basic..................................................... 8,085 8,085 8,085 8,123 9,325
Diluted................................................... 8,085 8,085 8,085 8,319 9,325
</TABLE>
The following table presents our summary consolidated balance sheet. The
March 31, 1999 information has been adjusted as if the 4,000,000 shares to be
sold by us in the offering had taken place at that date, at an assumed initial
public offering price of $10 per share and after deducting underwriting
discounts and commissions and our estimated offering expenses.
<TABLE>
<CAPTION>
AS OF MARCH 31, AS OF MARCH 31, 1999
------------------------------------- ---------------------
1995 1996 1997 1998 ACTUAL AS ADJUSTED
------- ------- ------- ------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 620 $ 198 $ 1,609 $ 2,864 $ 6,137 $39,837
Working capital (deficit)................................... 802 (2,233) (2,711) 4,321 10,512 44,212
Total assets................................................ 26,799 22,517 19,201 23,633 27,198 60,898
Total long-term liabilities................................. -- 119 71 -- 2,500 --
Total stockholders' equity.................................. 7,697 5,313 5,342 11,598 14,597 50,797
</TABLE>
23
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements, including
discussions of trends in our business, strategy, liquidity and capital
expenditures, the terms and conditions under which components will be acquired,
our ability to obtain credit and service debt, competitive pressures in the
wireless LAN industry, changing interest rates, Year 2000 readiness and
regulatory matters and general economic conditions. Our actual results may
differ materially from those suggested by the forward-looking statements for
various reasons, including those discussed under "Risk Factors." The following
discussion and analysis should be read in conjunction with the consolidated
financial statements and accompanying notes appearing later in this prospectus.
OVERVIEW
Aironet designs, develops and markets high speed, standards-based wireless
local area networking solutions. Our products utilize advanced radio frequency
and data communication technologies to connect users to computer networks
ranging in size and complexity from enterprise-wide LANs to home networks. Each
of our product families is designed around our Microcellular Architecture, a
distributed wireless network designed to support the unique requirements of
mobile computing. Our wireless LAN solutions are used as extensions of existing
enterprise networks, enabling personal computer users to maintain a wireless
network connection anywhere throughout a building or around a campus. In
addition, our LAN adapters are configurable as peer-to-peer wireless networks
for providing shared access to files, peripherals and the Internet in small
office/home office environments.
Telxon has historically accounted for a significant portion of our total
revenues. As a result of their importance as a customer and our close
affiliation with them, we report revenues attributable to Telxon separately from
revenues attributable to our other customers. In recent periods, revenues
attributable to Telxon have decreased both in absolute amounts and as a
percentage of our total revenues due to changes in the terms under which we sell
our products to Telxon and an increase in sales to other customers. As a
percentage of total revenues, revenues from Telxon decreased from 76% in fiscal
year 1997 to 55% in fiscal year 1998 and 37% in fiscal year 1999. Further,
Telxon has recently reported losses and refinancing requirements and has
announced pending stockholder litigation filed against it and a pending SEC
investigation. One or more of these matters could, depending on their outcomes,
adversely affect Telxon's demand for our products and our resulting revenues.
Since our fiscal quarter ended September 30, 1997, revenues attributable to
Telxon have consisted of royalty payments and product sales. At that time Telxon
began to pay us royalties in exchange for the right to manufacture and sell
selected legacy products which prior to that time we manufactured and sold to
them. This agreement was formalized in our March 1998 License, Rights and Supply
Agreement. Under the agreement, Telxon paid royalties to us on a per unit basis
for access point software, client software and a related chip set, radios, PC
Cards, universal clients, and other legacy products and products which Telxon
derives from our legacy products. These per unit royalties were subject to an
annual cap of $7 million in fiscal year 1999, $6.5 million in fiscal year 2000,
$5 million in fiscal year 2001 and $4 million thereafter, which we recognized
when Telxon shipped licensed products to its customers. As discussed below, this
cap on royalties was eliminated in March 1999 when the March 1998 License,
Rights and Supply Agreement was amended. These royalties terminate following a
change in control of Aironet other than as a result of a firm commitment
underwritten public offering. This offering lowers the threshold of what
constitutes a change in control.
Telxon continued to purchase products not covered under the licensing
agreement including our newer IEEE 802.11 products, which we recognized as
affiliate revenues when we shipped the products. We have agreed not to utilize
the proprietary network IDs used by Telxon in its older, non-IEEE 802.11
products.
24
<PAGE> 27
This means that new products cannot be added to older installed Telxon systems.
Other than this limitation on using Telxon's confidential network IDs, we are
free to fully compete with Telxon.
In March 1999, our license agreement with Telxon was amended to provide for
Telxon to make fixed monthly royalty payments to us regardless of the unit
volume manufactured and shipped by Telxon. These fixed royalty payments will
total $11.5 million for the two year period beginning in April 1999 and ending
in March 2001. We are recognizing the $11.5 million royalties ratably over that
period. Telxon's fixed monthly royalty payment will total $6.5 million in fiscal
year 2000, and will decline to $5.0 million in fiscal year 2001. Beginning in
fiscal year 2002, Telxon may elect to pay either a $4.0 million annual royalty
or a per unit royalty.
The March 1998 agreement grants Telxon the right to purchase other products
including our IEEE 802.11 products from us at prices that are based on a fixed
mark-up of our manufacturing costs. Telxon pays us a price equal to 154% of our
fully-burdened manufacturing costs for each unit of any bridge product and
133 1/3% of our fully-burdened manufacturing costs of any other of our products.
To date, the prices and gross margins from product sales to Telxon are below
those that we derive from product sales to our other customers; however, we
would anticipate similar prices and gross margins from sales to unrelated third
parties from whom we derive like amounts of revenue. Telxon's right to purchase
products on these price terms ends four years from the date of this offering,
and must be renegotiated in good faith prior to that time. The March 1998
agreement may not be terminated by either party and may not be assigned by
Telxon without our prior written consent.
Over the past several years, product sales to customers other than Telxon,
which we report as non-affiliate product revenues, have increased significantly.
This increase reflects the market acceptance of our newer, standards-compliant
products and growth of our customer base. Despite this growth, we continue to
experience quarterly fluctuations in revenues and profitability, due primarily
to timing and size of individual customer orders. We also experience
fluctuations in revenues and profitability during periods of new product
introduction and as the result of price reductions. During a new product launch,
we generally experience an acceleration of revenues from new product shipments
and higher expenses reflecting greater engineering, manufacturing and marketing
costs.
Product sales to Telxon decreased in fiscal year 1999 as a result of Telxon
commencing to self-manufacture legacy products; however, sales of IEEE 802.11
products to Telxon have increased since that time. We would expect sales to
Telxon to be subject to the same fluctuations in revenues and profitability as
we experience with other customers. For instance, our margins on products sold
to Telxon declined from 24% in fiscal year 1998 to 18% in fiscal year 1999 as a
result of the costs associated with introduction of the new IEEE 802.11
products.
Virtually all of our sales are made indirectly through a network of
distributors, resellers and OEMs. We recognize revenues from sales to resellers
and OEMs at the time we ship the products. Some of our distributors, however,
have specific rights to return products. We either reserve against revenues from
our sales to distributors or defer revenue recognition, depending on the nature
and scope of the distributor's return right. We also reserve against revenue for
price protections, if provided to distributors. We believe that these rights of
return and price protections are standard negotiated terms provided by
manufacturers to large distributors of high tech products.
In fiscal year 1997, we derived 5% of our total revenues from sales to
customers outside the United States, compared to 15% of our total revenues in
fiscal year 1998. In fiscal year 1999, 30% of our total revenues were from sales
to customers outside the United States. This increase was due primarily to
shipments made to our Japanese distributor for sale to a large OEM customer
during the fiscal quarter ended December 31, 1998. Our foreign sales are made in
U.S. dollars and therefore the adoption of the Euro should not have a direct
impact on our foreign exchange.
25
<PAGE> 28
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, our operating
results expressed as a percentage of our total revenues.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
MARCH 31,
--------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Revenues:
Non-affiliate............................................. 24% 45% 63%
Affiliate product......................................... 76 42 21
Affiliate royalty......................................... - 13 16
--- --- ---
Total revenues......................................... 100 100 100
--- --- ---
Cost of revenues............................................ 74 58 58
--- --- ---
Gross profit................................................ 26 42 42
--- --- ---
Operating expenses:
Sales and marketing....................................... 5 10 15
Research and development.................................. 9 13 14
General and administrative................................ 6 7 12
Goodwill amortization..................................... 1 2 2
--- --- ---
Total operating expenses............................... 21 32 43
--- --- ---
Income (loss) from operations............................... 5 10 (1)
Interest expense (income), net.............................. - - -
--- --- ---
Income (loss) before income taxes........................... 5 10 (1)
--- --- ---
Provision for income taxes.................................. 3 4 1
--- --- ---
Net income (loss)...................................... 2% 6% (2)%
=== === ===
</TABLE>
The following table presents, for the periods indicated, costs of revenues
and gross profits specifically as a percentage of non-affiliate, affiliate
product and affiliate royalty revenues.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
MARCH 31,
--------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Cost of revenues:
Non-affiliate............................................. 58% 58% 66%
Affiliate product......................................... 79 76 82
Affiliate royalty......................................... - - -
Gross profit:
Non-affiliate............................................. 42% 42% 34%
Affiliate product......................................... 21 24 18
Affiliate royalty......................................... - 100 100
</TABLE>
26
<PAGE> 29
FISCAL YEAR ENDED MARCH 31, 1999 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1998
REVENUES
Revenues consist of non-affiliate and affiliate revenues. Affiliate
revenues are derived from Telxon and consist of affiliate product revenues and
affiliate royalty revenues.
Non-affiliate. Non-affiliate revenues grew 40% from $20.2 million in fiscal
year 1998 to $28.3 million in fiscal year 1999. Gains in non-affiliate revenues
resulted from an increase in unit shipments to customers of our new IEEE 802.11
compliant products and not price increases on those or older, legacy products.
International revenues grew 97% from $6.8 million in fiscal year 1998 to $13.4
million in fiscal year 1999, due primarily to a $5.5 million sale made to our
Japanese distributor in connection with a large OEM contract.
As a percentage of total revenues, non-affiliate revenues increased from
45% in fiscal year 1998 to 63% in fiscal year 1999 as a result of lower revenues
from Telxon and higher non-affiliate sales.
Affiliate Product. Product revenues attributable to Telxon decreased 50%
from $19.1 million in fiscal year 1998 to $9.5 million in fiscal year 1999. In
the fiscal quarter ended September 1997, Telxon began to pay us royalties for
the right to manufacture and sell legacy products. As a result, in fiscal year
1999, 62% of the total unit demand was recognized as royalty revenues and not as
product sales. This resulted in a decrease in our total product revenues for
that period.
Affiliate Royalty. Telxon royalty payments grew 28% from $5.8 million in
fiscal year 1998 to $7.4 million in fiscal year 1999, due primarily to the
payment of royalties for 12 months in fiscal year 1999 and 8 months in fiscal
year 1998.
Total Revenues. Total revenues increased less than 1%, from $45.1 million
in fiscal year 1998 to $45.3 million in fiscal year 1999.
GROSS PROFIT
Gross profit is derived by subtracting the cost of revenues from revenues.
The cost of revenues consists of expenses to purchase fabricated components and
subassemblies manufactured to meet our design specifications, salaries and
employee benefits for personnel to inspect, assemble, configure and test
products and to manage operations, and related overheads.
Non-affiliate. Non-affiliate gross profit of $9.7 million increased 14%
from the $8.5 million reported in fiscal year 1998. In the fiscal quarter ended
March 31, 1998, we began to ship new generation IEEE 802.11 compliant products
to customers. During this start-up period, we incurred increased costs primarily
in supplier start-up fees and rework charges totaling $0.4 million. This added
cost, together with lower margin sales to three large volume customers which
reduced gross profit by $1.2 million and other expenses, offset gains in gross
profit resulting from increased unit shipments. As a result, our gross margin
from non-affiliates decreased from 42% in fiscal year 1998 to 34% in fiscal year
1999.
Affiliate Product. Gross profit from shipments of products to Telxon
decreased 62% from $4.5 million in fiscal year 1998 to $1.7 million in fiscal
year 1999. This decrease resulted from our agreement with Telxon, under which
Telxon began to pay us royalties for the right to manufacture our legacy
products and ceased purchasing those products from us. This change and Telxon's
purchases of our new generation IEEE 802.11 compliant products with associated
higher start-up costs, reduced our gross margin from Telxon sales from 24% in
fiscal year 1998 to 18% in fiscal year 1999.
Affiliate Royalty. Each dollar of royalty revenues results in an equivalent
gross profit because there is de minimus cost of revenues associated with
royalties. Royalty gross profit grew 30% from
27
<PAGE> 30
$5.7 million in fiscal year 1998 to $7.4 million in fiscal year 1999, due to the
increase of Telxon's licensed production of products previously purchased from
us. The expenses relating to technology transfer and training were expensed as
incurred.
Total Gross Profit. Our total gross profit did not change significantly
from $18.8 million in fiscal year 1998 to $18.9 million in fiscal year 1999. Our
gross margin was 42% in both fiscal year 1998 and fiscal year 1999.
OPERATING EXPENSES
Sales and Marketing. Sales and marketing expenses consist primarily of
sales and marketing salaries, sales commissions, bad debt allowance, product
advertising and promotion, travel and facility occupancy costs. Our sales and
marketing expenses increased 47% from $4.5 million in fiscal year 1998 to $6.6
million in fiscal year 1999. This increase resulted primarily from a $0.5
million addition to sales and marketing, management and staff, $0.5 million in
higher commissions commensurate with higher sales to resellers and $0.7 million
in expanded promotional programs. This increase was partially offset by a $0.3
million reduction in expenditures for outside services and a $0.1 million
reduction in operating supplies.
As a percentage of total revenues, sales and marketing expenses increased
from 10% in fiscal year 1998 to 15% in fiscal year 1999. We expect that sales
and marketing expenses will increase in absolute dollars as we expand our
branding program and further develop our sales channels.
Research and Development. Research and development expenses consist
primarily of salaries and employee benefits to our technical employees who
develop our products, as well as costs for prototype development, operating
supplies, depreciation of equipment and amortization of software utilized in
research and development efforts. Research and development expenses increased
16% from $5.7 million in fiscal year 1998 to $6.6 million in fiscal year 1999.
This increase resulted primarily from $0.7 million in additions to engineering
personnel and related expenses supporting an expanded new product development
program, as well as a $0.3 million increase in prototype development and a $0.2
million increase in occupancy costs. This increase was offset by a $0.3 million
decrease in outside services.
As a percentage of total revenues, research and development expenses
increased from 13% in fiscal year 1998 to 15% in fiscal year 1999. We expect
that research and development expenses will increase in absolute dollars as we
expand our offering of high speed networking solutions.
General and Administrative. General and administrative expenses consist
primarily of administrative salaries and wages, employee benefits and
incentives, legal, audit and occupancy expenses. Our general and administrative
expenses increased 67% from $3.3 million in fiscal year 1998 to $5.5 million in
fiscal year 1999. This increase primarily resulted from $1.1 million in non-cash
compensation expense relating to a loan provided to an officer to exercise stock
options and $1.9 million in non-cash compensation expense relating to a March
1999 amendment to the vesting provisions of our 1996 Stock Option Plan. This
increase was partially offset by $0.3 million in cost reductions relating to the
consolidation of our Canadian operations and administrative functions to our
Akron, Ohio facilities and reduction in facility occupancy and support costs. We
currently anticipate relocating the manufacture of selected PC Card adapters and
assembled printed circuit boards from a contract manufacturer in Canada to a
contract manufacturer with facilities located in Asia. We do not anticipate
recording a restructuring charge as a result of this relocation.
28
<PAGE> 31
PROVISION FOR INCOME TAXES
Our effective income tax rate exceeded the statutory rate in fiscal year
1998 primarily because amortization of goodwill incurred in the acquisition of
our Canadian subsidiary Aironet Canada Limited is non-deductible, a portion of
our income paid to Aironet Canada Limited under an inter-company license
agreement is subject to a higher Canadian tax rate and compensation expense
resulting from the exercise of specific stock options paid for by a note to us
in February 1998, is non-deductible. Our tax rate was negatively impacted in
fiscal year 1999 by the tax impact of our non-deductible stock compensation
expense of $0.4 million along with our non-deductible goodwill, $0.9 million.
FISCAL YEAR ENDED MARCH 31, 1998 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1997
REVENUES
Non-affiliate. Non-affiliate revenues grew 39% from $14.5 million in fiscal
year 1997 to $20.2 million in fiscal year 1998. Gains in non-affiliate revenues
resulted from increases in unit shipments to existing and new customers. As a
percentage of total revenues, non-affiliate revenues increased from 24% in
fiscal year 1997 to 45% in fiscal year 1998 as a result of lower revenues from
Telxon and higher non-affiliate sales.
Affiliate Product. Product revenues attributable to Telxon decreased 59%
from $46.8 million in fiscal year 1997 to $19.1 million in fiscal year 1998.
This resulted from our licensing agreement with Telxon.
Affiliate Royalty. Telxon royalty revenues totaled $5.8 million in fiscal
year 1998, while none were earned in fiscal year 1997, a period prior to our
licensing agreement.
Total Revenues. Our total revenues decreased 26%, from $61.3 million in
fiscal year 1997 to $45.1 million in fiscal year 1998.
GROSS PROFIT
Non-affiliate. Non-affiliate gross profit increased 40% from $6.1 million
in fiscal year 1997 to $8.5 million in fiscal year 1998 due to increased unit
shipments to non-affiliate customers. Our non-affiliate gross margin remained
constant at 42% of non-affiliate revenues.
Affiliate Product. Gross profit from shipments of products to Telxon
decreased 54% from $9.8 million in fiscal year 1997 to $4.5 million in fiscal
year 1998, as a result of our licensing agreement with Telxon. Our gross margin
from Telxon sales increased from 21% in fiscal year 1997 to 24% in fiscal year
1998 due primarily to changes in product mix.
Affiliate Royalty. Affiliate royalty gross profit totaled $5.8 million, as
compared to no royalty gross profit in fiscal year 1997.
Total Gross Profit. Our total gross profit increased 18% from $15.9 million
fiscal year 1997 to $18.8 million in fiscal year 1998. Our total gross margin
increased from 26% in fiscal year 1997 to 42% in fiscal year 1998.
OPERATING EXPENSES
Sales and Marketing. Our sales and marketing expenses increased 45% from
$3.1 million in fiscal year 1997 to $4.5 million in fiscal year 1998. This
increase primarily resulted from an increase in sales and marketing hiring,
salaries and wages and relocation expenses of $0.8 million, an increase in
outside services of $0.5 million, and an increase in advertising of $0.1
million, as we grew our sales
29
<PAGE> 32
organization to support expanding sales to non-affiliates. This increase was
partially offset by a $0.1 million reduction in expenditures for public
relations services, a $0.1 million reduction in collateral materials and a $0.1
million reduction in bad debt allowance and commissions.
Research and Development. Our research and development expenses increased
7% from $5.3 million in fiscal year 1997 to $5.7 million in fiscal year 1998.
This increase primarily related to increases in prototype development expenses
of $0.1 million and added equipment rental of $0.1 million, engineering salaries
and related expenses of $0.2 million and depreciation of equipment and
amortization of software utilized in research and development efforts of $0.2
million. This increase was partially offset by a $0.1 million reduction in our
spending on parts and supplies utilized in our product development programs.
General and Administrative. Our general and administrative expenses
decreased 7% from $3.5 million in fiscal year 1997 to $3.3 million in fiscal
year 1998. This decrease primarily resulted from a $0.4 million decrease in
general and administrative salaries and wages and a $0.2 million decrease in
outside services, as we completed the consolidation of our Canadian operations
and administrative functions at our Akron, Ohio facilities. This decrease was
partially offset by a $0.3 million increase in facility related occupancy
expenses in Akron.
PROVISION FOR INCOME TAXES
Our effective income tax rate was 44% for the fiscal year ended March 31,
1998, compared to 70% for the fiscal year ended March 31, 1997. This decrease in
effective rate was primarily the result of a $1.1 million intra-company dividend
from our Canadian subsidiaries in the fiscal year ended March 31, 1997, which
increased our tax provision by $0.4 million due to Canadian tax withholdings.
Also contributing to the decrease was the relocation of our Canadian operations
to Akron, Ohio in the fiscal year ended March 31, 1998, with a resulting shift
in taxable income from Canada to the United States, with its lower corporate tax
rate.
30
<PAGE> 33
QUARTERLY RESULTS OF OPERATIONS
The following tables present our condensed quarterly operating information
for each of the eight quarters ending March 31, 1999. The information for each
of these quarters is unaudited. You should also read "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and our
consolidated financial statements and the notes to those statements, all of
which appear later in this prospectus. Our unaudited financial statements have
been prepared on the same basis as our audited financial statements and, in the
opinion of our management, include all adjustments, consisting only of normal
recurring adjustments necessary for a fair presentation of the information set
forth therein; except for specific stock-based compensation transactions
discussed in Note 9 to the consolidated financial statements. Our historical
results are not necessarily indicative of our operating results to be expected
in the future.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1997 1997 1997 1998 1998 1998 1998 1999
-------- --------- -------- -------- -------- --------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Results of Operations Data:
Revenues:
Non-affiliate......................... $ 4,629 $ 5,166 $ 5,195 $ 5,259 $ 6,162 $ 5,049 $ 8,614 $ 8,478
Affiliate product..................... 12,717 3,583 1,179 1,625 1,434 2,470 2,621 3,004
Affiliate royalty..................... -- 1,176 2,363 2,242 1,881 2,460 1,722 1,358
------- ------- ------- ------- ------- ------- ------- -------
Total revenues...................... 17,346 9,925 8,737 9,126 9,477 9,979 12,957 12,840
------- ------- ------- ------- ------- ------- ------- -------
Cost of revenues:
Non-affiliate......................... 2,357 3,071 3,200 3,086 3,908 3,541 5,998 5,147
Affiliate............................. 9,176 3,034 958 1,419 1,214 2,072 2,143 2,355
------- ------- ------- ------- ------- ------- ------- -------
Total cost of revenues.............. 11,533 6,105 4,158 4,505 5,122 5,613 8,141 7,502
------- ------- ------- ------- ------- ------- ------- -------
Gross profit:
Non-affiliate......................... 2,272 2,095 1,995 2,173 2,254 1,508 2,616 3,331
Affiliate product..................... 3,541 549 221 206 220 398 478 649
Affiliate royalty..................... -- 1,176 2,363 2,242 1,881 2,460 1,722 1,358
------- ------- ------- ------- ------- ------- ------- -------
Total gross profit................ 5,813 3,820 4,579 4,621 4,355 4,366 4,816 5,338
------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Sales and marketing................... 1,018 1,167 1,346 939 1,482 1,274 1,663 2,235
Research and development.............. 1,234 1,266 1,352 1,831 1,624 1,527 1,582 1,849
General and administrative............ 837 781 562 1,124 1,035 842 701 2,908
Goodwill amortization................. 216 216 216 218 216 216 217 217
------- ------- ------- ------- ------- ------- ------- -------
Total operating expenses............ 3,305 3,430 3,476 4,112 4,357 3,859 4,163 7,209
------- ------- ------- ------- ------- ------- ------- -------
Income from operations (loss)........... 2,508 390 1,103 509 (2) 507 653 (1,871)
------- ------- ------- ------- ------- ------- ------- -------
Interest expense (income), net.......... 6 32 16 (8) (10) -- 14 (31)
------- ------- ------- ------- ------- ------- ------- -------
Income before income taxes (loss)....... 2,502 358 1,087 517 8 507 639 (1,840)
------- ------- ------- ------- ------- ------- ------- -------
Provision (benefit) for income taxes.... 1,026 146 447 344 5 317 399 (330)
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)....................... $ 1,476 $ 212 $ 640 $ 173 $ 3 $ 190 $ 240 $(1,510)
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
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<PAGE> 34
Our revenues and operating results are subject to quarterly and other
fluctuations from a variety of factors, including the following:
- size, timing and scheduling of orders and increased expenses to support
expansion of our sales channels;
- changes in product mix;
- our ability to develop, introduce and market new products in a timely and
cost-effective manner;
- new product announcements and introductions by our competitors;
- market acceptance of new products and enhancements;
- the rate at which the market adopts new technologies and IEEE 802.11 and
subsequent standards;
- changes in our pricing or that of our competitors; and
- variability of component and subassembly costs and availability,
especially with respect to sole-sourced components.
As a result, quarter to quarter comparisons are not necessarily meaningful and
may not be a reliable indicator of our future performance.
LIQUIDITY AND CAPITAL RESOURCES
During the periods presented, we have financed our operations primarily
through cash generated from operating activities, the sale of equity securities
and, prior to March 1998, through funds provided by Telxon in the form of
inter-company advances. Since March 1998, we ceased receiving funding from
Telxon. Telxon is not obligated to provide additional funds to finance our
operations.
At March 31, 1999, we had cash and cash equivalents of $6.1 million. At
that time, we had $2.5 million outstanding under a $5.0 million line of credit.
Amounts outstanding under this line of credit bear interest at London Interbank
Overnight Rate plus 2% or the bank's prime rate. At March 31, 1999, the
applicable rate was 6.94%. Outstanding amounts are uncollateralized, and credit
availability under the line of credit is based upon a formula comprised of
accounts receivable and inventory. There are no financial ratio compliance
requirements under this credit line, and there are no material financial
covenants beyond restrictions on further indebtedness, establishment of new
subsidiaries, limitation on acquisitions and mergers and sale of assets outside
of the normal course of business without the consent of the lender. At March 31,
1999, an additional $2.5 million was available under this line of credit, which
expires in July 2000, subject to renewal provisions.
Operating Activities. In fiscal year 1999, operations provided $3.7 million
of cash. A net loss of $1.1 million was offset by a $3.0 million non-cash charge
to compensation expense, depreciation and amortization, a reduction in income
tax receivables, offset by cash used to fund increases in receivables from
Telxon, increased inventory, and deferred income taxes. In fiscal year 1998,
operations provided $0.1 million of cash primarily due to increases in accounts
and other receivables, decreases in accounts payable and income taxes payable
offset by cash from net income of $2.5 million. In fiscal year 1997, operations
provided $12.4 million of cash, primarily from net income of $0.9 million,
decreases in receivables due from Telxon, decreases in inventory, and increases
in accounts payable and other liabilities, which amounts were offset by
increases in non-affiliate accounts receivable. In fiscal year ended 1996,
operations provided $3.0 million of cash, primarily from decreases in
receivables due from Telxon, offset by a net loss of $2.6 million and cash used
to fund increases in inventory and increases in non-affiliate accounts
receivable and other receivables. The increase in non-affiliate accounts
receivable was primarily due to growth in our business. To the extent that we
experience further growth in operations, additional cash will be needed to fund
increases in accounts receivables and inventory.
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<PAGE> 35
Investment Activities. Investment activities totaled $1.1 million in fiscal
year 1999, $1.7 million in fiscal year 1998 and $2.0 million in fiscal year
1997. Cash was used in each of these periods primarily to fund purchases of
engineering, product testing and laboratory equipment and software.
Financing Activities. Financing activities provided $0.7 million in fiscal
year 1999, primarily as a result of our borrowing $2.5 million under our line of
credit. Financing activities provided $2.9 million in fiscal year 1998,
primarily as a result of $1.6 million in net proceeds from the sale of common
stock including sales of stock on the exercise of employee stock options and an
increase of $2.3 million in payables from Telxon, offset in part by a $1.1
million dividend distribution to Telxon. The Telxon payables increase and the
dividend distribution to Telxon was paid in connection with a reorganization of
our Canadian subsidiaries, in which Telxon's Canadian subsidiary redeemed its
stock which had been owned by one of our Canadian subsidiaries from a prior
restructuring of Telxon's Canadian subsidiaries. Financing activities utilized
cash of $9.0 million in fiscal year 1997, as a result of reductions of accounts
payable to Telxon.
We believe that cash and cash equivalents balances generated from
operations and the net proceeds of this offering will be sufficient to meet our
operating and capital expenditure requirements for at least the next twelve
months. To the extent necessary, we may also satisfy capital needs through bank
borrowings and capital leases if these resources are available on satisfactory
terms. We currently anticipate capital expenditures of $2 million in fiscal year
2000. We may also from time to time consider the acquisition of complementary
technologies, though we have no present commitments or agreements with respect
to any specific acquisitions. Any specific acquisitions could be of a size that
would require us to raise additional funds through the issuance of additional
equity or debt securities. There can be no assurance that these funds, if
required, would be available on terms acceptable to us, if at all.
Significant Balance Sheet Fluctuation. Accrued liabilities increased 55%
from $2.2 million at March 31, 1998 to $3.4 million at March 31, 1999. This
increase was due primarily to increased sales which caused increases in sales
commissions, payroll and other benefits, co-op funds and royalties.
YEAR 2000 READINESS DISCLOSURE
Year 2000 issues result from the fact that many computer programs were
written with date-sensitive codes that utilize only the last two digits of a
date rather than all four digits to refer to a particular year. As the year 2000
approaches, these computer programs may be unable to process accurately date-
dependent information, as a program might interpret the year 2000 as 1900.
The potential for Year 2000 issues arise primarily in three areas:
- the products we sell, which might be date dependent and, as a result,
improperly operate;
- our dependence on vendors and contract manufacturers for components and
subassemblies that might be impacted by the Year 2000 issues, and their
inability to provide us with goods on a timely basis and within
specifications due to their unresolved Year 2000 issues; and
- our internal use of hardware or software computing resources which
improperly recognize the true date and which could cause us to, among
other things, improperly process customer orders or business information,
and could result in failure of our internal systems.
WILL WE BE READY?
In the fiscal quarter ended March 31, 1999, we hired an independent Year
2000 consultant to augment our internal efforts to complete a plan for
systematically assessing our Year 2000 exposure. Our assessment plan has been
completed, and we are now taking actions consistent with that plan.
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<PAGE> 36
HOW FAR ALONG ARE WE?
We have completed testing of 100% of our critical systems and a majority of
our non-critical systems, with the following results.
Our Products. We have evaluated our product line for year 2000 issues and
found that our products are not date-dependent, and we will be making no Year
2000 product revisions.
Vendors. We have obtained a Year 2000 compliance response from 54% of our
vendors. We continue to request vendor certifications from our remaining
vendors.
Internal Systems. Consistent with the results of our readiness assessment,
we have performed a live Year 2000 test of our payables, receivables and
financial reporting systems and our manufacturing, purchasing and sales systems.
Of these systems, two add-on software packages which perform non-critical
functions had Year 2000 deficiencies. These deficiencies have been corrected. We
have completed testing of our desktop PCs. Of these PCs, only one PC was not
Year 2000 compliant. This PC has been upgraded and is currently Year 2000
compliant. Laboratory PCs will not be tested as they are known not to be Year
2000 compliant and they perform only non date sensitive tasks. Our computer
servers have been fully tested. One unit was not Year 2000 compliant and is
scheduled to be replaced in July 1999.
YEAR 2000 PROBLEMS EXPERIENCED TO DATE
We have experienced no Year 2000 problems to date. No information
technology projects have been deferred due to our Year 2000 efforts.
TIME TABLE
Our Year 2000 readiness plan is task oriented by department. We use no
independent verification or validation process to assure reliability, risks or
costs estimates. The following table illustrates our Year 2000 readiness.
<TABLE>
<CAPTION>
CATEGORY TESTING PROBLEMS DETECTED REMEDIATION
-------- ------- ----------------- -----------
<S> <C> <C> <C>
Internal Systems 100% completed Two add-on software Software packages and the PC
packages, one PC and one have been upgraded and the
computer server server will be replaced in July
1999
Products 100% completed None to date None required to date
Vendors Response received from 54% None to date None required to date
of vendors
</TABLE>
Cost of Remediation. We currently estimate that our Year 2000 assessment
efforts and correction of any internal Year 2000 issues identified during our
assessment, will total less than $100,000; however, in the event we discover a
Year 2000 issue which was previously unanticipated, we could incur costs far in
excess of this amount which would have a material adverse effect on our business
and financial results.
Most Likely Consequences of Year 2000 Problems. We expect to identify and
resolve all Year 2000 problems that could materially adversely affect our
business operations. However, we believe that it is not possible to determine
with complete certainty that all Year 2000 problems affecting us have been
identified or corrected. The number of devices and systems that could be
affected and the interactions among these devices and systems are too numerous
to address. In addition, no one can accurately predict which Year 2000
problem-related failures will occur or the severity, timing, duration or
financial
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<PAGE> 37
consequences of these potential failures. We believe that a significant number
of operational inconveniences and inefficiencies for us, our contract
manufacturers and our customers will divert management's time and attention,
financial and human resources from ordinary business activity if any of these
Year 2000 problem related failures occur.
Contingency Plans. We are currently discussing contingency plans to be
implemented if our efforts to identify and correct Year 2000 problems are not
effective. We expect to formalize and test our contingency plans when our Year
2000 assessment is complete. Depending on the systems affected, these plans
could include:
- accelerated replacement of affected equipment or software;
- short to medium-term use of backup equipment and software or other
redundant systems;
- increased work hours for our personnel or the hiring of additional
information technology staff; and
- the use of contract personnel to correct, on an accelerated basis, any
Year 2000 problems that arise or to provide interim alternate solutions
for information system deficiencies.
Our implementation of any of these contingency plans could have a material
adverse effect on our business, financial condition and results of operations.
MARKET RISK
We are exposed to the impact of interest rate changes and, to a lesser
extent, foreign currency fluctuations. We have not entered into interest rate or
foreign currency transactions for speculative purposes or otherwise. Our foreign
currency exposures were immaterial at March 31, 1999.
Our exposure to interest rate changes results from our variable-rate line
of credit and prior to March 31, 1998 from our interest-bearing advances from
Telxon. At March 31, 1999, we had $2.5 million due July 1, 2000 bearing interest
at either the bank's prime rate or London Interbank Overnight Rate plus 2%. A
one percentage point change in the weighted average interest would not have a
material impact on our annual interest expense.
35
<PAGE> 38
BUSINESS
COMPANY OVERVIEW
We design, develop and market high speed, standards-based wireless local
area networking solutions. Our products utilize advanced radio frequency and
data communication technologies to connect users to computer networks ranging in
size and complexity from enterprise-wide LANs to home networks. Each of our
product families is designed around our Microcellular Architecture, a
distributed wireless network designed to support the unique requirements of
mobile computing. Our wireless LAN solutions are used as extensions to existing
enterprise networks, enabling personal computer users to maintain a wireless
network connection anywhere throughout a building or around a campus. In
addition, our LAN adapters can be configured as peer-to-peer wireless networks
for providing shared access to files, peripherals and the Internet in small
office/home office environments.
We offer comprehensive wireless LAN solutions to our customers through a
broad product portfolio, including PC Cards, PCI and ISA network interface
cards, access points, and network management and driver software. As a major
contributor to, and proponent of the IEEE 802.11 industry standard for wireless
LANs, we have designed our primary products to interoperate with other
standards-based products. Our IEEE 802.11 based products operate in the
unlicensed 2.4 GHz radio frequency band and use either our Direct Sequence or
Frequency Hopping spread spectrum radio technology. As a result, we are able to
offer our customers the wireless LAN solution best suited to their specific
environment and applications.
In December 1998, we introduced and began shipping our high speed wireless
LAN solution, the 4800 Turbo DS series, featuring a maximum data rate of 11
Mbps. This product line provides bandwidth sufficient for data-intensive
applications and high speed Internet access, as well as emerging applications
such as streaming video and Voice-over-IP. The 4800 Turbo DS series utilizes 2.4
GHz Direct Sequence spread spectrum radio technology and is designed to comply
with the proposed IEEE 802.11b High Rate Direct Sequence extension to the
industry's IEEE 802.11 wireless LAN standard. In April 1999, our 4800 Turbo DS
received Network Magazine's "Product of the Year" award in the wireless
networking category.
We also develop and market point-to-point and point-to-multipoint bridge
products for fixed wireless networking between buildings. Transmitting data at
rates up to 11 Mbps over line-of-site distances measured in miles, our wireless
bridge products provide users with a cost effective alternative to leased
wirelines for high speed network and Internet access. Our wireless bridges
utilize Direct Sequence spread spectrum radio technology and operate in the
unlicensed 2.4 GHz radio frequency band.
We sell our wireless LAN and bridge products in domestic and international
markets through an indirect channel of distributors, resellers and OEMs.
INDUSTRY BACKGROUND
Enterprise-wide computing has evolved in recent years from highly
centralized computing environments to widely distributed client/server networks
that frequently include multiple interconnected LANs. Local area networks offer
increased productivity and reduced systems costs by enabling users to share
information, applications and resources such as printers, file servers and
communication devices. Today, businesses and organizations are increasingly
reliant upon LANs as the primary infrastructure for connecting PC users to the
enterprise network. Moreover, the Internet is redefining how businesses,
organizations and individuals communicate and transact business. Modern
enterprises are providing Internet access through enterprise networks to LAN
users for applications such as e-mail, e-commerce
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<PAGE> 39
and information browsing. These trends, coupled with pervasive computing through
all levels of the enterprise, are generating an increased dependence on local
area network connectivity.
Simultaneous with the growth of LANs and the Internet, there has been a
shift in demand for personal computer platforms from desktop to portable
computers. Recent advances in computer processing power, display and battery
technology and packaging size, combined with lower costs, have narrowed
performance disparities between desktop and notebook computers. As a result of
the improvements in portable computers and other mobile devices, workers are
able to carry their computer and communication resources with them as they move
around their work environment.
Today, most businesses and organizations that use local area networks
operate them over wired infrastructures, such as Ethernet, where the network
connection point is a fixed outlet, typically located along an office wall,
floor or cubicle. In these environments, PCs utilize LAN adapters with cables
tethered to the outlet to establish a physical connection to the network.
Movement of the client computer, whether a desktop or portable device, is
restricted to the length of the tethered cable or the location of alternative
outlets if the user wants to maintain communications with the enterprise
network. No matter how portable the computing device, connectivity to the
enterprise network is limited by the need for a cable.
Wireless local area networks provide flexible network connectivity, making
it possible for mobile workers to stay connected to their network or the
Internet as they move freely within a building or around a campus. By using
radio frequency and data communication technologies, wireless LAN solutions
eliminate the need for a tethered cable when connecting to the network. Although
well suited for mobile computing, wireless LANs also offer the added benefit of
reducing the costs of networking desktop and other computer devices in
environments where network configuration changes are frequent or the premises
are difficult to wire. Installing or reconfiguring a wired LAN can be
labor-intensive, time-consuming and disruptive. Users of wireless networks,
however, can quickly set up and subsequently reconfigure the workplace without
having to rewire existing networks, avoiding significant additional costs.
Over the past several years, many organizations have benefited from
wireless networking solutions. These solutions enable mobile computing, reduce
network infrastructure costs and improve overall operational efficiency.
Wireless LANs have been widely adopted in several vertical markets, such as the
retail, warehousing and distribution industries. The use of portable wireless
devices, such as handheld and pen-based computers, allow mobile workers in these
industries to collect data, manage inventory, track assets and process
transactions in real time and with increased accuracy and convenience, thereby
improving productivity and customer satisfaction.
Widespread acceptance of wireless networks beyond existing vertical markets
has been limited to date. Until recently, wireless networks lacked the speed
required for data- and graphics-intensive applications to operate effectively.
In addition, early wireless LAN users implemented proprietary vendor solutions
due to a lack of standards within the industry, precluding interoperability
between products from different vendors. Moreover, early wireless LAN adapters
used proprietary form factors and unique hardware and software interfaces,
requiring manufacturers of portable computers to expend considerable time and
engineering resources to design-in an OEM product.
Recent developments, including the wide adoption of the Institute of
Electrical and Electronic Engineers 802.11 industry standard for wireless LANs,
the availability of faster data rates of at least 10 Mbps and the availability
of wireless PC Card adapters, have collectively resulted in the emergence and
growth of wireless LAN solutions in broader networking markets. These same
factors have also contributed to the growth of wireless networks in traditional
vertical markets, as well as new vertical markets such as healthcare and
education. Today, the desire for pervasive network and Internet
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<PAGE> 40
connectivity, the preference for mobile computing and the need to deploy and
reconfigure networks rapidly and cost-effectively are all factors contributing
to the increase in market demand for wireless LAN solutions.
According to International Data Corporation, an information technology
research firm, worldwide wireless LAN product shipments are projected to
increase at a 30% compound annual growth rate from 866,000 units in 1997 to over
4,000,000 units by 2003. International Data Corporation projects wireless LAN
revenues to reach $1.6 billion in 2003.
THE AIRONET SOLUTION
We are a leading provider of high speed wireless LAN and bridge products.
Our wireless LAN products provide wireless network connectivity and Internet
access to personal computer users within a building or campus environment. Our
wireless point-to-point and point-to-multipoint bridge products provide fixed
wireless networking between buildings. We believe that our products offer the
following benefits:
High Speed. Aironet is the first to develop and ship wireless LAN and
bridge products operating at Ethernet-like speeds of 11 Mbps in the unlicensed
2.4 GHz radio frequency band. We accomplished this industry milestone by
combining our proprietary medium access controller, or MAC, technology with our
high performance 2.4 GHz Direct Sequence spread spectrum radio and offering it
in a PC Card (Type II) form factor. Both our high speed wireless LAN and bridge
products provide broadband support for data-intensive applications and Internet
access, as well as emerging applications such as streaming video and
Voice-over-IP.
Mobile Computing. Our products are designed around our Microcellular
Architecture, a distributed wireless network designed to support the unique
needs of mobile computing. Comprised of intelligent access points, repeaters,
bridges and a wide variety of client adapters, our Microcellular Architecture
provides a radio frequency coverage area throughout a building or campus
environment, in which portable computer users can move freely while maintaining
a seamless connection to the enterprise network and Internet. Special features
supporting mobile computing include seamless roaming, advanced power management,
mobile IP addressing and dynamic load balancing.
Adherence to Standards. Our primary wireless LAN products are designed to
comply with the IEEE 802.11 wireless LAN standard, as well as other industry
standard networking hardware and software interfaces. By adhering to industry
standards, we can provide our customers with products designed to interoperate
with other standards-based products. We are actively involved in standards
setting organizations and are participating in the effort to formulate future
additions to the IEEE 802.11 standard.
Ease of Use. We support major network operating systems, standard software
and hardware interfaces and network protocols, such as TCP/IP, allowing our
products to be integrated easily into existing network and Internet
infrastructures. Our wireless LAN adapters are designed with industry standard
hardware and software interfaces for ease of installation and use. Network
managers can install our plug-and-play wireless solutions to extend,
re-configure or re-deploy existing networks rapidly and economically. Our
network management software suite utilizes standard web-browsers, which allow
users to adjust client configurations, perform diagnostics and monitor wireless
network performance. In addition, network administrators can use their existing
enterprise network management tools to manage their Aironet wireless
infrastructure.
Comprehensive Solutions. We offer comprehensive solutions to our customers
through a broad product portfolio, which includes PC Cards, PCI and ISA network
interface cards, access points, bridges
38
<PAGE> 41
and network management and driver software. We develop and sell wireless LAN
product families with either the Frequency Hopping or Direct Sequence spread
spectrum radio technologies specified in the IEEE 802.11 standard. As a result,
we can provide the most appropriate solutions to our customers based on their
environments and applications.
Lower Costs of Ownership. With the introduction of our high speed 4800
Turbo DS wireless LAN solution, our customers benefit from a substantial
price/performance improvement compared to earlier generations of our wireless
LAN products. In addition, this price/performance improvement makes our high
speed wireless LAN solution a compelling alternative for a growing base of
traditionally wired network applications. Our solutions also can provide total
cost savings over time compared to wired alternatives in environments where
network connections are frequently relocated.
STRATEGY
Our objective is to become the dominant worldwide developer and provider of
high speed wireless LAN products. We intend to achieve our objective by
implementing the following strategies:
Leverage Our Technology Leadership. We believe our Microcellular
Architecture, MAC chip and 2.4 GHz spread spectrum radio technologies provide us
with significant competitive advantages. As a result of these technologies, we
are the first company to provide 11 Mbps of bandwidth packaged in a single-piece
PC Card and operating in the unlicensed 2.4 GHz radio frequency band, enabling
users to maintain a wireless Ethernet-like connection anywhere throughout a
building or around a campus. We intend to devote substantial research and
development resources to maintain our technology leadership in the areas of
speed, throughput, range and network management software.
Strengthen Brand Awareness. We believe there are significant opportunities
to strengthen brand awareness of our products. We will continue to promote the
Aironet brand as synonymous with high speed, cost-effective wireless LAN
products that are standards-based, easily deployable and highly reliable. We
intend to strengthen brand awareness for our products through marketing
programs, trade advertising, participation in trade shows and public relations
activities. We believe that through building our brand, we can achieve increased
product acceptance, enhanced customer loyalty and sales growth.
Deliver Standards Based Solutions. We believe that the IEEE 802.11 wireless
LAN standard is a significant driver in the growth of the wireless LAN market.
We actively participate in workgroups that define other wireless network
standards to influence the direction of these standards. We believe that
widespread acceptance of industry standards leads to broader market penetration
through improved ease of use, reduced market risk and lower product costs. We
intend to continue to invest in developing standards-based solutions across our
product lines.
Expand Channel Distribution. To better capitalize on market opportunities,
we intend to strengthen relationships with existing channel partners and add new
channel partners, both in domestic and international markets. We currently
market our products through an indirect channel of distributors, resellers and
OEMs. We believe that marketing our products through channel partners enables us
to rapidly penetrate our target markets and gain market share, while limiting
our sales, marketing and distribution costs. In addition, we are committed to
providing a high level of channel partner support and training.
WIRELESS LANS
Wireless LANs use radio frequency and data communication technologies to
provide wireless network connectivity and Internet access to personal computer
users within a building or campus
39
<PAGE> 42
environment. Our primary wireless LAN products use our high performance 2.4 GHz
spread spectrum radio and MAC chip technologies to transmit and receive data
over the airwaves.
NETWORK CONFIGURATIONS
Our wireless LANs provide the functionality of wired LANs and can be
implemented as stand alone, peer-to-peer networks or as extensions to existing
wired enterprise networks. Our wireless LAN products allow users to install or
re-deploy PCs, handheld devices and peripherals anywhere in-building or on
campus.
The simplest wireless LAN
configuration is a peer-to-peer
network in which PCs, peripherals
and communication devices
communicate with each other
through wireless client adapters.
Our client adapters include PC
Cards for portable computers such
as notebooks and handheld
computers and ISA or PCI network
interface cards for desktop and
server PCs. These flexible
peer-to-peer networks require
little administration and
accommodate a variety of
temporary or full-time workgroup
configurations. Our peer-to-peer
wireless LANs can support many applications in the small office/home office
environment, such as multiple users sharing files, printers and Internet access.
INTERNET GRAPHIC
A more complex configuration is the wireless extension of an existing wired
enterprise network. In this type of configuration, physical connections to wired
Ethernet or Token Ring networks are provided by access points, which function as
links between the wired and wireless networks. These configurations provide
users wireless access to the network through client adapters which communicate
with access points. Any wireless client adapter within range of an access point
can communicate with any other wireless client adapter or any of the resources
available on the enterprise network.
40
<PAGE> 43
Each access point provides a wireless coverage area called a microcell. In
an enterprise networking environment, wireless installations may have multiple
access points installed throughout the premises to provide continuous coverage
so that the entire facility is wirelessly enabled. When multiple Aironet access
points are used in the same system, mobile clients may "roam" freely throughout
the wireless RF coverage area with access points transparently managing the
hand-offs between microcells.
DEVICE GRAPHIC
IEEE 802.11 WIRELESS LAN STANDARD
We believe that the IEEE 802.11 wireless LAN standard is a significant
driver in the development of the wireless networking market. The IEEE 802.11
standard was ratified in June 1997 and was the first internationally recognized
standard for wireless LANs. This standard specifies a single medium access
control protocol and two types of 2.4 GHz spread spectrum radios, Direct
Sequence and Frequency Hopping, operating at data rates of 1 or 2 Mbps.
Similar to the IEEE 802.3 or Ethernet standard and IEEE 802.5 or Token Ring
standard, the IEEE 802.11 wireless LAN standard provides a framework for
interoperability and quality, enabling customers to mix equipment from different
vendors in a single wireless network. We believe that widespread acceptance of
industry standards leads to broader market penetration through improved ease of
use, reduced market risk and lower product costs.
The IEEE 802.11 wireless LAN organization is now working on higher speed
extensions to the IEEE 802.11 standard. The new High Rate Direct Sequence
standard, IEEE 802.11b, currently pending ratification, specifies data rates of
5.5 and 11 Mbps, in addition to the originally specified 1 and 2 Mbps, and
operation in the unlicensed 2.4 GHz band using a Direct Sequence spread spectrum
radio. In December 1998, we began shipping our 4800 Turbo DS series, which is
designed to comply with the proposed IEEE 802.11b standard and features an 11
Mbps data rate.
AIRONET TECHNOLOGY
We are dedicated to developing leading technology solutions for the
wireless networking market. Our technology leadership can be attributed to our
Microcellular Architecture, proprietary MAC chip, high performance 2.4 GHz
spread spectrum radios and networking software.
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<PAGE> 44
AIRONET MICROCELLULAR ARCHITECTURE
Each of our product families is designed around our Microcellular
Architecture, a distributed wireless network designed to support the unique
requirements of mobile computing, including value added features and services
that operate in conjunction with the IEEE 802.11 standard. This architecture
defines how wireless client adapters and access points interact to deliver
continuous network connections to mobile users and transparently integrates the
wireless LAN into existing enterprise networks.
Our Microcellular Architecture includes several important capabilities that
support a complex enterprise network infrastructure, including:
- Roaming. Our patented access point hand-off protocol enables mobile
clients to remain seamlessly and reliably connected to the network as
they move freely within a building or around a campus.
- Power Management. Our wireless PC Card client adapters are designed
specifically for battery-powered portable computers and allow a wireless
client to operate in a low-power mode to conserve battery life, while
maintaining a continuous connection to the network.
- Load Balancing. Our wireless client adapters include an algorithm to
identify the access point with the least load and to distribute network
bandwidth across multiple overlapping access points, thereby optimizing
network performance.
- Wireless Repeater. Our access points can be configured to communicate
wirelessly with other access points, further extending the radio
frequency coverage of the wireless network.
- Scalability. Multiple access points can be deployed to operate
simultaneously in overlapping coverage areas thereby increasing aggregate
network capacity.
- Wireless Bridging. Our building-to-building bridges can be configured to
operate as access points and wireless repeaters. This makes it possible
to connect remote sites into a single wireless network, enabling a user
to roam between buildings in a campus environment.
- Fault Tolerance. Our access points provide a redundant wireless backbone
by automatically identifying malfunctioning network links, removing
faulty links from the system and re-routing traffic to properly
functioning links.
MAC CHIP TECHNOLOGY
Our proprietary MAC chip is a custom Reduced Instruction Set Computer, or a
custom RISC protocol processor, that is optimized for high speed wireless packet
communications. This MAC chip controls the IEEE 802.11 protocol, our spread
spectrum radios and our host bus interfaces. It has separate hardware contexts
to support the real time processing of prioritized tasks within the protocol.
Our MAC chip architecture provides a faster interrupt response time than a
traditional microprocessor controller and is optimized for the real time
requirements of a wireless MAC protocol. The MAC chip architecture enables
changes that would normally require hardware implementation to be handled in
firmware. In addition, this architecture allows our MAC chip to run at lower
clock rates, improving power efficiency. By controlling the solution at this
level, we have the ability to implement value-added features in our wireless
client adapters. In addition, the power and programmability of our MAC chip
enables us to integrate a high level of functionality in the client adapter
resulting in higher throughput, greater driver efficiency and improved overall
performance.
SPREAD SPECTRUM RADIO TECHNOLOGY
We have been designing high performance 2.4 GHz spread spectrum radios
since 1993. We were one of the first wireless LAN vendors to ship 2.4 GHz Direct
Sequence spread spectrum products in 1994, and we began shipping Frequency
Hopping spread spectrum products in the 2.4 GHz band in 1996. We continue to
design both Frequency Hopping and Direct Sequence spread spectrum products. In
March 1998, we received FCC approval for 11 Mbps Direct Sequence products
operating in the
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unlicensed 2.4 GHz band. In February 1999, we were the first to receive FCC
approval for 11 Mbps products using complimentary code keying modulation, the
modulation technique in the proposed IEEE 802.11b High Rate Direct Sequence
extension to the IEEE 802.11 standard.
Our spread spectrum technology implements and meets or exceeds interference
rejection, receiver sensitivity and noise tolerance specifications of the IEEE
802.11 standard. That ensures improved range and robust wireless operation for
our products in today's increasingly RF populated environment.
We design our products for worldwide use and have radio testing and
qualification expertise that has resulted in timely radio approvals in over 60
countries around the world.
WIRELESS NETWORKING SOFTWARE
Access Point Software. We have developed extensive software for our access
points. This software includes network bridging, routing and management
functions based on the TCP/IP protocol stack. Our access points include an HTTP
server that allows a network manager to upgrade firmware and manage access
points using a standard web browser.
Network Device Drivers. We develop our network driver interface
specification, open datalink interface and packet driver software for a majority
of network protocols and operating systems. Operating system support includes
Microsoft Windows 95/98/NT, and Windows CE, DOS, Novell NetWare, Macintosh O/S,
Linux and other Unix variants. We have designed driver extensions that improve
the performance of wireless adapters in a Windows environment, and that support
our site survey, configuration and diagnostic utilities.
PRODUCTS
We offer comprehensive wireless LAN solutions to our customers through a
broad product portfolio including PC Cards, PCI and ISA network interface cards,
access points and network management and driver software.
ACCESS POINTS
Our access points act as intelligent links between wired and wireless
networks and manage the wireless client traffic in their coverage area. Our
access points simultaneously support multiple clients and provide wireless
coverage with a typical indoor range of 125 to 350 feet, depending on the
environment and application. Access points allow wireless clients to appear to
be the same as wired clients to everyone on the network.
Our access points use a store and forward technique to enable wireless
clients to maintain a continuous network connection as they roam from one access
point coverage area to another, while they are in a power saving mode and if
they temporarily move outside the coverage area. Our patented access point
hand-off protocol enables mobile clients to remain seamlessly and reliably
connected to the network as they move freely around a building or a campus. Our
access points store network traffic for clients when they are unreachable, such
as when a portable computer is in power saving mode or temporarily outside the
coverage area. In addition, our access points can be configured to act as
wireless repeaters, further extending the RF coverage area. Our access points
also make it possible to connect remote wireless bridged sites into a single,
seamless network, allowing clients to roam between buildings in a campus
environment.
Our access points support industry standards and are designed to be easily
integrated into existing networks. In addition to supporting the IEEE 802.11
standard, our access points support standard network protocols such as TCP/IP,
including dynamic host configuration protocol, for automatic IP address
acquisition and SNMP, for managing access points with existing enterprise
network management tools, such as Hewlett Packard OpenView. For more
comprehensive management, our access points include an HTTP server that allows a
network manager to upgrade firmware, configure access points, or
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monitor the wireless LAN infrastructure using standard web browsers. To reduce
downtime, our access points can provide fault tolerance through a redundant
wireless backbone which automatically identifies and re-routes traffic in the
event of a hardware failure.
WIRELESS LAN ADAPTERS
We offer a comprehensive portfolio of plug-and-play wireless LAN adapters
which are designed to be easily integrated into most PC platforms and use
standard hardware and software interfaces. Our wireless client adapters include
PC Cards (Type II) for portable and notebook computers, ISA and PCI network
interface cards for desktop and server PCs and external client adapters
supporting Ethernet or serial connections. We offer a full suite of device
drivers for industry standard computing environments such as Windows 95/98/NT,
Windows CE, Novell Netware, SCO Unix and Linux.
IEEE 802.11 WIRELESS LAN PRODUCT LINES
We offer three comprehensive product series designed to comply with the
IEEE 802.11 standard and operate in the unlicensed 2.4 GHz radio frequency band.
Our suggested retail prices for our primary products range from $495 to $725 for
client adapter cards and from $1,595 to $2,095 for access points.
<TABLE>
<CAPTION>
4800 TURBO DS SERIES 4500 SERIES 3500 SERIES
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
SPREAD SPECTRUM TYPE: Direct Sequence Direct Sequence Frequency Hopping
- ---------------------------------------------------------------------------------------------------
DATA RATES: 1, 2, 5.5 and 11 Mbps 1 and 2 Mbps 1 and 2 Mbps
- ---------------------------------------------------------------------------------------------------
INDOOR RANGES: 125' - 350' 250' - 350' 150' - 250'
- ---------------------------------------------------------------------------------------------------
ACCESS POINTS: Ethernet Ethernet and Token Ring Ethernet and Token Ring
- ---------------------------------------------------------------------------------------------------
CLIENT ADAPTER CARDS: PC Card, PCI and ISA PC Card, PCI and ISA PC Card, PCI and ISA
- ---------------------------------------------------------------------------------------------------
INTRODUCTION DATE: December 1998 June 1998 October 1997
- ---------------------------------------------------------------------------------------------------
</TABLE>
4800 Turbo DS Series. In December 1998, we became the first company to
introduce and ship high speed 11 Mbps wireless LAN products based on 2.4 GHz
Direct Sequence spread spectrum radio technology. Our 4800 Turbo DS series fully
complies with the IEEE 802.11 standard performing at data rates of 1 and 2 Mbps,
and is designed to conform to the proposed IEEE 802.11b High Rate Direct
Sequence extension to the IEEE 802.11 standard performing at data rates of 5.5
and 11 Mbps. The 4800 Turbo DS series includes an Ethernet access point
(AP4800-E) and a family of client adapters: PC Cards (PC4800 & LM4800), PCI card
(PCI4800), ISA card (ISA4800), Universal Client adapter (UC4800) and MultiClient
adapter (MC4800).
4500 Series. In June 1998, we introduced the 4500 series product that
operates at 1 and 2 Mbps and complies with the Direct Sequence specification of
the IEEE 802.11 standard. The 4500 series includes Ethernet and Token Ring
access points (AP4500-E & AP4500-T) and a family of client adapters: PC Cards
(PC4500 & LM4500), PCI card (PCI4500), ISA card (ISA4500), Universal Client
adapter (UC4500) and MultiClient adapter (MC4500).
3500 Series. In October 1997, we introduced the 3500 series that operates
at 1 and 2 Mbps and complies with the Frequency Hopping specification of the
IEEE 802.11 standard. The 3500 series includes Ethernet and Token Ring access
points (AP3500-E & AP3500-T) and a family of client adapters: PC Cards (PC3500 &
LM3500), PCI card (PCI3500), ISA card (ISA3500), Universal Client adapter
(UC3500) and MultiClient adapter (MC3500).
3000 Series. In July 1996, we introduced the 3000 series, our first
Frequency Hopping spread spectrum product line, which operates at a data rate of
1 Mbps in the unlicensed 2.4 GHz radio frequency band and is based on an early
draft of the IEEE 802.11 standard. The 3000 series includes
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our first fully integrated single-piece PCMCIA client adapter, as well as other
client adapters and access points. The 3000 series is currently offered on a
limited basis.
LEGACY WIRELESS LAN PRODUCT LINES
Prior to the introduction of our IEEE 802.11 based product lines, we
developed and marketed proprietary wireless LAN products, referred to as legacy
products, which operate in the 900 MHz and 2.4 GHz ISM radio frequency bands. We
have granted Telxon Corporation the right to manufacture these legacy product
lines under a royalty arrangement.
2000 Series. In July 1994, we began shipping the 2000 series, our first
product in the unlicensed 2.4 GHz band that operates at a maximum data rate of 2
Mbps. These products use our Direct Sequence spread spectrum radio technology
and proprietary open air protocol. The 2000 series includes access points and
various client adapters.
1000 Series. Our first products operated in the 900 MHz Industrial,
Scientific and Medical band at a maximum data rate of 860 Kbps. These products
use our Direct Sequence spread spectrum radio technology and proprietary open
air protocol. The 1000 series includes access points and various client
adapters.
WIRELESS BRIDGE PRODUCTS
Our wireless point-to-point or point-to-multipoint bridges connect networks
between locations, enabling separate networks to operate as a single network.
Our bridges provide broadband connectivity at data rates up to 11 Mbps over
line-of-sight distances measured in miles -- up to 15 miles at 11 Mbps and 25
miles at 2 Mbps. Our wireless bridges utilize Direct Sequence spread spectrum
radio technology, operate in the unlicensed 2.4 GHz band and are offered at our
suggested retail prices of $1,895 to $2,395.
WIRELESS BRIDGE GRAPHIC
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Our bridges provide a cost effective and flexible alternative to direct
cabled connections or dedicated telephone company lines. With throughput up to
the equivalent of five concurrent T1 lines, our wireless bridges achieve high
speed network connectivity at a fraction of the cost of a dedicated T1 line.
Wireless bridges are designed to interconnect networks in different buildings
and are well suited for campus settings. Our Internet Service Provider customers
use our wireless bridges to offer cost effective, high speed Internet access to
homes and businesses.
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SALES AND MARKETING
We sell our wireless LAN and bridge products in domestic and international
markets through an indirect channel of distributors, resellers and OEMs. Our
U.S. distributors include Business Partner Solutions, Inc., and we have recently
added Ingram Micro Inc. and Tech Data Corporation as U.S. distributors.
We actively promote end user demand for our products through a variety of
marketing programs, including trade advertising, participation in trade shows,
cooperative funding for promotional activities and public relations. We also
provide reseller development and product training programs to support our
channel. We have a field sales organization and an inside sales function that
support the sales efforts of our resellers and assist in responding to end user
inquiries.
We also sell our products to OEM customers for integration into their
wireless computing devices including handheld, pen-based and other portable
computers, as well as point-of-sale and other computing platforms. Our field
sales persons and support engineers sell our wireless LAN products to OEMS.
Internationally, we sell our products through distributors and resellers.
International sales comprised 15% of our total revenue in fiscal year 1998 and
30% in fiscal year 1999.
We have expanded our sales organization to meet the demands of our current
customers and generate new demand for our products. We believe that growth of
our indirect channels is necessary to remain competitive. We plan to continue
our strategy of strengthening our relationships with existing channel partners
and adding new channel partners, both in domestic and international markets. We
intend to continue recruiting and hiring experienced sales and marketing
personnel to support our growth. As of March 31, 1999, we had 28 full-time
employees in our sales and marketing organization.
CUSTOMERS
In fiscal year 1998, Telxon Corporation accounted for 55% of our total
revenues and was our only customer that accounted for more than 10% of our total
revenues. In fiscal year 1999, Telxon accounted for 37% of our total revenues
and two other customers each accounted for more than 10% of our total revenues.
Jepico, a Japanese distributor, represented 14% and Business Partner Solutions,
Inc., a U.S. distributor, represented 14% of our total revenues. Our four
largest non-affiliate customers represented approximately 60% of our
non-affiliate revenues, or 38% of total revenues, for fiscal year 1999. Although
Telxon was our largest customer, other customers may purchase more of any
particular product. We have diversified our customer base in recent fiscal
periods and expect diversification to continue. Nevertheless, we expect that a
significant portion of our future revenues will continue to be generated from
sales and licensing royalties from Telxon. The loss of Telxon as a customer, or
any substantial reduction in orders by Telxon, including reductions resulting in
the event of a negative outcome of issues related to one or more of Telxon's
refinancing requirements, losses, pending stockholder litigation and pending SEC
investigation, would materially and adversely affect our operating results.
BACKLOG
We generally do not maintain a significant backlog. Product shipments are
generally made within four weeks after receipt of orders, although some OEM
customers submit orders for scheduled deliveries over a longer period. Orders
may be canceled or rescheduled without penalty outside of applicable minimum
periods. For these reasons, management believes backlog is not necessarily an
indication of future revenues.
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RESEARCH AND DEVELOPMENT
We invest significant resources in research and development. In general, we
have invested in new product development, major enhancements to our existing
products and cost reduction of products and manufacturing through product
engineering. A significant portion of our research and development efforts have
been focused on the development of IEEE 802.11 compliant wireless LAN products,
and development of our 4800 Turbo DS series of products which conform with the
proposed IEEE 802.11b standard for high speed wireless networks.
We direct research and development efforts to develop and/or enhance:
- high performance 2.4 GHz Direct Sequence and Frequency Hopping spread
spectrum radios;
- proprietary ASICs, including our MAC processor and RF modem chips;
- wireless packet communication protocols; and
- network management and device driver software.
We believe that timely deployment of new and enhanced products and
technology are necessary to remain competitive in the marketplace. Accordingly,
we intend to continue recruiting and hiring experienced research and development
personnel. Our research and development expenses were $5.3 million in fiscal
year 1997, $5.7 million in fiscal year 1998, and $6.6 million in fiscal year
1999. As of March 31, 1999, our research and development department consisted of
50 full-time employees.
MANUFACTURING AND SUPPLIERS
We outsource manufacturing of our PC Card adapters and assembled printed
circuit boards to contract manufacturers. In order to reduce product costs, we
currently anticipate that manufacture of selected PC Card adapters and assembled
printed circuit boards will be moved to a contract manufacturer with facilities
located in Asia. Final assembly, configuration, test, quality assurance,
packaging and shipping are performed at our assembly facility in Akron, Ohio.
We have invested significant resources to develop quality control systems.
We can remotely access production information from our factories on a real time
basis, and we have developed proprietary automatic testing equipment for PC Card
adapters in order to reduce the dependency on skilled labor in the quality
assurance process and to increase testing capacity. Our products undergo
automated testing, comprehensive quality audits and functional testing to ensure
quality and reliability. Further, our contract manufacturers are ISO 9002
certified, and we are currently pursuing ISO 9002 certification.
Our products incorporate critical components which we acquire from single
sources. Our proprietary MAC chip is manufactured exclusively for us by Atmel
Corporation. The MAC chip controls the implementation of the IEEE 802.11
protocol between the RF media and both the user's computer and the network.
M/A-COM and Raytheon Company supply us with microwave communications power
amplifiers. Hewlett-Packard Company supplies us with up/down converter and IF
modulator/demodulator chips. Harris Semiconductor supplies us with baseband and
IQ modulator/demodulator chips. Finally, Sawtek, Inc. supplies us with surface
acoustic wave components. Although we have been informed by some of these
suppliers that they have redundant manufacturing facilities, there is no
assurance that they will be able to manufacture or provide these components in a
timely way. Should any supply disruption occur, we may not be able to develop an
alternative source for these components.
We have experienced limited delays and shortages in the supply of other
less critical components in the past and could experience delays and shortages
in the future. We generally do not maintain an inventory of components and do
not have long-term supply contracts with our suppliers. If our suppliers
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<PAGE> 51
are unable to deliver or ration components to us, we could experience
interruptions and delays in manufacturing and sales which could result in
cancellation of orders for our products or the need to modify our products. This
may cause substantial delays in our product shipments, increased manufacturing
costs and increased product prices. Further, we may not be able to develop
alternative sources for these components in a timely way, if at all, and may not
be able to modify our products to accommodate alternative components. These
factors could damage our relationships with current and prospective customers
lasting longer than any underlying shortage or discontinuance. Any of these
risks, if realized, could materially and adversely affect our business,
operating results and financial condition.
COMPETITION
Within the wireless networking industry, business is intensely competitive
and is characterized by rapid technological change, frequent new product
development and evolving industry standards. We believe that the principal
competitive factors in this market include:
- expertise and familiarity with 2.4 GHz spread spectrum technology,
wireless data communication protocols and LAN technology;
- product performance, features, functionality and reliability;
- price/performance characteristics;
- timeliness of new product introductions;
- adoption of emerging industry standards;
- customer service and support;
- size and scope of distribution network; and
- brand name.
While we believe that our products are competitive with respect to these
factors, there can be no assurance that we will be able to successfully compete
as to these or other factors or that competitive pressures we face will not
materially and adversely affect our business and operating results. We also
cannot assure you that these factors will not change and, if so, whether we will
be able to successfully compete.
Currently, within the wireless networking industry our primary competitors
are Lucent Technologies, Proxim, and BreezeCom. We also experience competition
from a number of smaller companies who provide wireless data communication
products, and we may encounter future competition from other companies, both
that have and have not announced their intentions to offer competitive products
and solutions. In addition, we could encounter future competition from companies
that offer products that replace network adapters or alternative wireless data
communication solutions, or from larger computer and networking equipment
companies. We also face competition from our OEM customers who have, or could
acquire, their own wireless data communications research and development
capabilities.
Many of our current and potential competitors have significantly greater
financial, marketing, technical and other resources than we have and, as a
result, may be able to respond more quickly to new or emerging technologies or
standards and to changes in customer requirements, or to devote greater
resources to the development, promotion and sale of products, or to deliver
competitive products at a lower end user price. Current and potential
competitors have established or may establish cooperative relationships among
themselves or with third parties to increase the ability of their products to
address the needs of our existing and prospective customers. Accordingly, it is
possible that new competitors or alliances among competitors may emerge and
rapidly acquire significant market share.
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Increased competition is likely to result in price reductions, reduced operating
margins and loss of market share, any of which could have a material adverse
effect on our business and operating results.
GOVERNMENT REGULATION
Our products are generally regulated by governmental agencies both in the
United States and abroad. To reduce costs, we have designed our products to
minimize the modifications required to meet various international regulations.
United States. In the United States, our products are subject to FCC
regulations. Our products have been certified for unlicensed operation in the
2.4-2.4835 GHz and 920-928 MHz Industrial, Scientific and Medical radio
frequency bands. Our products comply with Part 15 of the current FCC
regulations. For products which meet specific technical requirements, Part 15
permits license-free operation of radio devices in the 902-928 MHz and
2.4-2.4835 GHz radio frequency bands. The Part 15 regulations are designed to
minimize the probability of interference among users of those frequency bands.
These frequencies are also used by other devices which have priority over users
of our products including:
- devices which produce heat rather than for communication and which
comply with FCC Part 18 regulations;
- United States government operated devices, such as naval radar;
- automatic vehicle monitoring devices operated under FCC Part 90
regulations; and
- amateur radio devices operated under FCC Part 97.
In the event of interference between a primary user in those bands and a
user of our products, the primary user can require a user of our products to
curtail transmissions that create interference. Although we have received no
reports that our products have caused interference with primary users in the
Industrial, Scientific and Medical bands, we cannot assure you that we will not
have problems in the future and, if we do, these could cause material adverse
effects on our business and results of operations.
Foreign Regulation. In foreign countries our products are also regulated by
government agencies under their local rules and regulations. We have obtained
certifications or approval for unlicensed use of our products in over 60 foreign
countries, including those which rely on or reference certification requirements
of regulatory bodies such as the FCC and the European Telecommunications
Standards Institute. Our products (including when they are designed into an OEM
product) must be certified or otherwise qualified for use in each country where
they will be sold. We cannot assure you that we will be able to comply with the
regulations of any particular country.
INTELLECTUAL PROPERTY
We rely on a combination of patents, copyrights, trademarks, trade secrets
and non-disclosure agreements to protect our proprietary rights. We generally
execute confidentiality and non-disclosure agreements with our employees and
with key vendors and suppliers. These efforts allow us to rely upon the
knowledge and experience of our management and technical personnel and our
ability to market our existing products and to develop new products. The
departure of any of our management and technical personnel, the breach of their
confidentiality and non-disclosure obligations to us or the failure to achieve
our intellectual property objectives may have a material adverse effect on our
business, financial condition and results of operations.
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Currently, we have 4 United States patents issued and 20 United States and
6 foreign patent applications pending. Our wholly owned Canadian subsidiary has
5 United States patents issued, including the patent which relates to the
roaming feature of our microcellular technology, and 7 foreign issued patents
and 1 foreign patent application pending. There can be no assurance that any new
patents will be issued, that we will continue to develop proprietary products or
technologies that are patentable, that any issued patent will provide us with
any competitive advantages or will not be challenged by third parties, or that
the patents of others will not have a material adverse effect on our business
and operating results.
Our ability to compete successfully and achieve future revenues growth will
depend, in part, on our ability to protect our proprietary technology and
operate without infringing upon the rights of others. There can be no assurance
that these measures will successfully protect our intellectual property or that
our intellectual or proprietary technology will not otherwise become known or be
independently developed by competitors. In addition, the laws of various
countries in which our products are or may be sold may not protect our products
and intellectual property rights to the same extent as the laws of the United
States. Our inability to protect our intellectual property and proprietary
technology could have a material adverse effect on our business, financial
condition and results of operations. As the number of patents, copyrights and
other intellectual property rights in the wireless network industry increases,
and as the coverage of these rights and the functionality of the products in the
market further overlap, wireless network companies may increasingly become
subject of infringement claims. In the future, we may be notified that we are
infringing patent or other intellectual property rights of others. Although
there are no pending or threatened intellectual property lawsuits against us, we
may become the subject of litigation or infringement claims in the future. Any
of these potential claims could result in substantial costs and diversion of
resources and could have a material adverse effect on our business, results of
operations and financial condition.
EMPLOYEES
As of March 31, 1999, we had 118 full-time employees and 2 temporary
employees, including 50 in research and development, 28 in sales, marketing and
customer support, 28 in manufacturing and service and 12 in finance and
administration. None of our employees are represented by a union. We believe
that our relations with employees are good.
HEADQUARTERS
Our headquarters are in Akron, Ohio, where we lease space in two separate
buildings. Our principal administrative, sales, marketing and engineering
facilities occupy approximately 34,000 square feet under a sublease from Telxon
that expires February 28, 2001. We may terminate the sublease simultaneously
with a termination by Telxon of the lease for our assembly and service
facilities. Our assembly and service facilities occupy approximately 33,000
square feet under a lease from Telxon that expires February 28, 2001. Telxon has
the right to terminate the lease on 12 months written notice. We believe that
our current facilities will be adequate to meet our needs for the foreseeable
future.
LEGAL PROCEEDINGS
We are not aware of any material legal proceedings to which we are a party
and which would have a material adverse effect on our business, financial
condition or results of operations.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
Our executive officers, directors and key employees are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Roger J. Murphy, Jr.................. 39 President, Chief Executive Officer and Director
Ronald B. Willis..................... 42 Senior Vice President, Sales and Marketing
Donald I. Sloan...................... 46 Senior Vice President, Engineering
Richard G. Holmes.................... 52 Senior Vice President and Chief Financial Officer
Harvey A. Ikeman..................... 50 Vice President, Manufacturing
Eric S. Erickson..................... 36 Vice President, Marketing
Philip H. Belanger................... 44 Vice President, Technical Marketing
William J. Brodnick.................. 39 Vice President, Finance and Treasurer
James H. Furneaux.................... 55 Director and Chairman of the Board
Samuel F. McKay...................... 59 Director
John W. Paxton, Sr................... 62 Director
</TABLE>
ROGER J. MURPHY, JR. joined Aironet in March 1994 as Chief Operating
Officer. In February 1995, he was appointed President and Chief Operating
Officer and in September 1995 was appointed President and Chief Executive
Officer. From January 1990 to February 1994, Mr. Murphy served in various
executive capacities at Telxon Corporation, most recently as Vice President of
Corporate Development. Mr. Murphy holds a B.S. in Business Management from
Babson College. Mr. Murphy is one of our executive officers.
RONALD B. WILLIS joined Aironet in September 1998 as Senior Vice President,
Sales and Marketing. From July 1984 to August 1998, Mr. Willis worked at Digital
Equipment Corporation, where he held several sales and marketing management
positions, most recently as Vice President, Marketing, North America for the
North American Personal Systems Group. Mr. Willis holds a B.A. in Marketing from
Brigham Young University. Mr. Willis is one of our executive officers.
DONALD I. SLOAN joined Aironet in April 1994 as Vice President, Engineering
and in January 1995 was appointed Senior Vice President, Engineering. From
September 1988 to March 1994, Mr. Sloan worked for Telxon Corporation, where he
held several engineering management positions, most recently as Vice President
of RF Systems. From July 1976 to August 1988, Mr. Sloan worked for Motorola,
Inc., most recently as Senior Staff Electrical Engineer. Mr. Sloan holds a M.S.
in Electrical Engineering from Illinois Institute of Technology and a B.S. in
Electrical Engineering from Youngstown State University. Mr. Sloan is one of our
executive officers.
RICHARD G. HOLMES joined Aironet in January 1999 as Senior Vice President
and Chief Financial Officer. From November 1997 to August 1998, Mr. Holmes
worked for Community Corrections Corporation as its Chief Financial Officer and
Vice President. From July 1995 to September 1997, Mr. Holmes worked for
Submicron Systems Corporation as its Chief Financial Officer, Treasurer and
Corporate Secretary. From July 1987 to July 1994, Mr. Holmes worked for Celgene
Corporation as Vice President Finance/Chief Financial Officer, Corporate
Secretary and Treasurer. Mr. Holmes has an M.B.A. from Harvard University
Graduate School of Business and a B.S.I.E. from Lehigh University. Mr. Holmes is
one of our executive officers.
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HARVEY A. IKEMAN joined Aironet in January 1997 as Vice President,
Manufacturing. From August 1993 to December 1996, Mr. Ikeman served as Vice
President, Manufacturing of Aironet Canada Limited, a wholly owned indirect
subsidiary of Aironet. At that time, Aironet Canada Limited was named
Telesystems SLW Inc. From February 1988 to July 1994, Mr. Ikeman served as
Director of Operations at Telesystems SLW Inc. Mr. Ikeman holds a B.S. in
Electrical Engineering from McGill University. Mr. Ikeman is one of our
executive officers.
ERIC S. ERICKSON joined Aironet in January 1999 as Vice President,
Marketing. From February 1991 to December 1998, Mr. Erickson worked at Pinacor,
Inc., a wholly owned subsidiary of MicroAge, Inc., where he held several
marketing management positions, most recently as Vice President, Product
Marketing for its Enterprise Technologies Group. Mr. Erickson attended Kansas
State University. Mr. Erickson is one of our key employees.
PHILIP H. BELANGER joined Aironet in January 1996 as Vice President,
Wireless Systems and in January 1999 was appointed Vice President, Technical
Marketing. From March 1992 to December 1995, Mr. Belanger worked at Xircom,
Inc., most recently as Vice President of Wireless Development. Mr. Belanger
attended the University of California, Berkeley. Mr. Belanger is one of our key
employees.
WILLIAM J. BRODNICK joined Aironet in June 1996 as Vice President, Finance
and Treasurer. From June 1987 to May 1996, Mr. Brodnick worked at
Pioneer-Standard Electronics, Inc. as Assistant Controller and Controller of
Accounting and Finance. Mr. Brodnick holds a B.A. in Accounting from Cleveland
State University and is a licensed C.P.A. Mr. Brodnick is one of our key
employees.
JAMES H. FURNEAUX became a member of the Board of Directors in July 1996.
Since January 1995, Mr. Furneaux has been President of Furneaux & Company, LLC,
a venture investment and advisory services firm. From August 1992 to January
1995, Mr. Furneaux was Chief Executive Officer of Chrysalis Symbolic Design
Incorporated, an electronics design automation software company of which he was
co-founder. Mr. Furneaux is Chairman of Chrysalis-ITS, Inc., and a member of the
Boards of Clam Associates, Inc. and Intersense, Inc. Mr. Furneaux holds a B.A.
from Northeastern University and an M.B.A. from the Amos Tuck School of Business
Administration, Dartmouth College.
SAMUEL F. MCKAY became a member of the Board of Directors in March 1998.
Since April 1994, Mr. McKay has been a general partner of the Axiom Venture
Partners family of venture investment funds and Chief Executive Officer of Axiom
Venture Associates. From 1987 until 1997, Mr. McKay managed Connecticut Seed
Ventures, a venture capital fund. Mr. McKay is a member of the Boards of
Directors of Anika Therapeutics, Inc., Open Solutions, Inc., CareCentric
Solutions, Inc. and Sabre Communications, Inc. Mr. McKay holds a B.A. in Physics
and an M.B.A. in Finance from the University of New Hampshire.
JOHN W. PAXTON, SR. became a member of the Board of Directors in April
1999. Since March 1999, Mr. Paxton has served as Chief Executive Officer of
Telxon Corporation and serves on Telxon's Board of Directors as Chairman of the
Board. He was also President of Telxon from March 1999 until that title was
assumed by Telxon's new Chief Operating Officer upon his hire in June 1999. From
December 1998 until March 1999, Mr. Paxton was Chairman of Odyssey Industrial
Technologies L.L.C., a joint venture with Odyssey Investment Partners, a private
equity fund. From March 1997 until November 1998, Mr. Paxton was Executive Vice
President of Paxar Corporation and, upon its formation in June 1998, President
of Paxar's Printing Solutions Group. He was President and Chief Executive
Officer of Monarch Marking Systems, Inc. from October 1995 until Paxar combined
newly acquired operations with its existing Monarch operations to form the Paxar
Printing Solutions Group. From March 1994 until October 1995, Mr. Paxton was
Corporate Executive Vice President and Chief Operating Officer of The Industrial
Automation Systems Group of Western Atlas Inc. Mr. Paxton is a
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<PAGE> 56
member of the Board of Directors of TransDigm, Inc. Mr. Paxton holds a B.S. and
M.S. in Business Administration from LaSalle University.
BOARD COMMITTEES
Audit Committee. Currently, the Audit Committee consists of Messrs.
Furneaux and McKay. The Audit Committee meets with management and our
independent accountants to determine the adequacy of our internal controls and
financial reporting, recommends to the full Board the appointment of the
independent accountants and reviews our long-term financial plans and makes
recommendations to the full Board for approval and to authorize action. Prior to
April 1999, the functions of the Audit Committee were administered by the full
Board of Directors.
Compensation Committee. Currently, the Compensation Committee consists of
Messrs. Furneaux and McKay. The Compensation Committee reviews and makes
decisions regarding our compensation policies, and the amounts and forms of
compensation to be provided to executive officers, which generally include
annual salaries and bonuses, equity awards and other incentive compensation
arrangements. As part of the foregoing, the Compensation Committee administers
our various employee equity compensation plans. Prior to April 1999, the
functions of the Compensation Committee were administered by the full Board of
Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of our executive officers serves as a member of the Board of Directors
or the compensation committee of any other company that has one or more of its
executive officers serving as a member of our Board of Directors or Compensation
Committee. None of our employees or current or former officers are members of
our Compensation Committee.
Our Compensation Committee consists of Messrs. Furneaux and McKay. Mr.
McKay is a general partner of Axiom General Partners II Limited Partnership. In
March 1998, and again in May 1998, Axiom purchased an aggregate of 857,142 units
each comprised of one share of our common stock and warrants to purchase three
tenths of one share of our common stock at $3.50 each for an aggregate
consideration of approximately $3 million. As a result of this transaction, Mr.
McKay beneficially owns more than 5% of our outstanding shares. Mr. Furneaux is
the managing member of Furneaux & Company, LLC. In March 1998, we paid Furneaux
& Company a fee of $125,000 in cash and warrants to purchase 100,000 shares of
our common stock at $3.50 each for business and advisory services.
DIRECTOR COMPENSATION
Our non-employee Directors receive an annual director's fee of $12,000 and
are awarded stock options under our 1999 Stock Option Plan For Non-Employee
Directors. Directors who are employees receive no additional compensation for
their services as Directors. We reimburse Directors for all reasonable and
documented expenses incurred as a Director.
The Non-Employee Director Option Plan was adopted and approved by our
Directors in April 1999. Only non-employee Directors are eligible grantees.
Options to purchase 25,000 shares are granted upon a grantee's initial election
to the Board which vest annually in one-third increments beginning one year from
the grant date, and options to purchase 5,000 shares are granted automatically
at the beginning of each year thereafter while the grantee serves on the Board
which vest if the grantee continues to serve on the Board three years after the
grant date. Additional options may be granted within the discretion of the
Board. The plan is administered by the Board's Compensation Committee, except
for the provisions which deal with discretionary grants which are administered
by the entire Board of Directors. 250,000 shares may be issued upon the exercise
of options granted under the plan,
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<PAGE> 57
subject to adjustment. Each option is priced at the fair market value of our
common stock at the time the option is granted. The options have a term of up to
ten years. Upon specific change in control or sale of the company transactions,
optionees have special vesting and exercise rights.
EXECUTIVE COMPENSATION
The following table shows compensation that we have paid or accrued for the
fiscal years indicated for our Chief Executive Officer and for our four
executive officers who received the highest combined salary and bonus
compensation during fiscal year 1999. Since Mr. Willis joined Aironet in August
1998 and Mr. Holmes joined Aironet in January 1999, their respective salary
information is presented on an annualized basis and does not reflect
compensation actually paid or accrued during fiscal year 1999. The amounts
included in the all other compensation column consists of amounts paid by
Aironet to the named executive officer's account in Telxon Corporation's 401(k)
Plan.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL ------------
COMPENSATION AWARDS
---------------------- ------------
FISCAL YEAR SECURITIES
ENDED UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION MARCH 31, SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)
- --------------------------- ----------- --------- --------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Roger J. Murphy, Jr......... 1999... $200,000 $100,000 -- $5,000
President and 1998 200,000 75,000 -- 2,875
Chief Executive Officer 1997 210,000 75,000 240,000 7,202
Ronald B. Willis............ 1999 160,000 10,000 100,000 --
Senior Vice President, 1998 -- -- -- --
Sales and Marketing 1997 -- -- -- --
Donald I. Sloan............. 1999 163,000 35,000 25,000 5,081
Senior Vice President, 1998 150,000 27,500 -- 4,750
Engineering 1997 145,000 22,500 70,000 4,787
Richard G. Holmes........... 1999 150,000 -- 100,000 --
Senior Vice President, 1998 -- -- -- --
Chief Financial Officer 1997 -- -- -- --
Harvey A. Ikeman............ 1999 143,000 30,000 25,000 3,495
Vice President, 1998 135,000 25,000 -- 1,688
Manufacturing 1997 21,000 20,250 60,000 --
</TABLE>
OPTION GRANTS IN FISCAL YEAR 1999
The following table sets forth selected information regarding the number,
terms and potential realizable value of stock options of Aironet common stock
granted to the officers named in the Summary Compensation Table during fiscal
year 1999. In fiscal year 1999, we granted an aggregate of 505,000 options to
our employees. The exercise price is equal to the fair market value of our
common stock as valued by our Board of Directors on the date of grant. The Board
of Directors determined fair market value of options granted at $3.50 per share
based primarily on the price per share paid by investors at our March 31, 1998
private placement and our business and the market in general. Options with an
exercise price of $9 per share were valued primarily on the underwriters'
estimated filing range of the pricing this offering. The potential realizable
value is calculated based on the ten year term of the option at the time of
grant utilizing the assumed initial offering price of $10 per share as the
current fair market value. Stock price appreciation of 5% and 10% compounded
annually from the date an option is granted to its expiration date. These are
hypothetical gains determined pursuant to rules promulgated by
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<PAGE> 58
the Securities and Exchange Commission and does not represent our prediction of
our stock price performance. The actual gain, if any, on the exercise of a stock
option will depend on the future performance of our common stock, the optionee's
continued employment through the date on which the options are exercised and the
time at which the underlying shares are sold.
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM(2)
OPTIONS IN FISCAL PRICE ($) EXPIRATION -----------------------
NAME GRANTED YEAR PER SHARE DATE 5%($) 10%($)
- ---- ----------- ---------- ---------- ----------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Roger J. Murphy, Jr............ -- -- $ -- -- $ -- $ --
Ronald B. Willis............... 100,000 19.80 3.50 August 10, 2008 1,278,895 2,243,742
Donald I. Sloan................ 25,000 4.95 9.00 February 16, 2009 182,224 423,436
Richard G. Holmes.............. 100,000 19.80 9.00 February 16, 2009 728,895 1,693,742
Harvey A. Ikeman............... 25,000 4.95 9.00 February 16, 2009 182,224 423,436
</TABLE>
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1999
AND FISCAL YEAR 1999 YEAR-END OPTION VALUES
The following table sets forth selected information regarding the number
and value of stock options to purchase Aironet common stock held by the officers
named in the Summary Compensation Table at March 31, 1999. None of the named
officers exercised options in fiscal year 1999. The value of unexercised
in-the-money options at fiscal year end is based on the product of the assumed
initial public offering price of $10 per share minus the exercise price and the
number of shares underlying the option.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FISCAL YEAR END FISCAL YEAR END($)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Roger J. Murphy, Jr.............................. 100,000 -- $814,000 $ --
Ronald B. Willis................................. -- 100,000 -- 650,000
Donald I. Sloan.................................. 76,667 48,333 624,069 214,931
Richard G. Holmes................................ -- 100,000 -- 100,000
Harvey A. Ikeman................................. 55,000 45,000 447,700 187,800
</TABLE>
The following table sets forth selected information regarding the number
and value of stock options to purchase Telxon common stock held by the officers
named in the Summary Compensation Table at March 31, 1999. None of these options
were exercised during fiscal year 1999 and none of these options were
in-the-money at the fiscal year end.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED
OPTIONS AT FISCAL YEAR END
----------------------------
NAME EXERCISABLE UNEXERCISABLE
- ---- ----------- -------------
<S> <C> <C>
Roger J. Murphy, Jr......................................... 24,249 --
Ronald B. Willis............................................ -- --
Donald I. Sloan............................................. 18,666 --
Richard G. Holmes........................................... -- --
Harvey A. Ikeman............................................ 2,040 --
</TABLE>
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<PAGE> 59
EMPLOYMENT AGREEMENTS
Mr. Murphy serves as President and Chief Executive Officer pursuant to an
employment agreement which terminates October 31, 2000, at a base salary of
$200,000 per year. His employment agreement also provides for bonus compensation
for each fiscal year during the term as determined by the Board in its
discretion. Mr. Murphy or his estate is entitled under his employment agreement
to the same disability and death benefits as are extended by us to our executive
employees generally. If we terminate Mr. Murphy's employment for other than
cause, we are obligated to pay him a severance benefit of 12 months base salary.
A resignation by Mr. Murphy following an assignment of him to serve in any
capacity other than his current offices or to perform tasks inconsistent with
his position will be deemed a termination by us without cause entitling him to
the severance pay. Mr. Murphy is also entitled to the severance benefit if his
employment agreement expires without renewal or extension.
Mr. Willis serves as Senior Vice President, Sales and Marketing pursuant to
an employment agreement with no definite term, at a current base salary of
$160,000 per year. Mr. Willis received a grant of options to purchase 100,000
shares of our common stock in accordance with the terms of his agreement. His
employment agreement also provides for bonus compensation for each fiscal year
of up to $90,000 for meeting performance criteria determined by the Compensation
Committee. Mr. Willis is also entitled to participate in our employee benefit
plans.
Mr. Holmes serves as Senior Vice President and Chief Financial Officer
pursuant to an employment agreement with no definite term, at a current base
salary of $150,000 per year. Mr. Holmes received a grant of options to purchase
100,000 shares of our common stock in accordance with the terms of his
agreement. His employment agreement also provides for bonus compensation for
each fiscal year of up to $50,000 for meeting performance criteria determined by
the Compensation Committee, and during his first year of employment, Mr. Holmes
is guaranteed a minimum bonus of $25,000, $10,000 of which was paid within his
first month of employment. If we terminate Mr. Holmes' employment for other than
cause, we are obligated to pay him a severance benefit of six months base
salary. Mr. Holmes is also entitled to participate in our employee benefit
plans.
Mr. Ikeman serves as Vice President, Manufacturing pursuant to an
employment agreement with no definite term, at a current base salary of $142,000
per year. His employment agreement also provides for bonus compensation for each
fiscal year of up to 15% of his base salary for meeting performance criteria
determined by the Compensation Committee. Mr. Ikeman is also entitled to
participate in our employee benefit plans.
BENEFIT PLANS
1999 Omnibus Stock Incentive Plan. The 1999 Omnibus Stock Incentive Plan
was adopted and approved by our stockholders and Directors in April 1999. The
plan allows the granting of stock options, stock appreciation rights, restricted
stock and performance units. Any person serving us or our subsidiaries as an
employee or consultant, including officers and Directors who also are employees,
are eligible to receive these awards. The plan is administered by the
Compensation Committee of the Board of Directors. Grants are made within the
discretion of the Compensation Committee. 1,765,817 shares may be issued upon
the exercise of options and grant of restricted stock under the plan, and for
payment of stock appreciation rights and performance units. 500,000 stock
appreciation rights and 200,000 performance units may be awarded under the plan.
Equity based options and stock appreciation rights may not be priced at below
the fair market value of our common stock on the day prior to the day the award
is granted, and restricted stock must be priced at no less than par value.
Awards, other than performance units, have a term of up to ten years. Upon
specific change in control or sale of the company transactions, awardees have
special vesting and exercise rights. As of March 31, 1999, non-qualified options
to purchase 400,000 shares of our common stock were outstanding under the plan.
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<PAGE> 60
Aironet Wireless Communications, Inc. 1996 Stock Option Plan. The 1996
Stock Option Plan was originally adopted and approved by our Directors in July
1996 and by our stockholder in September 1996. The plan was amended and restated
in March 1998, and was further amended in March 1999. Any person employed by or
an independent contractor of us or our affiliates, including officers and
Directors, are eligible grantees. Options granted under the original plan could
be exercised immediately upon vesting. Options granted after the 1998 amendment
and before the 1999 amendment could be exercised only if vested and we had our
initial public offering or a change of control. The 1999 amendment allows all
vested options under the plan to be exercised no later than March 31, 2001. An
aggregate of 2,223,000 shares may be issued upon the exercise of options granted
under the plan, subject to adjustment. The options may not be priced at below
the fair market value of our common stock at the time the option is granted. The
options have a term of up to ten years. Upon specific change in control or sale
of the company transactions, optionees have special vesting and exercise rights.
As of March 31, 1999, non-qualified options to purchase 1,543,000 shares were
outstanding under the plan. The plan was terminated in April 1999; however, the
termination does not effect outstanding options.
1999 Employee Stock Purchase Plan. The 1999 Employee Stock Purchase Plan
was adopted and approved by our stockholders and Directors in April 1999,
subject to completion of this offering. The plan is administered by the Board's
Compensation Committee. 500,000 shares may be issued under the plan. Subject to
restrictions, some of our full-time and part-time employees and our
participating subsidiaries may participate in the plan. Employees contribute to
the plan through payroll deductions, which are accumulated until a fixed date,
at which time our shares are purchased at 85% of the lesser of the closing price
of the common stock on the first trading day of the period or the closing price
of the common stock on the last trading day of the period. It is our intention
to have our Employee Stock Purchase Plan qualify as an "employee stock purchase
plan" under Section 423 of the Internal Revenue Code.
401(k) Plan. From our incorporation until the effective date of this
offering, our employees were entitled to participate in Telxon Corporation's
401(k) plan. We anticipate adopting a 401(k) plan to be effective at or after
this offering.
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<PAGE> 61
CERTAIN TRANSACTIONS
ARRANGEMENTS WITH TELXON
Telxon is a selling stockholder in this offering and our largest customer.
Prior to this offering Telxon owned approximately 76% of our outstanding shares,
and after the offering will own approximately 39%. At March 31, 1998 we entered
into several agreements with Telxon in order to formalize Telxon's customer
relationship and to address issues related to Telxon's reduced ownership.
LICENSE, RIGHTS AND SUPPLY AGREEMENT
Prior to August 1998, Telxon purchased products from us on a purchase order
only basis, at agreed upon gross margins of approximately 25%, with an agreed
upon product warranty to Telxon of ninety days. After August 1998, Telxon began
to self manufacture our older legacy products on a royalty basis. This
arrangement was formalized in March 1998 in a License, Rights and Supply
Agreement. The agreement may not be terminated by either party, and may not be
assigned by either party without the consent of the other. Our revenues from
Telxon are earned under this agreement.
Royalties. From March 1998 until March 1999, Telxon paid royalties to us on
a per unit basis for access points software, client software and a related chip
set, radios, PC Cards, universal clients, and other legacy products and products
derived by Telxon from our legacy products. These per unit royalties were
previously subject to an annual cap of $7 million in fiscal year 1999, $6.5
million in fiscal year 2000, $5 million in fiscal year 2001 and $4 million in
each fiscal year thereafter. These caps on royalties were eliminated in March
1999 in an amendment to the agreement in which Telxon agreed to pay us a fixed
royalty for self manufactured legacy products of $11.5 million for the two year
period from April 1999 to March 2001. We will recognize these royalties ratably
over that period. Telxon's fixed royalty payments will total $6.5 million in
fiscal year 2000, will decline to $5 million in fiscal year 2001 and to $4
million thereafter. Beginning in fiscal year 2002, Telxon may elect to pay a per
unit royalty without caps, and if so then the per unit royalties paid on radios
used in access points will be eliminated, and the royalties paid on radios used
in non-access point applications will be reduced to 15%. Prior to the amendment
of the agreement in March 1999, the royalty rates would have been 15% and 25%,
respectively. Telxon is entitled to most favored treatment on its royalty
payments. Subject to certain conditions, Telxon's license to manufacture our
legacy products becomes fully paid after a change in control of Aironet. After
this offering, the change in control threshold is lowered from 50% to 20%. We
continue to sell a declining number of legacy products. Although we have a right
to grant other legacy product manufacturing licenses, we have not done so.
Products. In March 1998, Telxon began to purchase our new products under
the agreement. Telxon pays us a price equal to 154% of our fully-burdened
manufacturing costs for each unit of any bridge product and 133 1/3% of our
fully-burdened manufacturing cost on our other products, without any further
discount. These prices are comparable to prices which are available to
non-affiliate customers purchasing at the same volume as Telxon. Telxon's right
to purchase our new products on a most favored basis terminates four years from
this offering, and must be re-negotiated in good faith prior to that time.
SERVICES AGREEMENT
Prior to March 1998, Telxon made advances to us to fund operations,
advanced our payroll and third party payables and provided us with human
resource and administrative services. In March 1998, we entered into a Services
Agreement with Telxon to formalize this arrangement. At that time Telxon
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<PAGE> 62
ceased making advances to us to fund operations. Following this offering we will
no longer be eligible to participate in Telxon's compensation plans or any of
their material employee benefit plans.
The following table sets forth the charges made to us and our employees in
connection with these services as provided for in the Services Agreement. In
each case, third party costs incurred by Telxon on our behalf are passed through
to us as a service fee.
<TABLE>
<CAPTION>
SERVICE BILLING METHODOLOGY OR RATE
- --------------------------------------------------- ------------------------------------------------
<S> <C>
Taxes $2,000/month
Human Resources and Benefits $5,833/month
Payroll Processing $2,500/month
In-House Legal Services Pass-through Billing (Capped at $3,000/month)
Insurance Policies Pass-through Billing
Corporate, Administrative and General Overhead $4,000/month
Corporate Aircraft Services Pass-through Billing subject to Federal Aviation
Regulations
MIS Services $8,333/month
Medical/Dental Programs Pass-through Billing
Benefits/Claims Pass-through Billing
Participant Contributions
Participant contributions for above plans Payroll Deduction or Direct Bill
Other Benefit Plans
Life Insurance Pass-through Billing
Savings/Retirement Plans
Company match/retirement contribution Pass-through Billing
Participant Contribution Payroll Deduction
Long-Term Disability Plans
Employer contributions Pass-through Billing
Employee contributions Payroll Deduction
</TABLE>
Tax Benefit and Indemnification Agreement. At March 31, 1998, we entered
into a Tax Benefit and Indemnification Agreement with Telxon. We entered into
this agreement when Telxon's ownership of Aironet fell below 80% and we were
deconsolidated from Telxon's tax return. The agreement allocates the tax
benefits and obligations relating to the period prior to March 31, 1998, to
Telxon and Telxon indemnifies us against tax related liability from that period.
Telxon is not entitled to our tax benefits for, and does not indemnify us
against liabilities arising in, any period after March 31, 1998. We have made a
promissory note to evidence Telxon's entitlement to any tax benefits that we may
receive in the future relating to the pre-March 1998 period. The agreement has
no future material impact on us, other than Telxon's provision to us of
indemnification for historic events. We know of no current liabilities to
Telxon; therefore, the impact on Telxon, if any, cannot be quantified.
Leases. Under a sublease dated as of September 1, 1998, we lease
approximately 34,000 square feet of space from Telxon for principal
administrative, sales, marketing and engineering facilities. The sublease
expires on February 28, 2001, and we may terminate the sublease simultaneously
with a termination by Telxon of the lease of our assembly and service
facilities. We pay Telxon $424,725 per year on the sublease. Our assembly and
service facilities occupy approximately 33,0000 square feet under a lease from
Telxon dated as of April 1, 1998, that expires on February 28, 2001, and Telxon
has
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the right to terminate the lease on 12 months written notice. We pay Telxon
$173,250 per year on the lease.
Terminated Promissory Note. On March 7, 1996, we made a Demand Revolving
Promissory Note to the order of Telxon to evidence the cash advances from Telxon
discussed under the Services Agreement, with no greater principal than $50
million. The advances bore interest at the London Interbank Offer Rate. The
obligations under this note were paid in full in July 1998, and this note was
canceled effective May 5, 1999.
Intellectual Property. At March 31, 1998, we also entered into several
agreements with Telxon to protect both companies' intellectual property.
- Assignment of Patent Applications made by Telxon Corporation in favor of
Aironet -- At no cost, Telxon assigned to us patents which it owned but
which had been invented by our employees.
- Assignment of Patent Applications made by Aironet in favor of Telxon
Corporation -- At no cost, we assigned to Telxon patents which we owned
but which had been invented by Telxon's employees.
- Cross Covenant Not to Sue -- At no cost, we agreed with Telxon not to
bring suit relating to the other's products which were in the market or
announced at March 1998, alleging infringement of its intellectual
property which existed at March 1998. Neither Aironet nor Telxon granted
the other any license to its products.
- AirAware Acknowledgment -- At no cost, Aironet acknowledged that it had
no interest in one of Telxon's product lines.
- LM3000 Software Agreement -- Telxon granted us a royalty free license to
Telxon's derivatives of our LM3000 software.
- Patent Continuation in Part Agreement -- For Telxon's reimbursement of
expenses, we agreed to permit Telxon to file continuations in part on one
of the patent applications it had assigned to us.
- Patent License Agreement -- Telxon granted us a royalty free license to
patents issued under two of Telxon's patent applications.
- Nondisclosure Agreement -- Aironet and Telxon executed Aironet's standard
preprinted form mutual nondisclosure agreement to protect each parties'
trade secrets.
PAYMENTS FROM AND TO TELXON
The following table sets forth our revenues from Telxon and our payables to
Telxon for advances, payroll, third party invoices and costs of services
provided to us, all as discussed above in detail, for the periods shown.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MARCH 31,
-----------------------------------------------
1997 1998 1999
------------- ------------- -------------
<S> <C> <C> <C>
Product Revenue.................................. $46.8 million $19.1 million $ 9.5 million
Royalty Revenue.................................. -- $ 5.8 million $ 7.4 million
Payables to Telxon............................... $ 1.4 million $ 4.9 million $ 2.1 million
</TABLE>
Revenues. Product revenues declined from $46.8 million in fiscal year 1997
to $19.1 million in fiscal year 1998 due to the commencement of Telxon's royalty
arrangement in August 1997.
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Payables. Our payables to Telxon for advances and services rendered
increased from $1.4 million in fiscal year 1997 to $4.9 million in fiscal year
1998, primarily due to advances by Telxon for a $3.1 million tax payment made to
Canada and Ontario in August 1997.
We believe that the terms of these transactions with Telxon are at least as
fair to us as those which could have been obtained in transactions with
unaffiliated third parties.
PRIOR OFFERINGS
In March 1998, we issued 984,126 units to private investors consisting of
one share of common stock and warrants to purchase three tenths of one share of
common stock at $3.50 per unit, for aggregate consideration of $3,444,441. From
April 1998 to December 1998, we issued 222,222 units for aggregate consideration
of $777,777.
The exercise price of the warrants is $3.50 per share. The warrants may be
exercised at or after this offering. Any unexercised warrants terminate on March
31, 2001.
Included in these amounts, we issued 857,142 units to Axiom Venture
Partners II Limited Partnership for $2,999,997. As a result of these
transactions, Axiom beneficially owns more than 5% of our outstanding shares. In
addition, Samuel F. McKay, who is one of our Directors, is a general partner of
Axiom.
Included in these amounts we also issued 120,635 units to Telantis Venture
Partners V, Inc. for $422,222. All outstanding stock of Telantis V is
beneficially owned by Robert F. Meyerson; Telantis V beneficially owns more than
5% of our outstanding shares. In addition, Mr. Meyerson is the father-in-law of
our President and Chief Executive Officer, Roger J. Murphy, Jr. Telantis V
participated in our 1998 private offering on the same terms as unaffiliated
third party investors. Telantis V borrowed its purchase funds from Telxon in
accordance with an anti-dilution agreement which was entered into between Mr.
Meyerson and Telxon while Mr. Meyerson was Telxon's Chairman of the Board and
Chief Executive Officer. The purchased shares are pledged to Telxon to secure
the loan. Pursuant to this pledge, the loan is recourse only to the shares or
any substitute collateral which is accepted by Telxon. From time to time, as the
value of the pledged collateral increases, if at all, Telxon is required to
release excess collateral. Conversely, at such time as the pledged shares are
publicly traded, Telantis V is required to pledge additional collateral from
time to time as the value of the pledged collateral falls below the outstanding
balance of the secured loan. The loan is required to be paid in full by March
30, 2000. The purchase of shares by Telantis V was recorded by us as a
receivable.
REGISTRATION RIGHTS
The holders of approximately 11,097,085 shares of our common stock
currently outstanding or issuable upon exercise of warrants of options, or their
transferees, are entitled, on a limited basis, to have their shares registered
under the Securities Act of 1933. These holders include our directors, officers
and security holders known to us to own more than 5% of our shares, including
family members of each of these persons, under a Registration Rights Agreement
that we entered into in March 31, 1999. The agreement provides that:
- holders of 50% of the shares subject to the registration rights held at
March 31, 1999 may demand registration twice after this offering but no
more than once in any year;
- we may approve any underwriter and we need not file a registration
statement within 180 days of other registration statements;
- subject to limitations imposed by any underwriter approved by us, the
holders of registration rights may include their shares in any
registration we file from time to time;
- the holders of registration rights may demand short form registrations if
they are available; and
- we will pay the expenses of any registration except for underwriting
discounts, commissions, taxes and legal fees for more than one attorney.
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<PAGE> 65
ADVISOR FEES
In March 1998, we paid Furneaux & Company, LLC a fee of $125,000 in cash
for business and financial advisory services. As part of the same transaction,
we granted Furneaux & Company warrants to purchase 100,000 shares of our common
stock at $3.50 per share. The warrants become exercisable upon this offering and
may be exercised at any time until March 31, 2001. The warrants include
protections against dilution in the event of stock splits, stock dividends and
similar events. Prior to April 1, 1999, Furneaux & Company also served as an
advisor to Telxon Corporation. James H. Furneaux, Chairman of the Board of
Directors and a Director is the managing member of Furneaux & Company. We
believe that the terms under which Furneaux & Company rendered services to us
were at least as fair to us as those which could have been obtained in
transactions with unaffiliated third parties.
LOAN TO CHIEF EXECUTIVE OFFICER
In February 1998, we provided Mr. Murphy, our President and Chief Executive
Officer, with a loan of $372,000 which was used by him to acquire 200,000 shares
of our common stock through the exercise of stock options granted to him under
our 1996 Stock Option Plan. The purchase price was $1.86 per share. The loan was
evidenced by a promissory note which bears interest at 6% per annum until
maturity and prime plus 4% per annum after maturity. All principal and accrued
but unpaid interest is due on October 31, 2002. At March 31, 1999, principal and
accrued interest on this loan totaled $394,320. The note is collateralized by
the stock acquired with the loan. The loan to Mr. Murphy was recorded as a
reduction in paid-in capital. In May 1999, the note was amended to prohibit
prepayment.
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<PAGE> 66
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth selected ownership information with respect
to the beneficial ownership of our common stock as of April 30, 1999, and as
adjusted to reflect the sale of shares in this offering by the selling
stockholder, each Director of Aironet, each of the officers named in the Summary
Compensation Table, all Directors and executive officers of Aironet as a group
and each person who is known by us to own beneficially more than 5% of the
common stock. Unless otherwise indicated, each person or entity named in the
table has sole voting power and investment power or shares this power with his
or her spouse with respect to all shares of capital stock listed as owned by
that person or entity. The address of each of our employees and officers is c/o
Aironet Wireless Communications, Inc., 3875 Embassy Parkway, Akron, OH 44333.
Ownership of less than 1% is designated in the table by an asterisk.
The number of shares beneficially owned by each stockholder is determined
under rules issued by the Securities and Exchange Commission. The information is
not necessarily indicative of beneficial ownership for any other purpose. Under
these rules, beneficial ownership includes any shares as to which the individual
or entity has sole or shared voting power or investment power and any shares as
to which the individual or entity has the right to acquire beneficial ownership
within 60 days after April 30, 1999 through the exercise of any stock option or
other right.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR OWNED AFTER
TO THE OFFERING SHARES TO BE THE OFFERING
---------------------- SOLD IN THE ----------------------
NAME NUMBER PERCENTAGE OFFERING NUMBER PERCENTAGE
- ---- --------- ---------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
Telxon Corporation(1) 7,276,500 76.06% 2,000,000 5,276,500 38.89%
3300 W. Market St.
Akron, OH 44334
Telantis Venture Partners V, Inc.(2) 880,826 9.17 -- 880,826 6.48
12511 World Plaza Lane
Ft. Myers, FL 33097
Robert F. Meyerson(3) 904,826 9.42 -- 904,826 6.65
c/o 12511 World Plaza Lane
Ft. Myers, FL 33097
Axiom Venture Partners II Limited 1,114,284 11.34 -- 1,114,284 8.06
Partnership(4)
Cityplace II, 17th Floor
185 Asylum St.
Hartford, CT 06103
Roger J. Murphy, Jr.(5) 305,000 3.16 -- 305,000 2.20
Richard G. Holmes -- -- -- -- --
Donald I. Sloan(6) 76,667 * -- 76,667 *
Ronald B. Willis -- -- -- -- --
Harvey A. Ikeman(7) 55,000 * -- 55,000 *
James H. Furneaux(8) 120,000 1.24 -- 120,000 *
c/o 100 Main Street
Concord, MA 01742
Samuel F. McKay(9) 1,114,284 11.34 -- 1,114,284 8.06
c/o Cityplace II, 17th Floor
185 Asylum St.
Hartford, CT 06103
John W. Paxton, Sr.(10) 7,276,500 76.06 2,000,000 5,276,500 38.89
c/o 3330 West Market Street
Akron, OH 44333
All executive officers and directors as 1,670,951 16.42 -- 1,670,951 12.32
a group (8 persons)
</TABLE>
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<PAGE> 67
- ---------------
(1) Telxon has granted the underwriters an option, exercisable within 30 days
hereof, to purchase 300,000 shares at the price offered to the public less
underwriting discounts and commissions for the purpose of covering
over-allotments, if any.
(2) Includes 844,635 shares of common stock and warrants to purchase 36,191
shares of common stock which may be exercised within the next 60 days.
252,328 of the 844,635 shares and the warrants have been pledged to Telxon
as collateral for a loan, the proceeds of which were used to purchase the
shares and warrants.
(3) Includes 844,635 shares of common stock and warrants to purchase 36,191
shares of common stock which may be exercised within the next 60 days, all
of which are owned by Telantis Venture Partners V, Inc. Mr. Meyerson is the
100% owner of Telantis V. Also includes 21,000 shares of common stock owned
by Mr. Meyerson's minor grandchildren and 3,000 shares of common stock
owned by Mr. Meyerson's adult grandchild, as to all of which Mr. Meyerson
disclaims beneficial ownership.
(4) Includes 857,142 shares of common stock and warrants to purchase 257,142
shares of common stock which may be exercised within the next 60 days.
(5) Includes 200,000 shares of common stock and options to purchase 100,000
shares of common stock which may be exercised within the next 60 days. Also
includes 5,000 shares of common stock owned by Mr. Murphy's spouse, as to
which Mr. Murphy disclaims beneficial ownership.
(6) Includes options to purchase 76,667 shares of common stock which may be
exercised within the next 60 days.
(7) Includes options to purchase 55,000 shares of common stock which may be
exercised within the next 60 days.
(8) Includes warrants to purchase 100,000 shares of common stock and options to
purchase 20,000 shares of common stock, all of which may be exercised
within the next 60 days and are owned by Furneaux & Company. Mr. Furneaux
is the managing member of Furneaux & Company and has sole voting and
dispositive power over Furneaux & Company's shares of Aironet.
(9) Includes 857,142 shares of common stock and warrants to purchase 257,142
shares of common stock which may be exercised within the next 60 days and
are owned by Axiom. Mr. McKay is a general partner of Axiom and has sole
voting and dispositive power over Axiom's shares of Aironet.
(10) Includes 7,276,500 shares owned by Telxon Corporation. Mr. Paxton is the
Chairman of the Board of Directors and Chief Executive Officer of Telxon
and has shared voting and dispositive power over Telxon's shares of
Aironet.
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<PAGE> 68
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
We are authorized by our Amended and Restated Certificate of Incorporation
to issue 500,000 shares of preferred stock, par value $.01 per share, and 60
million shares of common stock, par value $.01 per share. Immediately following
this offering, approximately 13,567,181 shares of common stock will be issued
and outstanding.
COMMON STOCK
The holders of common stock are entitled to one vote for each share on all
matters voted on by stockholders, including elections of Directors, and, except
as otherwise required by law or provided in any resolution adopted by the Board
with respect to any series of preferred stock, the holders of these shares will
possess all voting power. Our certificate does not provide for cumulative voting
in the election of Directors. Subject to any preferential rights of any
outstanding series of preferred stock created by the Board from time to time,
the holders of common stock will be entitled to dividends as may be declared
from time to time by the Board from funds legally available therefor, and upon
liquidation will be entitled to receive pro rata all of our assets available for
distribution to these holders. The holders of common stock have no preemptive
rights to purchase newly issued securities.
PREFERRED STOCK
Our certificate authorizes the Board to establish one or more series of
preferred stock and to determine, with respect to any series of preferred stock,
the terms and rights, preferences and limitations of these series. We believe
that the ability of the Board to issue one or more series of preferred stock
will provide us with flexibility in structuring possible future financings and
acquisitions and in meeting other corporate needs which might arise. The
authorized shares of preferred stock, as well as shares of common stock, will be
available for issuance without further action by our stockholders, unless some
action is required by applicable law or the rules of any stock exchange or
automated quotation system on which our securities may be listed or traded. If
the approval of our stockholders is not required for the issuance of shares of
preferred stock or common stock, the Board may determine not to seek stockholder
approval.
Although the Board has no intention at the present time of doing so, it
could issue a series of preferred stock that could, depending on the terms of
the series, impede the completion of a merger, tender offer or other takeover
attempt. The Board, in so acting, could issue preferred stock having terms that
could discourage an acquisition attempt through which an acquirer may be able to
change the composition of the Board, including a tender offer or other
transaction that some, or a majority, of our stockholders might believe to be in
their best interests or in which stockholders might receive a premium for their
stock over the then current market price of their stock. As of the closing of
this offering, no preferred stock has been designated or issued.
OPTIONS AND WARRANTS
As of March 31, 1999, we had granted employee stock options to purchase up
to 2,429,500 shares of common stock at exercise prices ranging from $1.86 to
$9.00, of which 1,141,531 were then exercisable. As of March 31, 1999, we had
granted warrants to purchase up to 461,904 shares of common stock with exercise
prices of $3.50 per share, all of which are currently outstanding. The warrants
will expire if not exercised by March 31, 2001.
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<PAGE> 69
ANTITAKEOVER EFFECTS OF SPECIFIC PROVISIONS OF OUR CERTIFICATE AND BYLAWS
Board of Directors. Our certificate provides for our Board to be divided
into three classes of Directors, with each class as nearly equal in number as
possible, serving staggered three-year terms. This does not include Directors
who may be elected by holders of preferred stock. As a result, approximately
one-third of our Board will be elected each year. The classified Board provision
will help to assure the continuity and stability of our Board and our business
strategies and policies as determined by our Board. The classified Board
provision could have the effect of discouraging a third party from making an
unsolicited tender offer or otherwise attempting to obtain control of us without
the approval of our Board. In addition, the classified Board provision could
delay stockholders who do not like the policies of our Board from electing a
majority of our Board for two years.
No Stockholder Action by Written Consent; Special Meetings. Our certificate
and bylaws provide that any action required or permitted to be taken by our
stockholders must be effected at a duly called annual or special meeting of
stockholders and may not be effected by any consent in writing. Special meetings
of our stockholders for any purpose or purposes may be called only by the
Chairman, the President, any Senior Vice President, or by a majority of the
Board. No business other than that stated in the notice shall be transacted at
any special meeting. These provisions may have the effect of delaying
consideration of stockholder proposals until the next annual meeting of
stockholders.
Advance Notice Procedures. Our bylaws establish an advance notice procedure
for stockholders to make nominations of candidates for election as Directors and
to bring other business before an annual meeting of our stockholders. For notice
of stockholder nominations to be timely, the notice must be received by our
Secretary not later than the close of business on the 90th calendar day, nor
earlier than the close of business on the 120th calendar day, prior to the first
anniversary of the date of the preceding year's proxy statement in connection
with the last annual meeting. The notice procedure is modified for newly created
Board seats and for special meetings of the stockholders. In addition to these
procedures, a stockholder's notice proposing to nominate a person for election
as a Director or relating to the conduct of business other than the nomination
of Directors must contain specified information. Otherwise the chairman of a
meeting may determine that an individual was not nominated, or the other
business was not properly brought before the meeting.
Amendment. Our certificate provides that the affirmative vote of the
holders of at least 80% of the outstanding shares, voting together as a single
class, is required to amend provisions of our certificate relating to
stockholder action without a meeting; the calling of special meetings; the
number, election and term of the Directors; the filling of vacancies; and the
removal of Directors. Our certificate further provides that the related bylaws
described above may be amended only by the Board or by the affirmative vote of
the holders of at least 80% of the combined voting power outstanding.
RIGHTS AGREEMENT
In April 1999, our Board of Directors declared a dividend of one common
stock purchase right on each share of common stock outstanding at that time and
thereafter, pursuant to a Rights Agreement with Harris Trust and Savings Bank,
adopted and approved by the Board and our stockholders in April 1999. Each
purchase right, when exercisable, entitles the registered holder to purchase one
share of common stock at a price of $125 per share, subject to adjustment.
Unless they become exercisable upon the occurrence of specified events as
described below, or unless earlier redeemed by Aironet, the rights will expire
ten years from the date of the agreement.
If we are a party to a merger or other business combination transaction,
not approved by our incumbent Directors, in which we are not the surviving
corporation, or to which our common stock is changed or exchanged, or 50% or
more of our assets or earning power are sold, each holder of a
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<PAGE> 70
purchase right will have the right to receive shares of publicly traded common
stock of the acquiring company having a market value of two times the exercise
price of the purchase right.
If we are the surviving corporation in a merger and our common stock is not
changed or exchanged, or if an acquiring person engages in certain self-dealing
transactions specified in the Rights Agreement, or becomes the beneficial owner
of 15% or more of our outstanding common stock, each holder of a purchase right,
other than the acquiring person, will have the right to receive shares of our
common stock having a market value of two times the exercise price of the
purchase right.
At the time the Rights Agreement becomes effective, Telxon will own greater
than 15% of our outstanding common stock. Telxon's continued ownership will not
trigger the exercisability of the purchase rights. If Telxon acquires any
additional shares or, in some circumstances, if Telxon is itself acquired, then
the purchase rights could become exercisable.
The Rights Agreement discourages hostile takeovers by effectively allowing
our stockholders to purchase additional shares of our common stock at a discount
following a hostile acquisition of a large block of our outstanding common stock
and by increasing the value of consideration to be received by stockholders in
specified transactions following a hostile acquisition. The purchase rights may
be redeemed pursuant to the Rights Agreement. The terms of the purchase rights
may be amended by our Board of Directors without the consent of the holders of
the purchase rights.
DELAWARE BUSINESS COMBINATION STATUTE
Section 203 of the Delaware General Corporation Law provides that, subject
to specific exceptions specified therein, an interested stockholder of a
Delaware corporation shall not engage in any business combination, including
mergers or consolidations or acquisitions of additional shares of the
corporation, with the corporation for a three-year period following the date
that the stockholder becomes an interested stockholder. Section 203 does not
apply if:
- prior to the date that the stockholder becomes an interested stockholder,
the board of directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming
an interested stockholder;
- upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced excluding for purposes of determining the
number of shares outstanding those shares owned by persons who are
directors and also officers and by employee stock plans in which employee
participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange
offer; or
- on or subsequent to the date that the stockholder becomes an interested
stockholder, the business combination is approved by the board of
directors of the corporation and authorized at an annual or special
meeting of stockholders by the affirmative vote of at least 66 2/3% of
the outstanding voting stock which is not owned by the interested
stockholder.
Except as otherwise specified in Section 203, an interested stockholder is
defined to include any person that is the owner of 15% or more of the
outstanding voting stock of the corporation, or is an affiliate or associate of
the corporation and was the owner of 15% or more of the outstanding voting stock
of the corporation at any time within three years immediately prior to the date
of determination and that person's affiliates and associates.
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<PAGE> 71
Under specific circumstances, Section 203 makes it more difficult for a
person who would be an interested stockholder to effect various business
combinations with a corporation for a three-year period. We are subject to the
provisions of Section 203. However, Telxon and its affiliates are excluded from
the definition of interested stockholder pursuant to the terms of Section 203.
The provisions of Section 203 may encourage persons interested in acquiring us
to negotiate in advance with our Board, since the stockholder approval
requirement would be avoided if a majority of the Directors then in office
approves either the business combination or the transaction which results in
that person becoming an interested stockholder. These provisions may have the
effect of preventing changes in our management. It is possible that these
provisions could make it more difficult to accomplish transactions which our
stockholders may otherwise deem to be in their best interests.
LIABILITY OF DIRECTORS; INDEMNIFICATION
We have included in our certificate and bylaws provisions to eliminate the
personal liability of our Directors for monetary damages resulting from breaches
of their fiduciary duty to the extent permitted by the Delaware General
Corporation Law and indemnify our Directors and officers to the fullest extent
permitted by Section 145 of the Delaware General Corporation Law, including
circumstances in which indemnification is otherwise discretionary. We believe
that these provisions are necessary to attract and retain qualified persons as
directors and officers.
TRANSFER AGENT AND REGISTRAR
Harris Trust and Savings Bank will be the transfer agent and registrar for
our common stock.
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<PAGE> 72
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. Future sales of substantial amounts of our common stock in the public
market could adversely affect prevailing market prices from time to time.
Furthermore, since only a limited number of shares will be available for sale
shortly after this offering because of contractual and legal restrictions on
resale described below, sales of substantial amounts of our common stock in the
public market after these restrictions lapse could adversely affect the
prevailing market price and our ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding an aggregate of
13,567,181 shares of common stock, assuming no exercise of any warrants or
options and no exercise of the underwriters' over-allotment option. Of these
shares, all of the 6,000,000 shares sold in this offering will be freely
tradeable without restriction or further registration under the Securities Act
of 1933, unless those shares are purchased by an affiliate as that term is
defined in Rule 144 under the Securities Act of 1933.
The remaining 7,567,181 shares of common stock held by existing
stockholders are restricted securities as that term is defined in Rule 144 under
the Securities Act of 1933 or are subject to the contractual restrictions
described below. Of these restricted securities:
- no shares will be eligible for immediate sale after completion of this
offering;
- no shares will be eligible for sale 90 days after the effective date of
this offering unless the underwriters elect to waive the lock up
agreements discussed below;
- approximately 6,380,903 shares will be eligible for sale if the
underwriters elect to waive the lock up agreements at any time after this
offering or upon expiration of the 180 day lock up agreements; and
- the remainder of the restricted shares will be eligible for sale from
time to time thereafter, subject to compliance with Rule 144 and 701.
All of our officers, directors, stockholders, warrant holders and each
holder of more than 5,000 options have signed lock up agreements in favor of the
underwriters. As a result, these individuals are not permitted to sell any
shares of common stock during the period ending 180 days after the date of this
prospectus, without the prior written consent of Dain Rauscher Wessels. Telxon
Corporation will sell 2,000,000 of its 7,276,500 shares in this offering, and
will grant the underwriters an option to purchase an additional 300,000 shares
to cover underwriters' over-allotments. Dain Rauscher Wessels may in its sole
discretion choose to release a number of these shares from these restrictions
prior to the expiration of the 180 day period. In addition, under the terms of a
Stockholders Agreement with us dated March 31, 1998, additional option holders
have agreed with us not to sell any shares of common stock until 180 days after
the offering.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person or persons whose shares are aggregated and
who has beneficially owned restricted shares for at least one year, including
the holding period of any prior owner except when purchased from an affiliate,
would be entitled to sell a specific number of shares within any three-month
period. That number of shares cannot exceed the greater of 1% of the number of
shares of common stock then outstanding, which will equal approximately 135,671
shares immediately after this offering, or the average weekly trading volume of
the common stock on the Nasdaq National Market during the four calendar weeks
preceding the filing of an notice on Form 144 with respect to that sale. Sales
under Rule 144 are also subject to manner of sale provisions and notice
requirements and to the availability of current public information about us.
Under Rule 144(k), a person who is not deemed to have been our affiliate at any
time during the 90 days preceding a sale, and who has beneficially owned the
shares
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<PAGE> 73
proposed to be sold for at least two years, including the holding period of any
prior owner except when purchased from an affiliate, is entitled to sell those
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
Subject to limitations on the aggregate offering price of a transaction and
other conditions, employees, directors, officers, consultants or advisors may
rely on Rule 701 with respect to the resale of securities originally purchased
from us prior to this offering pursuant to written compensatory benefit plans or
written contracts relating to the compensation of these persons. In addition,
the Securities and Exchange Commission has indicated that Rule 701 will apply to
typical stock options granted by an issuer before it becomes subject to the
reporting requirements of the Securities Exchange Act of 1934, along with the
shares acquired upon exercise of these options, including any exercises after
the date of this prospectus. Securities issued in reliance on Rule 701 are
restricted securities and, subject to the contractual restrictions described
above, beginning 90 days after the date of this prospectus, may be sold by
persons other than affiliates subject only to the manner of sale provisions of
Rule 144, and by affiliates under Rule 144 without compliance with its holding
period requirements.
In addition, we intend to file registration statements on Form S-8 covering
the following:
- 250,000 shares of common stock reserved for issuance under the 1999 Stock
Option Plan For Non-Employee Directors;
- 1,765,817 shares of common stock reserved for issuance under the 1999
Omnibus Stock Incentive Plan;
- 500,000 shares of common stock reserved for issuance under the 1999
Employee Stock Purchase Plan; and
- 1,543,000 shares of common stock subject to outstanding options under our
1996 Stock Option Plan, as amended and restated.
We expect that these registration statements will be filed and become
effective as soon as practicable after the effective date of this offering.
Accordingly, shares registered under these registration statements will, subject
to Rule 144 volume limitations applicable to affiliates, be available for sale
in the open market, beginning 181 days after the date of the prospectus, unless
these shares are subject to vesting restrictions with us.
In addition, shares purchased pursuant to an employee stock option exercise
may become available for resale pursuant to the provisions of Rule 701, which
permits affiliates and non-affiliates to sell their Rule 701 shares without
having to comply with Rule 144's holding period restrictions, in each case
commencing 90 days after the date of this prospectus. In addition,
non-affiliates may sell Rule 701 shares without complying with the public
information, volume and notice provisions of Rule 144.
REGISTRATION RIGHTS
After this offering, the holders of approximately 9,097,085 shares of our
common stock currently outstanding or issuable upon exercise of warrants or
options, or their transferees, will be entitled to limited registration rights
with respect to those shares under the Securities Act of 1933. Except for share
purchases by affiliates, registration of these shares under the Securities Act
of 1933 would result in these shares becoming freely tradable without
restriction under the Securities Act of 1933 immediately upon the effectiveness
of the registration.
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<PAGE> 74
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
dated , 1999, Aironet and Telxon agreed to sell to each of the
underwriters named below, and each of the underwriters, for whom Dain Rauscher
Wessels, a division of Dain Rauscher Incorporated, Prudential Securities
Incorporated and CIBC World Markets Corp. are acting as representatives have
severally agreed to purchase from us and Telxon, the respective number of shares
of common stock set forth opposite the name of each Underwriter below:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
---- ----------------
<S> <C>
Dain Rauscher Wessels.......................................
Prudential Securities Incorporated..........................
CIBC World Markets Corp.....................................
---------
Total.................................................. 6,000,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters are subject to specific conditions precedent and that the
underwriters are committed to purchase all shares of common stock in this
offering, other than those covered by the over-allotment option described below,
if any of these shares are purchased.
The underwriters propose to offer the shares of common stock, directly to
the public at the initial public offering price set forth on the cover page of
this prospectus and to specific dealers at a price minus a concession not in
excess of $ per share. The underwriters may allow, and these dealers may
reallow, a concession not in excess of $ per share to specific brokers and
dealers. After the shares of common stock are released for sale to the public,
the offering price and other selling terms may from time to time be varied by
the underwriters.
Aironet and Telxon have granted the underwriters an option, exercisable for
up to 30 days after the date of this prospectus, to purchase up to an aggregate
of 900,000 additional shares of common stock to cover over-allotments, if any.
If the underwriters exercise the over-allotment option, the underwriters have
severally agreed, subject to specific conditions, to purchase approximately the
same percentage thereof that the number of shares of common stock to be
purchased by each of them shown in the foregoing table bears to the total number
of shares of common stock in this offering. The underwriters may exercise the
option only to cover over-allotments made in connection with the sale of shares
of common stock made hereby.
Aironet and Telxon have agreed to indemnify the underwriters against
specific liabilities, including liabilities under the Securities Act, and to
contribute to payments that the underwriters may be required to make in respect
thereof.
The underwriters have reserved for sale, at the initial public offering
price, up to 300,000 shares of the common stock for selected persons identified
by Aironet, none of whom will be employees, directors or current stockholders of
Aironet, who have expressed an interest in purchasing shares in the offering.
The shares available for sale to the general public will be reduced by the
number of these which are actually purchased. No single person will be permitted
to purchase more than 5,000 shares.
WA&H Investments LLC, one of our stockholders, is affiliated with Dain
Rauscher Wessels, a division of Dain Rauscher Incorporated, one of the
representative underwriters. WA&H Investments LLC purchased 142,857 shares and
warrants to purchase an additional 42,857 shares, which will be exercisable
beginning at the offering.
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<PAGE> 75
Aironet and its officers, directors and stockholders, warrant holders and
holders of over 5,000 options have agreed not to offer, sell, contract to sell
or otherwise dispose of any shares of common stock or any securities convertible
into or exercisable or exchangeable for common stock or any right to acquire
shares of common stock owned by them for a period of 180 days after the date of
this prospectus without the prior written consent of Dain Rauscher Wessels on
behalf of the underwriters. This consent may be given without notice to us, our
stockholders or the public in general.
The representatives have advised Aironet that the underwriters do not
intend to confirm sales in excess of 5% of the shares of common stock offered
hereby to any accounts over which they exercise discretionary authority.
In order to facilitate the offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
common stock. Specifically, the underwriters may over-allot in connection with
the offering, creating a short position in the common stock for their own
account. In addition, to cover over-allotments or to stabilize the price of the
common stock, the underwriters may bid for, and purchase, shares of the common
stock in the open market. The underwriters may also reclaim selling concessions
allowed to an underwriter or a dealer for distributing the common stock in the
offering, if the underwriters repurchase previously distributed common stock in
transactions to cover their short positions, in stabilization transactions or
otherwise. Finally, the underwriters may bid for, and purchase, shares of the
common stock in market making transactions and impose penalty bids. These
activities may stabilize or maintain the market price of the common stock above
market levels that may otherwise prevail. The underwriters are not required to
engage in these activities and may end any of these activities at any time.
Prior to the offering, there has been no public market for our capital
stock. Consequently, the initial public offering price for the common stock will
be determined by negotiations among Aironet and the representatives. Among the
factors to be considered in these negotiations, in addition to prevailing market
conditions, will be our historical performance, estimates of our business
potential and earnings prospects, an assessment of our management and the
consideration of the above factors in relation to market valuation of companies
in related businesses. The estimated initial public offering price range set
forth on the cover page of this prospectus is subject to change as a result of
market conditions or other factors.
73
<PAGE> 76
LEGAL MATTERS
The validity of the common stock offered hereby and other legal matters
will be passed upon for us by Goodman Weiss Miller LLP, Cleveland, Ohio. Mr. Jay
R. Faeges, an attorney at Goodman Weiss Miller LLP, is also our Secretary.
Specific legal matters will be passed upon for the underwriters by Testa,
Hurwitz & Thibeault, LLP, Boston, Massachusetts.
EXPERTS
The consolidated financial statements as of March 31, 1998 and 1999 and for
each of the three years in the period ended March 31, 1999 included in this
prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act of 1933, with respect to the
common stock offered hereby. This prospectus is materially complete but does not
contain all of the information set forth in the registration statement and the
exhibits and schedules thereto. For further information with respect to us and
our common stock, you should read the registration statement and the exhibits
and schedules thereto. A copy of the registration statement may be inspected by
anyone without charge at the Securities and Exchange Commission's principal
office in Washington, D.C., at the regional offices of the Securities and
Exchange Commission located at 7 World Trade Center, New York, New York 10048,
and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661, and through the SEC's web site at http://www.sec.gov. Copies of all or
any part of the registration statement may be obtained from the Public Reference
Section of the Securities and Exchange Commission, Judiciary Plaza, 450 Fifth
Street, N.W. Room 1024, Washington, D.C. 20549, upon payment of the fees
prescribed by the Securities and Exchange Commission.
After this offering we will be subject to the informational requirements of
the Securities Exchange Act of 1934. We will fulfill our obligations with
respect to these requirements by filing periodic reports and other information
with the SEC. In addition, we intend to furnish to our stockholders annual
reports containing consolidated financial statements examined by an independent
public accounting firm.
74
<PAGE> 77
AIRONET WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets as of March 31, 1998 and 1999... F-3
Consolidated Statements of Operations for the years ended
March 31, 1997, 1998 and 1999............................. F-4
Consolidated Statements of Changes in Stockholders' Equity
for the years ended March 31, 1997, 1998 and 1999......... F-5
Consolidated Statements of Cash Flows for the years ended
March 31, 1997, 1998 and 1999............................. F-6
Notes to the Consolidated Financial Statements.............. F-7
</TABLE>
F-1
<PAGE> 78
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
OF AIRONET WIRELESS COMMUNICATIONS, INC.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows present fairly, in all material respects, the financial position
of Aironet Wireless Communications, Inc. and Subsidiaries (the "Company") as of
March 31, 1998 and 1999 and the results of their operations and their cash flows
for each of the three years in the period ended March 31, 1999, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Cleveland, Ohio
May 25, 1999
F-2
<PAGE> 79
AIRONET WIRELESS COMMUNICATIONS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
1998 1999
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 2,864,072 $ 6,136,570
Accounts receivable, trade, net of allowance for
doubtful accounts of $187,038 and $371,632,
respectively......................................... 4,838,523 4,242,036
Accounts receivable, other............................. 99,639 243,183
Receivable from sales of common stock.................. 1,499,998 --
Receivable from affiliate.............................. 1,500,210 3,608,581
Inventories............................................ 4,020,254 4,625,519
Deferred tax asset..................................... -- 733,203
Prepaid expenses and other............................. 240,925 403,975
Income taxes receivable................................ 1,292,520 619,780
----------- -----------
Total current assets.............................. 16,356,141 20,612,847
Property and equipment, net................................. 2,655,502 2,380,603
Deferred tax asset.......................................... 299,821 882,462
Intangible assets, net...................................... 4,252,134 3,191,043
Other long-term assets...................................... 69,595 131,376
----------- -----------
Total assets...................................... $23,633,193 $27,198,331
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................... $ 4,775,022 $ 4,618,367
Payable to affiliate................................... 4,940,710 2,085,287
Income taxes payable................................... -- 30,000
Deferred tax liability................................. 93,190 10,126
Accrued liabilities.................................... 2,226,495 3,357,308
----------- -----------
Total current liabilities......................... 12,035,417 10,101,088
Line of credit.............................................. -- 2,500,000
----------- -----------
Total liabilities................................. 12,035,417 12,601,088
Commitments and contingencies (Note 9)...................... -- --
Stockholders' equity:
Common stock, $.01 par value per share; 15,000,000
shares authorized; 9,339,126, and 9,567,181 shares
issued and outstanding, respectively................. 93,391 95,672
Additional paid-in capital............................. 15,026,661 19,101,179
Accumulated other comprehensive loss................... (726,561) (726,561)
Accumulated deficit.................................... (2,795,715) (3,873,047)
----------- -----------
Total stockholders' equity........................ 11,597,776 14,597,243
----------- -----------
Total liabilities and stockholders' equity........ $23,633,193 $27,198,331
=========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-3
<PAGE> 80
AIRONET WIRELESS COMMUNICATIONS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
-----------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Non-affiliate..................................... $14,483,661 $20,249,057 $28,302,884
Affiliate product................................. 46,844,236 19,104,094 9,529,366
Affiliate royalty................................. -- 5,781,244 7,420,575
----------- ----------- -----------
Total revenues............................ 61,327,897 45,134,395 45,252,825
----------- ----------- -----------
Cost of revenues:
Non-affiliate..................................... 8,388,104 11,714,129 18,594,065
Affiliate......................................... 37,073,058 14,586,967 7,784,343
----------- ----------- -----------
Total cost of revenues.................... 45,461,162 26,301,096 26,378,408
----------- ----------- -----------
Gross profit:
Non-affiliate..................................... 6,095,557 8,534,928 9,708,819
Affiliate product................................. 9,771,178 4,517,127 1,745,023
Affiliate royalty................................. -- 5,781,244 7,420,575
----------- ----------- -----------
Total gross profit........................ 15,866,735 18,833,299 18,874,417
----------- ----------- -----------
Operating expenses:
Sales and marketing............................... 3,083,188 4,469,832 6,654,127
Research and development.......................... 5,311,421 5,683,086 6,581,767
General and administrative........................ 3,547,827 3,304,738 5,485,976
Goodwill amortization............................. 865,680 865,680 865,680
----------- ----------- -----------
Total operating expenses.................. 12,808,116 14,323,336 19,587,550
----------- ----------- -----------
Income (loss) from operations....................... 3,058,619 4,509,963 (713,133)
Interest expense (income), net...................... 130,435 45,815 (26,783)
----------- ----------- -----------
Income (loss) before income taxes................... 2,928,184 4,464,148 (686,350)
Provision for income taxes.......................... 2,039,567 1,963,503 390,982
----------- ----------- -----------
Net income (loss)................................. $ 888,617 $ 2,500,645 $(1,077,332)
=========== =========== ===========
Net income (loss) per common share:
Basic............................................. $ 0.11 $ 0.31 $ (0.12)
=========== =========== ===========
Diluted........................................... $ 0.11 $ 0.30 $ (0.12)
=========== =========== ===========
Weighted average shares used in calculating net
income (loss) per common share:
Basic............................................. 8,085,000 8,122,882 9,324,825
=========== =========== ===========
Diluted........................................... 8,085,000 8,319,063 9,324,825
=========== =========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-4
<PAGE> 81
AIRONET WIRELESS COMMUNICATIONS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER TOTAL
------------------- PAID-IN COMPREHENSIVE ACCUMULATED STOCKHOLDERS'
SHARES AMOUNTS CAPITAL LOSS DEFICIT EQUITY
--------- ------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1996
(retroactively restated
for 1996 stock split and
reverse stock
split -- Note 10)....... 8,085,000 $80,850 $12,144,067 $(726,561) $(6,184,977) $ 5,313,379
Distribution to
affiliate (Note
10).................. -- -- (1,100,000) -- -- (1,100,000)
Net income.............. -- -- -- -- 888,617 888,617
--------- ------- ----------- --------- ----------- -----------
Balance at March 31,
1997.................... 8,085,000 80,850 11,044,067 (726,561) (5,296,360) 5,101,996
--------- ------- ----------- --------- ----------- -----------
Stock issuance (Note
10).................. 984,126 9,841 2,806,027 -- -- 2,815,868
Stock options exercised
(Note 10)............ 270,000 2,700 499,500 -- -- 502,200
Stock option
compensation expense
(Note 10)............ -- -- 404,444 -- -- 404,444
Capital contribution
from affiliate (Note
10).................. -- -- 644,623 -- -- 644,623
Note receivable from
stockholder (Note
10).................. -- -- (372,000) -- -- (372,000)
Net income.............. -- -- -- -- 2,500,645 2,500,645
--------- ------- ----------- --------- ----------- -----------
Balance at March 31,
1998.................... 9,339,126 93,391 15,026,661 (726,561) (2,795,715) 11,597,776
--------- ------- ----------- --------- ----------- -----------
Stock issuance (Note
10).................. 222,222 2,222 775,555 -- -- 777,777
Stock options
exercised............ 5,833 59 14,331 -- -- 14,390
Stock option
compensation expense
(Note 10)............ -- -- 3,004,492 -- -- 3,004,492
Capital contribution
from affiliate (Note
10).................. -- -- 280,140 -- -- 280,140
Net loss................ -- -- -- -- (1,077,332) (1,077,332)
--------- ------- ----------- --------- ----------- -----------
Balance at March 31,
1999.................... 9,567,181 $95,672 $19,101,179 $(726,561) $(3,873,047) $14,597,243
========= ======= =========== ========= =========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-5
<PAGE> 82
AIRONET WIRELESS COMMUNICATIONS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
-----------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................. $ 888,617 $ 2,500,645 $(1,077,332)
----------- ----------- -----------
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation.................................... 1,031,377 1,238,348 1,306,716
Amortization.................................... 987,720 1,037,224 1,137,201
Provision for doubtful accounts................. 222,436 154,231 307,960
Provision for inventory obsolescence............ 1,024,167 (47,615) 389,430
Deferred income taxes........................... (16,543) 38,391 (1,398,908)
Loss on disposal of equipment................... -- 60,050 --
Stock compensation expense...................... -- 404,444 3,004,492
Changes in other assets and liabilities:
Accounts receivable, trade.................... (1,890,472) (2,068,370) 288,527
Accounts receivable, other.................... 69,790 511,516 (143,544)
Receivable from affiliate..................... 3,363,067 (55,858) (2,030,594)
Inventories................................... 2,484,804 358,897 (994,695)
Prepaid expenses and other assets............. (364,109) (134,684) (163,050)
Income taxes receivable....................... -- (1,292,520) 672,740
Other long-term assets........................ -- 13,088 64,225
Accounts payable.............................. 2,193,078 (1,164,040) (156,655)
Payable to affiliate.......................... -- -- 1,072,907
Income taxes payable.......................... 934,475 (1,705,213) 30,000
Accrued liabilities........................... 1,477,886 231,452 1,412,022
----------- ----------- -----------
Total adjustments.......................... 11,517,676 (2,420,659) 4,798,774
----------- ----------- -----------
Net cash provided by operating
activities............................... 12,406,293 79,986 3,721,442
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures............................... (1,409,717) (1,433,281) (1,031,817)
Purchases of intangible assets..................... (547,858) (244,266) (76,110)
----------- ----------- -----------
Net cash used in investing activities...... (1,957,575) (1,677,547) (1,107,927)
----------- ----------- -----------
Cash flows from financing activities:
Payable to affiliate............................... (8,971,280) 2,295,059 (3,648,190)
Borrowings under line of credit.................... -- -- 2,500,000
Net proceeds from sales of stock................... -- 1,597,079 1,918,789
Stock options exercised............................ -- 130,200 14,390
Distribution to affiliate.......................... -- (1,100,000) --
Other.............................................. (67,106) (69,234) (126,006)
----------- ----------- -----------
Net cash provided by (used in) financing
activities............................... (9,038,386) 2,853,104 658,983
----------- ----------- -----------
Net increase in cash and cash equivalents............ 1,410,332 1,255,543 3,272,498
Cash and cash equivalents at beginning of year....... 198,197 1,608,529 2,864,072
----------- ----------- -----------
Cash and cash equivalents at end of year............. $ 1,608,529 $ 2,864,072 $ 6,136,570
=========== =========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-6
<PAGE> 83
AIRONET WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- BUSINESS
Aironet Wireless Communications, Inc. (the "Company") was incorporated in
1993. The Company's operations were formed from one subsidiary and two units of
the Company's parent, Telxon Corporation ("Telxon"): Telesystems SLW Inc.
("Telesystems") -- a designer and manufacturer of wireless spread spectrum LAN
radios; Telxon's Radio and Wireless Network Engineering Group--designers of
advanced spread spectrum technology radios and network software; and Telxon's RF
Software Engineering Group--advanced software designers of universal wireless
connectivity systems for integration into other computer manufacturer's
networks. As of March 31, 1999, Telxon owned approximately 76 percent of the
Company's outstanding common stock. The Company designs, develops and markets
high speed, standards-based wireless local area networking ("LAN") solutions.
The Company's products utilize advanced radio frequency and data communication
technologies to connect users to computer networks ranging in size and
complexity from enterprise-wide LANs to home networks. The Company markets its
products directly to Telxon and to non-affiliates in North America, Europe and
Asia through a network of value added resellers ("VARs"), distributors, original
equipment manufacturers ("OEMs"), and to a lesser extent directly to end users.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the operations of the Company
and its wholly-owned subsidiaries Aironet Canada Limited ("ACL") and Aironet
Europe S.A. The consolidated financial statements do not include the financial
statements of Aironet Canada, Inc. ("ACI"), a wholly owned, non-operating
subsidiary of the Company. All significant intercompany transactions have been
eliminated in consolidation.
Foreign Currency Translation
The financial statements of ACL prior to April 1, 1996, were translated
into U.S. dollars using the local currency as the functional currency in
accordance with Statement of Financial Accounting Standards No. 52, "Foreign
Currency Translation." Effective April 1, 1996, ACL changed its functional
currency from Canadian Dollars to U.S. Dollars to reflect changes in that
subsidiary's operating environment. Prior to April 1, 1996, all assets and
liabilities were translated at current rates of exchange, and operating
transactions were translated at weighted average rates during the respective
years. The translation gains and losses were accumulated as a separate component
of stockholders' equity until realized. There were no income taxes allocated to
the translation adjustments.
Cash and Cash Equivalents
The Company considers all highly liquid investments which are both readily
convertible to cash and have a maturity of three months or less when purchased
to be cash equivalents.
Fair Value of Financial Instruments
Financial instruments consist of cash and cash equivalents, notes
receivable, line of credit and in fiscal years 1997 and 1998 payable to
affiliate. The carrying amounts reported in the consolidated balance sheets for
these items approximate their fair values.
F-7
<PAGE> 84
AIRONET WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (CONTINUED)
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market.
Income Taxes
The Company uses the liability method of accounting for income taxes.
Deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using enacted tax rates and laws that will be in effect when the differences are
expected to reverse. The effect on deferred taxes of a change in tax rates is
recognized in the period that includes the enactment date.
The Company was included in the consolidated tax filings of Telxon through
March 31, 1998 and calculated its current and deferred income taxes as if it had
filed separate tax returns. Amounts due or receivable subsequently determined
for current income taxes related to that period were indemnified by Telxon as of
March 31, 1998 and therefore recorded as contributed capital or dividends.
Effective April 1, 1998, due to a reduction of Telxon's ownership in the
Company, the Company is no longer included in the consolidated tax filings of
Telxon (Notes 8 and 10).
Property and Equipment
Property and equipment is recorded at historical cost and depreciated over
the estimated useful lives of the assets using the straight-line method for
financial reporting purposes. The ranges of the estimated useful lives are:
machinery and equipment, two to five years; furniture and office equipment, ten
years; customer service equipment and tooling, three years; and leasehold
improvements, over the shorter of the useful life of the asset or the life of
the lease. Gains and losses from the sale or retirement of property and
equipment are included in income.
Intangible Assets, Net
The excess of the purchase cost over the fair value of net assets acquired
in an acquisition (goodwill) is included in intangible assets, net in the
accompanying consolidated balance sheets. Goodwill is amortized on a
straight-line basis over ten years.
Software costs are capitalized and amortized in accordance with Statement
of Financial Accounting Standards No. 86, "Accounting for the Cost of Computer
Software to Be Sold, Leased, or Otherwise Marketed." Product and software
license agreements are capitalized and amortized over the shorter of the license
period or estimated useful life. Purchased computer software is capitalized and
amortized using the straight-line method, over the expected useful life of the
software, generally from three to five years. All other assets included in
intangible assets, net are recorded at cost and are amortized on a straight-line
basis over their expected useful lives.
Research and development costs are expensed as incurred and include costs
associated with new product development and costs to significantly improve
existing products.
The Company periodically reviews intangible and other long-lived assets to
assess recoverability. Impairments, if any, are recognized in results of
operations if events or changes in circumstances indicate that the carrying
amount of the assets may not be recoverable.
F-8
<PAGE> 85
AIRONET WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (CONTINUED)
Warranty Obligations
The Company provides various product warranties. The estimated obligation
to repair products or to replace components thereof is reviewed each accounting
period, based on experience trends and current cost per claim information, and
adjusted as necessary.
Revenue Recognition
The Company recognizes revenues from product sales to VARs, OEMs and end
users at the time of shipment, provided that there are no significant
obligations related to the product delivered, no collection uncertainties and
objective evidence exists to support the fair value of all elements included in
the respective agreements. The Company recognizes revenues from product sales to
distributors at the time of shipment except that during the year ended March 31,
1999, the Company granted certain distributors limited rights of return and
price protection on unsold products. Until such time as adequate historical
information is available, revenues in an amount equal to the gross profit on
shipments with the right of return, are not recognized until the right of return
has lapsed. A reserve for price protection is established at the time the
Company makes a decision to reduce prices. Revenues from customer service
contracts are recognized ratably over the maintenance contract period or as the
services are performed. Revenues through February 28, 1999 related to a royalty
arrangement with Telxon were recognized when the respective units of product
were shipped, invoiced or transferred to Telxon's customers. Commencing March 1,
1999, revenues related to the royalty arrangement with Telxon, as amended, are
recognized as a contractual amount per month (Note 13).
Stock-Based Compensation
The Company accounts for stock-based compensation awards to employees
pursuant to Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees", and its related interpretations which prescribe the use of
the intrinsic value based method. Accordingly, compensation expense is
recognized if, at the measurement date, the grant price is less than the market
value. Compensation expense, if any, is recognized in a manner consistent with
the methodology prescribed by Financial Accounting Standards Board
Interpretation No. 28, "Accounting for Stock Appreciation Rights and Other
Variable Stock Options or Award Plans."
The Company accounts for stock-based compensation awards to non-employees
pursuant to Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock Based Compensation" and has adopted the disclosure only
provisions of SFAS No. 123 for its employee stock-based compensation awards.
SFAS No. 123 prescribes a fair value basis of accounting for stock options at
the measurement date. Compensation expense for non-employee stock options is
recognized on a straight-line basis.
Net Income (Loss) Per Common Share
Basic net income (loss) per common share is based on the weighted average
number of common shares outstanding during the period. Diluted net income (loss)
per common share is based on the weighted average number of common shares
outstanding during the period plus, if dilutive, the incremental number of
common shares issuable on a pro forma basis upon the exercise of employee and
non-employee stock options and stock purchase warrants, assuming the proceeds
are used to repurchase
F-9
<PAGE> 86
AIRONET WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (CONTINUED)
outstanding shares at the average market price during the year. A reconciliation
of the denominators of the basic and diluted per share computations is provided
below:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-----------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Common shares:
Weighted average shares outstanding -- basic.... 8,085,000 8,122,882 9,324,825
Additional shares potentially issuable for stock
options and stock purchase warrants.......... -- 196,181 --
--------- --------- ---------
Weighted average shares outstanding --diluted... 8,085,000 8,319,063 9,324,825
========= ========= =========
</TABLE>
For the year ended March 31, 1999, additional shares potentially issuable
for stock options and stock purchase warrants would have been 495,621, but for
the net loss recorded. The computations of net income (loss) per common share
for all periods presented do not include the effects of any dilutive incremental
common shares related to stock options granted or common stock warrants issued
with exercise rights that are contingent, so long as the contingency is not
resolved (Note 10).
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Contingencies
Contingencies are recorded as expenses when events giving rise to such
items are probable and the amounts are estimable in accordance with the
requirements of Statement of Financial Accounting Standards No. 5, "Accounting
for Contingencies."
Reclassifications
The Company has made certain reclassifications in the fiscal year 1999
consolidated financial statements to conform presentation.
NOTE 3 -- INVENTORIES
Inventories as of March 31 consisted of the following:
<TABLE>
<CAPTION>
1998 1999
---- ----------
<S> <C> <C>
Purchased components........................................ $3,048,654 $3,723,325
Work-in-process............................................. 202,989 290,180
Finished goods.............................................. 768,611 612,014
---------- ----------
$4,020,254 $4,625,519
========== ==========
</TABLE>
F-10
<PAGE> 87
AIRONET WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
NOTE 4 -- PROPERTY AND EQUIPMENT
Property and equipment, net as of March 31 consisted of the following:
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Machinery and equipment................................... $ 4,672,896 $ 5,562,736
Tooling................................................... 330,446 351,835
Furniture and office equipment............................ 181,265 234,763
Leasehold improvements.................................... 199,078 199,078
----------- -----------
5,383,685 6,348,412
Less: Accumulated depreciation............................ (2,728,183) (3,967,809)
----------- -----------
$ 2,655,502 $ 2,380,603
=========== ===========
</TABLE>
Depreciation expense for the years ended March 31, 1997, 1998 and 1999
amounted to $1,031,377, $1,238,348 and $1,306,716, respectively.
NOTE 5 -- INTANGIBLE ASSETS, NET
Intangible assets, net as of March 31 consisted of the following:
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Goodwill, net of accumulated amortization of $5,194,057 and
$6,059,737................................................ $3,462,632 $2,596,952
Product and software license agreements, net of accumulated
amortization of $321,565 and $576,732..................... 722,953 509,263
Other....................................................... 66,549 84,828
---------- ----------
$4,252,134 $3,191,043
========== ==========
</TABLE>
Amortization expense for the years ended March 31 was as follows:
<TABLE>
<CAPTION>
1997 1998 1999
-------- ---------- ----------
<S> <C> <C> <C>
Goodwill........................................ $865,680 $ 865,680 $ 865,680
Product and software license agreements......... 76,309 150,102 255,167
Other........................................... 45,731 21,442 16,354
-------- ---------- ----------
$987,720 $1,037,224 $1,137,201
======== ========== ==========
</TABLE>
NOTE 6 -- ACCRUED LIABILITIES
Accrued liabilities as of March 31 consisted of the following:
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Accrued payroll and other employee compensation............. $ 907,892 $1,192,155
Accrued commissions......................................... 195,179 479,388
Other....................................................... 1,123,424 1,685,765
---------- ----------
$2,226,495 $3,357,308
========== ==========
</TABLE>
F-11
<PAGE> 88
AIRONET WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
NOTE 7 -- BANK DEBT
During July 1998, the Company entered into a revolving credit agreement
with a bank that provides for borrowings up to $5.0 million, which expires July
1, 2000. Borrowings under the revolving credit agreement are limited to 80% of
the balance of eligible accounts receivable and 50% of the balance of eligible
inventories and cash on deposit with the bank. The revolving credit agreement
carries a quarterly facility fee and a commitment fee on the unused amount of
the agreement. Borrowings under the agreement bear interest at either the bank's
prime rate (7.75% at March 31, 1999) or LIBOR plus 2% (6.94% at March 31, 1999).
The weighted average interest rate on borrowings outstanding for the year ended
March 31, 1999 was 7.47%. The agreement contains certain covenants including
prohibiting the Company from paying dividends. If Telxon had reduced its
ownership in the Company below 50%, the note would have become due at the
discretion of the bank (Note 16). At March 31, 1999, $2.5 million was available
under this agreement.
NOTE 8 -- INCOME TAXES
Components of income (loss) before income taxes for the years ended March
31 are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
U.S.......................................... $(2,864,462) $ 4,827,461 $ (818,270)
Foreign...................................... 5,792,646 (363,313) 131,920
----------- ----------- -----------
$ 2,928,184 $ 4,464,148 $ (686,350)
=========== =========== ===========
</TABLE>
Components of the provision for income taxes by taxing jurisdiction for the
years ended March 31 were as follows:
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Currently payable:
U.S........................................ $ -- $ 1,590,649 $ 1,322,151
Foreign.................................... 2,056,110 334,463 467,739
Deferred:
U.S........................................ -- 144,670 (1,409,034)
Foreign.................................... (16,543) (106,279) 10,126
----------- ----------- -----------
Provision for income taxes................... $ 2,039,567 $ 1,963,503 $ 390,982
=========== =========== ===========
</TABLE>
F-12
<PAGE> 89
AIRONET WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
NOTE 8 -- INCOME TAXES, (CONTINUED)
The reconciliations between the reported total income tax provision and the
amount computed by multiplying income (loss) before income taxes by the U.S.
federal statutory tax rate for the years ended March 31 are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
-------------------- ----------------- ------------------
AMOUNT % AMOUNT % AMOUNT %
----------- ------ ---------- ---- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
U.S. federal statutory tax
rate.......................... $ 1,024,864 35.0% $1,562,452 35.0% $ (240,223) 35.0%
Foreign tax rate differential... 515,361 17.6 55,372 1.2 121,200 (17.7)
Net operating loss benefit...... (3,731,195) (127.4) -- -- -- --
Taxation of foreign dividends
(net of foreign tax
credits)...................... 4,381,418 149.7 -- -- -- --
Goodwill amortization........... 302,988 10.3 302,988 6.8 302,988 (44.1)
Stock option compensation
expense....................... -- -- 113,666 2.5 377,188 (54.9)
Research and development
credits....................... (650,057) (22.2) -- -- (199,000) 28.5
Other........................... 196,188 6.7 (70,975) (1.5) 28,829 (3.8)
----------- ------ ---------- ---- ---------- -----
Effective income tax rate....... $ 2,039,567 69.7% $1,963,503 44.0% $ 390,982 (57.0)%
=========== ====== ========== ==== ========== =====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities as of March 31 are presented
below:
<TABLE>
<CAPTION>
1998 1999
----------- ----------
<S> <C> <C>
Deferred tax assets:
Stock option compensation expense........................ $ -- $ 737,006
Depreciation............................................. 205,288 202,722
Reserves................................................. -- 393,993
AMT credit carryforwards................................. 240,215 191,482
Foreign tax and general business credits carryforwards... 4,373,962 636,000
State and local net operating loss carryforwards......... 125,520 --
Valuation allowance, foreign tax and general business
credits carryforwards................................. (4,373,962) (636,000)
Valuation allowance, state and local net operating loss
carryforwards......................................... (125,520) --
Other.................................................... -- 168,084
----------- ----------
Total deferred tax assets........................ 445,503 1,693,287
----------- ----------
Deferred tax liabilities:
Reserves................................................. (93,190) --
Amortization............................................. (145,682) (87,748)
----------- ----------
Total deferred tax liabilities................... (238,872) (87,748)
----------- ----------
Net deferred tax asset..................................... $ 206,631 $1,605,539
=========== ==========
Current asset (liability),net.............................. $ (93,190) $ 723,077
=========== ==========
Long-term asset............................................ $ 299,821 $ 882,462
=========== ==========
</TABLE>
F-13
<PAGE> 90
AIRONET WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
NOTE 8 -- INCOME TAXES, (CONTINUED)
On April 1, 1998, due to the reduction of Telxon's ownership in the Company
and the resulting change in tax status of the Company, AMT credit carryforwards
were increased by $145,235 and foreign tax and general business credits
carryforwards were reduced by $3,606,266. At such time that these carryforwards
are realized by the Company, Telxon will be entitled to the cash benefit under
the terms of the March 31,1998 indemnification agreement (Notes 2 and 10). In
addition, ACL has claims for Canadian research and development credits for the
year ended March 31, 1999 in the amounts of approximately $100,000. If these
claims are subsequently accepted, the benefit will be recognized in the years
allowed. However, per Canadian tax law there will be a corresponding increase in
the subsequent year's taxable income for the amount of the claim recognized.
ACL recorded a benefit of $650,000 during fiscal year 1997 for Canadian
research and development credits claimed during fiscal 1994, 1995, and 1996. The
Company's foreign tax credits expire March 31, 2002 and its AMT credit
carryforwards have an indefinite carry forward period.
Payments for income taxes in the years ended March 31, 1997, 1998 and 1999
were $1,398,760, $4,923,512 and $1,374,693, respectively.
NOTE 9 -- COMMITMENTS AND CONTINGENCIES
In the normal course of its operations, the Company is subject to
performance under contracts, and has various legal actions and certain
contingencies pending. However, in management's opinion, any such outstanding
matters have been reflected in the consolidated financial statements, are
covered by insurance or would not have a material adverse effect on the
Company's consolidated financial position, results of operations or cash flows.
As of March 31, 1999, the Company had a Demand Revolving Promissory Note
(the "Note") with Telxon under which the Company would have been required to pay
Telxon, on demand, the lesser of $50 million or amounts due under intercompany
advances, plus interest at the London Interbank Offer Rate at the beginning of
the fiscal year (6.34% at April 1, 1997). There were no amounts due to Telxon
related to the Note at March 31, 1999. The Note, along with similar notes from
other principal subsidiaries of Telxon, was used as collateral for Telxon's $100
million unsecured credit agreement. Telxon's credit agreement expires March 8,
2001 (Note 16).
NOTE 10 -- STOCKHOLDERS' EQUITY AND STOCK WARRANTS AND OPTIONS
Effective June 20, 1996, the Company authorized a one hundred ten thousand
for one share common stock split, increasing the number of $.01 par value shares
of common stock issued and outstanding to 11,000,000 shares.
Effective September 5, 1996, the Company authorized an eight thousand
eighty-five for eleven thousand share reverse common stock split, reducing the
number of $.01 par value shares of common stock issued and outstanding to
8,085,000. The 1996 number of shares outstanding have been retroactively
restated for this reverse stock split.
On March 26, 1997, the Board of Directors authorized a $1,100,000 capital
distribution to Telxon. The authorization of the capital distribution in fiscal
year 1997 was treated as a non cash transaction in the accompanying 1997
consolidated statement of cash flows. The cash distribution was paid April 15,
1997.
F-14
<PAGE> 91
AIRONET WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
NOTE 10 -- STOCKHOLDERS' EQUITY AND STOCK WARRANTS AND OPTIONS, (CONTINUED)
On March 31, 1998, the Company issued 984,126 shares of common stock and
warrants to purchase 295,237 shares of common stock for $3,444,444. The Company
recorded $628,576 in related transaction costs resulting in net cash received of
$2,815,868. Cash proceeds of $1,499,998 were not received by the Company until
April 1998, thereby, representing a non cash transaction for the year ended
March 31, 1998. In addition, the Company incurred as part of the transaction
costs a fee for advisory services of $125,000 along with the issuance of 100,000
warrants to purchase common stock, to a board member of the Company. The
$125,000 has been accounted for as a reduction of the proceeds received from
these transactions. The terms of all the warrants issued contain an exercise
price of $3.50 and entitle the warrant holder to exercise the warrants at the
earlier of a qualified initial public offering, the entire sale of the Company,
or a change of control or spin-off, as defined. The warrants expire on March 31,
2001. No value was assigned to the warrants by the Company at the dates of
issuance.
On March 31, 1998, the date of the stock issuance, the Company entered into
a tax indemnification agreement with Telxon. This agreement entitles Telxon to
all income tax refunds (as defined in the agreement) which relate to the period
prior to the stock issuance and obligates Telxon for all taxes payable (as
defined in the agreement) prior to the stock issuance. As a result $280,140 of
taxes payable for the year ended March 31, 1999, were recorded as additional
paid-in capital. In addition, in fiscal 1998 Telxon elected to forgive the
Company's net payable of $644,623 owed to Telxon related to taxes which has been
reflected as an additional non cash capital contribution.
During the year ended March 31, 1999, the Company issued 222,222 additional
shares of common stock and warrants to purchase 66,667 shares of common stock
for $3.50 per share or aggregate proceeds of $777,777 of which $77,777 was not
paid until April 1999. The warrants issued are subject to the same terms as
previously issued warrants.
In July 1996, the Company established the Aironet Wireless Communications,
Inc. 1996 Stock Option Plan which was amended and restated on March 30, 1998
("1996 Amended Plan"). The 1996 Amended Plan provides for the granting of
options to key employees of the Company and to certain employees of Telxon and
outside directors. The total number of shares for which the Company may grant
options under the 1996 Amended Plan cannot exceed 2,150,500. Options are awarded
at a price not less than the fair market value on the date the option is
granted. Options granted prior to March 30, 1998 have a term of ten years and
generally vest one-third on the date granted and one-third on each of the two
successive anniversary dates therefrom. Options granted on or after March 30,
1998 have the same terms except an option can only be exercised after the
earlier of a change in control or an initial public offering, as defined in the
1996 Amended Plan and vest one-third twelve months after the date of grant and
one-third on each of the two successive anniversary dates therefrom.
Effective March 31, 1999, the Company's Board of Directors and Stockholders
approved an additional amendment to the 1996 Amended Plan that permits vested
options granted under the 1996 Amended Plan to be exercised at any time after
the earlier of an initial public offering, a change in control, as defined, or
March 31, 2001. In addition, the Company's Board of Directors accelerated the
vesting of certain options held by persons not employed by the Company. As a
result of this amendment to the 1996 Amended Plan and immediate vesting of
certain outstanding options on March 31, 1999, the Company recorded non cash
compensation expense related to employees of $932,539 and non cash compensation
expense related to non-employees of $943,425.
F-15
<PAGE> 92
AIRONET WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
NOTE 10 -- STOCKHOLDERS' EQUITY AND STOCK WARRANTS AND OPTIONS, (CONTINUED)
On February 16, 1999, the Company's Board of Directors had approved,
subject to stockholder approval (which was determined to be perfunctory), the to
be adopted Aironet Wireless Communications, Inc. 1999 Omnibus Stock Incentive
Plan (the "1999 Plan") and granted options to acquire 400,000 options under such
plan. The 1999 Plan provides for the granting of options, stock appreciation
rights ("SARs"), restricted stock and performance units, as defined, to certain
officers and other key employees of the Company. The total number of shares the
Company may grant under the 1999 Plan cannot exceed 1,765,817. Options granted
under the 1999 Plan have a ten-year term and must have an exercise price equal
to or greater than the fair market value of the Company's common stock on the
date of grant. Options granted generally vest over a three-year period on the
first three anniversary dates after the date of grant. The Company's Board of
Directors formally adopted and approved the 1999 Plan on April 12, 1999, and the
Company's Stockholders formally adopted and approved the 1999 Plan on May 7,
1999.
The following is a summary of the Company's warrants to purchase common
stock that are outstanding as of March 31, 1999:
<TABLE>
<CAPTION>
WARRANT DATE NUMBER OF SHARES EXERCISE PRICE
------------ ---------------- --------------
<S> <C> <C>
March 1998............................................. 395,237 $3.50
April 1998............................................. 17,143 3.50
May 1998............................................... 42,857 3.50
December 1998.......................................... 6,667 3.50
</TABLE>
The following is a summary of the activity in the Company's 1996 Amended
Plan and 1999 Plan during fiscal years 1997, 1998 and 1999:
<TABLE>
<CAPTION>
1996 AMENDED PLAN 1999 PLAN
STOCK OPTIONS STOCK OPTIONS
-------------------------- ------------------------
WEIGHTED WEIGHTED
AVERAGE PRICE AVERAGE PRICE
SHARES PER SHARE SHARES PER SHARE
--------- ------------- ------- -------------
<S> <C> <C> <C> <C>
March 31, 1996.............................. 384,000 $1.86 -- $ --
Granted................................... 1,040,500 1.86 -- --
Exercised................................. -- -- -- --
Returned to pool due to employee
terminations........................... (167,500) 1.86 -- --
--------- ----- ------- -----
March 31, 1997.............................. 1,257,000 1.86 -- --
Granted................................... 500,000 3.50 -- --
Exercised................................. (270,000) 1.86 -- --
Returned to pool due to employee
terminations........................... (6,500) 1.86 -- --
--------- ----- ------- -----
March 31, 1998.............................. 1,480,500 2.41 -- --
Granted................................... 105,000 3.50 400,000 9.00
Exercised................................. (5,833) 3.50 -- --
Returned to pool due to employee
terminations........................... (36,667) 3.09 -- --
--------- ----- ------- -----
March 31, 1999.............................. 1,543,000 2.47 400,000 9.00
========= ===== ======= =====
</TABLE>
F-16
<PAGE> 93
AIRONET WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
NOTE 10 -- STOCKHOLDERS' EQUITY AND STOCK WARRANTS AND OPTIONS, (CONTINUED)
At March 31, 1999, there were options outstanding under the 1996 Amended
Plan and 1999 Plan to purchase 1,543,000 and 400,000 shares of common stock,
respectively, of which 784,012 and 0 are currently exercisable at a weighted
average price per share of $1.86 and $9.00, respectively.
In February 1998, an employee of the Company exercised 200,000 options with
a grant price and fair value of $1.86. At the date of grant the Company provided
the employee a non-recourse loan of $372,000 which was applied to payment of the
exercise price of the options. The terms of the note did not extend the original
option period. The note bears non-recourse interest at 6% per annum on amounts
outstanding through maturity, October 31, 2002, and at a prime rate plus 4% per
annum thereafter until paid. All unpaid principal and all accrued interest is
due in full on October 31, 2002. The 200,000 shares issued (or approved
replacement collateral of equal value at the employee's discretion)
collateralize the note. Any amounts paid on the note shall be applied first to
accrued but unpaid interest and then to unpaid principal. The employee may at
any time prepay the note without premium or penalty in amounts of at least
$25,000. Pursuant to Emerging Issues Task Force ("EITF") Issue No. 85-1,
"Classifying Notes Received for Capital Stock" the note has been recorded as a
reduction of additional paid-in capital rather than as an asset. In addition,
pursuant to EITF No. 95-16, "Accounting for Stock Compensation Arrangements with
Employee Loan Features Under APB Opinion No. 25," the options have been
accounted for as variable plan options from the note issuance date until the
note is settled or otherwise amended resulting in a $324,760 non cash charge
recorded in March 1998 and a non cash charge of $1,077,680 recorded for the year
ended March 31, 1999 (Note 16).
Compensation expense related to all options granted to employees for the
years ended March 31, 1997, 1998 and 1999 was $0, $324,760 and $2,010,219,
respectively. Compensation expense related to all options granted to Telxon
employees and outside directors, for the years ended March 31, 1997, 1998 and
1999, was $0, $79,684 and $994,273, respectively.
For SFAS No. 123 purposes, the fair value of each option granted under the
1996 Amended Plan and 1999 Plan are estimated as of the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions used for stock options granted in fiscal years 1997, 1998 and 1999,
respectively: dividend yield of 0%, expected volatility of 56.22%, 56.00% and
51.57%, risk-free interest rates of 6.74%, 5.72% and 5.14%, and an expected life
of five years. The weighted average fair value on the date of grant for options
granted during fiscal years 1997, 1998 and 1999 were $1.86, $3.50 and $8.43,
respectively.
If the Company had elected to recognize the compensation cost of its 1996
Amended Plan and 1999 Plan based on the fair value of all awards under the plans
in accordance with SFAS No. 123, fiscal years 1997, 1998 and 1999 pro forma net
income (loss) and pro forma net income (loss) per common share would have been
as follows:
<TABLE>
<CAPTION>
1997 1998 1999
-------- ---------- -----------
<S> <C> <C> <C> <C>
Net income (loss): As reported........... $888,617 $2,500,645 $(1,077,332)
Pro forma............. 680,440 2,212,447 (344,368)
Net income (loss) per common share:
Basic: As reported........... $ 0.11 $ 0.31 $ (0.12)
Pro forma............. 0.08 0.27 (0.04)
Diluted: As reported........... $ 0.11 $ 0.30 $ (0.12)
Pro forma............. 0.08 0.27 (0.04)
</TABLE>
F-17
<PAGE> 94
AIRONET WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
NOTE 10 -- STOCKHOLDERS' EQUITY AND STOCK WARRANTS AND OPTIONS, (CONTINUED)
In March 1999, the Company decided to file a registration statement to
register shares of its common stock with the Securities and Exchange Commission
for an initial public offering (the "Offering"). Effective with the Offering,
the Company's outstanding warrants and certain of the Company's vested options
will become exercisable. Also, the 1998 License, Rights and Supply Agreement, as
amended, between Telxon and the Company stipulates that the percentages related
to change in control provisions of that agreement be reduced effective with the
Offering and that Telxon be permitted to purchase specific products from the
Company under the terms of the agreement for up to 4 years from the effective
date of the Offering.
NOTE 11 -- LEASES
The Company leases office and manufacturing facilities and certain
equipment under noncancellable operating leases. Future minimum lease payments
for long-term noncancellable operating leases for fiscal years ending March 31
are as follows:
<TABLE>
<S> <C>
2000........................................................ $ 787,633
2001........................................................ 330,084
2002........................................................ 762
----------
$1,118,479
==========
</TABLE>
Rent expense for fiscal 1997, 1998 and 1999 amounted to $508,912, $786,380
and $813,221, respectively. Rent expense in fiscal years 1998 and 1999 included
$110,000 and $412,758, respectively, related to leases with Telxon for the
Company's manufacturing and office facilities.
NOTE 12 -- BUSINESS SEGMENT
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information". The
provisions of this statement require disclosure of financial and descriptive
information about an enterprise's operating segments in annual and interim
financial reports issued to stockholders. The statement defines an operating
segment as a component of an enterprise that engages in business activities that
generate revenue and incur expense, whose operating results are reviewed by the
chief operating decision maker in the determination of resource allocations and
performance, and for which discrete financial information is available. The
Company adopted the provisions of this statement in fiscal 1999.
F-18
<PAGE> 95
AIRONET WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
NOTE 12 -- BUSINESS SEGMENT, (CONTINUED)
Management has determined that the Company consists of a single operating
segment, therefore, the disclosure requirements of SFAS No. 131 consist only of
revenues based on location of customer and long-lived assets by geographic
location for the years ended March 31 as follows:
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
United States............................. $58,511,315 $38,351,412 $31,826,941
Japan..................................... 229,608 1,675,328 6,809,069
All other countries....................... 2,586,974 5,107,655 6,616,815
----------- ----------- -----------
Total............................. $61,327,897 $45,134,395 $45,252,825
=========== =========== ===========
Long-lived assets, net:
United States............................. $ 3,226,149 $ 2,924,780
Japan..................................... -- --
All other countries....................... 3,751,082 2,652,236
----------- -----------
Total............................. $ 6,977,231 $ 5,577,016
=========== ===========
</TABLE>
Telxon (Note 13) represented 76%, 55% and 37%, respectively, of the
Company's total revenues for the years ended March 31, 1997, 1998 and 1999. The
Company had two other customers that represented 0%, 3% and 28%, respectively,
of total revenues for the years ended March 31, 1997, 1998 and 1999.
The Company provides credit in the normal course of business. The Company
performs ongoing credit evaluations of its customers and establishes appropriate
allowances for doubtful accounts based upon factors surrounding the credit risk
of specific customers, historical trends and other information.
NOTE 13 -- TRANSACTIONS WITH AFFILIATE
The Company supplies Telxon with its radio and wireless LAN products for
inclusion in Telxon's products and for resale as discrete products.
Approximately 76%, 55%, and 37%, respectively, of the Company's consolidated net
product revenues for each of the years ended March 31, 1997, 1998 and 1999 were
derived from Telxon.
Amounts receivable for the sale of such products to Telxon have been
recorded as receivable from affiliate in the accompanying consolidated balance
sheets. Through March 31, 1998, Telxon supported the operations of the Company's
domestic engineering and general and administrative functions through cash
funding of working capital needs. Telxon's advances to the Company have been
included in payable to affiliate in the accompanying consolidated balance sheets
(Note 9).
Effective March 1, 1999, the Company and Telxon amended the existing
License, Rights and Supply Agreement (the "Amended Agreement"), without payment
and without the right of waiver or amendment pursuant to a mutual written
agreement, in which the Company has granted Telxon certain rights and licenses
to accommodate changes in respective business plans. The Amended Agreement
eliminates the previous per unit royalty arrangement and substitutes a fixed
monthly royalty payment of $541,667 for the period March 1, 1999 to March 31,
2000, $416,667 for the period April 1, 2000 to March 31, 2001 and $333,333,
thereafter. The Amended Agreement also enables Telxon the choice of converting
to a per unit royalty on April 1, 2001 or thereafter. Revenue of $479,167 per
month related
F-19
<PAGE> 96
AIRONET WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
NOTE 13 -- TRANSACTIONS WITH AFFILIATE, (CONTINUED)
to the Amended Agreement will be recognized by the Company during the period
March 1, 1999 through March 31, 2001 and $333,333 per month thereafter, subject
to conversion to a per unit basis by Telxon.
NOTE 14 -- ALLOCATIONS OF COSTS AND EXPENSES
Pursuant to an agreement for services, Telxon provides the Company with
administrative services such as human resource and benefits services, tax
planning and return preparation, payroll processing, computer system services
and legal services. These services are invoiced to the Company monthly at fixed
amounts that were in part based on the Company's direct domestic operating
expenses in relation to the direct domestic operating expenses of Telxon. In
addition, costs associated with Telxon's and the Company's self-insurance health
plan are allocated to the Company based on a ratio of the Company's number of
domestic employees to Telxon's number of domestic employees. The costs to the
Company were $549,836, $723,950 and $756,938 for the years ended March 31, 1997,
1998 and 1999, respectively. Included in these amounts are self-insured health
costs of $185,873, $359,987 and $448,973 for the years ended March 31, 1997,
1998 and 1999, respectively. In addition, direct costs associated with the
Company's property and equipment and directors and officers insurance program
coverages and the Company's life, dental, disability and savings and retirement
plans are paid by Telxon and subsequently reimbursed by the Company. Management
believes these allocations are reasonable, however, while reasonable, they may
not necessarily be indicative of the costs that would have been incurred by the
Company had it performed these functions itself or received services as a
stand-alone entity.
Also, as discussed in Note 9 to the consolidated financial statements, the
Company incurred interest expense to Telxon of $231,507 and $113,448 for the
years ended March 31, 1997 and 1998, respectively, based on the unadjusted
balance of the net payable to affiliate at the end of each month at the one year
LIBOR rate at the beginning of the year (6.34% at April 1, 1997), and, as
discussed in Note 11 to the consolidated financial statements, incurred rent
expense of $110,000 and $412,758 to Telxon for the years ended March 31, 1998
and 1999, respectively.
NOTE 15 -- RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standard Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income". SFAS No. 130 establishes standards of
disclosure and financial statement display for reporting total comprehensive
income and its individual components. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997. The adoption of SFAS No. 130 in fiscal 1999
did not have a material impact on the Company's financial reporting.
In June 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information" was issued. SFAS No. 131 supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise," and requires
companies to report financial and descriptive information about their reportable
operating segments. The financial information is required to be reported on the
same basis that is used internally for evaluating segment performance and
deciding how to allocate resources to segments. This statement is effective for
periods beginning after December 15, 1997, with interim information required for
the year following adoption. SFAS No. 131 had no impact on the Company's
F-20
<PAGE> 97
AIRONET WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
NOTE 15 -- RECENTLY ISSUED ACCOUNTING STANDARDS, (CONTINUED)
consolidated financial position, results of operations or cash flows and the
required disclosures have been included in Note 12 to the consolidated financial
statements.
In October 1997, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 97-2 "Software Revenue
Recognition," which is effective for transactions entered into in fiscal years
beginning after December 15, 1997. SOP 97-2 revises certain standards for the
recognition of software revenue and did not have a material effect on the
Company's financial results. The effect of SOP 97-2 on the future operating
results of the Company is dependent on the nature and terms of the individual
software licensing agreements entered into in fiscal year 2000 and thereafter,
if any.
In March 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," which is effective
for fiscal years beginning after December 15, 1998. SOP 98-1 requires the
capitalization of certain expenditures for software that is purchased or
internally developed for use in the business. Company management believes that
the prospective implementation of SOP 98-1 in fiscal year 2000 is likely to
result in some additional capitalization of software expenditures in the future.
However, the amount of such additional capitalized software expenditures cannot
be determined at this time.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-up Activities." The SOP provides guidance on financial reporting of costs
of start-up activities. SOP 98-5 requires such costs to be expensed instead of
being capitalized and amortized. SOP 98-5 is effective for fiscal years
beginning after December 15, 1998. The Company believes the implementation of
SOP 98-5 in fiscal year 2000 will not have a material impact on its financial
results.
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. The
Company will adopt SFAS No. 133 in fiscal year 2000 and does not expect the
impact of adoption to be material.
NOTE 16 -- EVENTS SUBSEQUENT TO MARCH 31, 1999
Stock-Based Compensation
In April 1999, the Board of Directors terminated the 1996 Amended Plan. The
termination eliminates the Company's ability to grant further options under the
1996 Amended Plan but does not affect options outstanding under the 1996 Plan at
termination.
The Company's Board of Directors adopted and approved the Aironet Wireless
Communications, Inc. 1999 Stock Option Plan for Non-Employee Directors (the
"1999 Non-Employee Directors Plan") on April 27, 1999. The Company's
Stockholders adopted and approved the 1999 Non-Employee Directors Plan on May
13, 1999. The 1999 Non-Employee Director Plan entitles each non-employee
Director who is sitting on the Company's Board of Directors on the first day
that the Company's common stock commences trading on NASDAQ subsequent to the
Offering (Note 10), to purchase 25,000 shares of the Company's common stock with
an exercise price equal to the initial public offering price per share. These
grants will be accounted for pursuant to APB Opinion No. 25. In addition, each
F-21
<PAGE> 98
AIRONET WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
NOTE 16 -- EVENTS SUBSEQUENT TO MARCH 31, 1999, (CONTINUED)
non-employee Director who continues to serve on the Company's Board will
automatically be granted options to purchase 5,000 shares of the Company's
common stock on each anniversary of his or her election or re-election to the
Board. The Board of Directors also retains the right to grant additional options
to non-employee Director at its sole discretion. Options granted under the 1999
Non-Employee Directors Plan have a ten-year term and must have an exercise price
equal to or greater than the fair market value of the Company's common stock on
the date of grant. Options granted immediately following the Offering vest
ratably over a three-year period while the options granted on the individual
Director's anniversary dates vest three years after they are granted.
On May 25, 1999, a committee of the Board of Directors approved a grant of
100,000 stock options with an exercise price of $9.00 per share to an officer of
the Company under the terms of the 1999 Plan. In addition, the Board of
Directors approved a grant of 25,000 stock options with an exercise price of
$9.00 per share to a director of the Company for advisory services related to
the Offering under the terms of the 1999 Non-Employee Directors Plan. The
Company intends to account for the grant of 100,000 stock options pursuant to
APB Opinion No. 25 with no compensation expense expected and the grant of 25,000
stock options pursuant to SFAS No. 123 with the resulting charge being reflected
as a reduction of the Offering proceeds.
Stock Purchase Plan
The Company's Board of Directors approved the Aironet Wireless
Communications, Inc. 1999 Employee Stock Purchase Plan (the "1999 Stock Purchase
Plan") on April 12, 1999. The Company's Stockholders approved the 1999 Stock
Purchase Plan on May 7, 1999. The terms of the 1999 Stock Purchase Plan provide
the opportunity for eligible employees to purchase unrestricted common shares of
the Company, subjected to annual limitations, at a price per share equal to 85%
of the closing price (as defined in the agreement) of the Company's stock. The
total number of shares of common stock that may be purchased under the 1999
Stock Purchase Plan is 500,000 shares.
Stockholder Rights Agreement
On April 12, 1999, the Board of Directors adopted and approved a
stockholder "Rights Plan" and the Board declared a dividend of one common stock
purchase right on each share of common stock outstanding prior to the
effectiveness of the plan; thereafter, shares are issued pursuant to the plan
with a purchase right. The Rights Plan is designed to deter abusive market
manipulation or unfair takeover tactics and to prevent an acquirer from gaining
control of the Company without offering a fair price to all stockholders. Each
purchase right, when exercisable, entitles the registered holder to purchase one
share of common stock at a price of $125 per share, subject to adjustment. The
purchase rights become exercisable in the event the Company is a party to
certain merger or business combination transactions, as defined, or in the event
an "acquiring person," as defined, becomes a beneficial owner of 15% or more of
the Company's outstanding common stock. In these circumstances, each holder of a
share right (other than the acquiring person) will have the right to receive
shares of the acquiring company or the Company, as appropriate, having a market
value of two times the exercise price of the purchase right. The rights expire
ten years from the effective date of the plan unless earlier redeemed by the
Company. The rights can be redeemed at a price of $.001 per right.
F-22
<PAGE> 99
AIRONET WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
NOTE 16 -- EVENTS SUBSEQUENT TO MARCH 31, 1999, (CONTINUED)
Authorized Capital Stock
On April 12, 1999, the Company's Board of Directors approved and adopted an
amended and restated certificate of incorporation which increased the number of
authorized common shares of the Company from 15,000,000 shares to 60,000,000. In
addition, the amended and restated certificate authorized 500,000 shares of
undesignated preferred stock with a par value of $.01 per share.
Notes Payable and Receivable
In April 1999, the Company's revolving credit agreement discussed in Note 7
to the consolidated financial statements was amended to eliminate the
requirement that Telxon's ownership of the Company must be at least 50%. In
April 1999, the Company amended its note receivable agreement discussed in Note
10 to the consolidated financial statements to eliminate the prepayment option
provision. In addition, in May 1999, the note with Telxon discussed in Note 9 to
the consolidated financial statements was cancelled.
F-23
<PAGE> 100
[INSIDE BACK COVER]
[This graphic contains the following text:
At the top left of the page are the words:
"AIRONET'S COMPREHENSIVE SUITE OF AWARD WINNING WIRELESS LAN SOLUTIONS"
There is a graphic depicting Aironet's wireless LAN products, including an
access point, a universal client, two PC Cards and two network interface cards.
Under this graphic are the words:
- -------------------------------------------------------------------------------
"AIRONET'S FLAGSHIP 4800 TURBO DS(TM) SERIES*
- The industry's first high-speed 11 Mbps standards-based wireless LAN
solution
- Fully compliant with the IEEE 802.11 Direct Sequence standard at 1 and
2 Mbps
- Designed to conform to the proposed IEEE 802.11b high rate DS standard
for 5.5 and 11 Mbps
- --------------------------------------------------------------------------------
AIRONET 4500 SERIES*
- 1 and 2 Mbps data rates - Unlicensed 2.4 GHz band
- IEEE 802.11 compliant - Direct Sequence Spread Spectrum
- --------------------------------------------------------------------------------
AIRONET 3500 SERIES*
- 1 and 2 Mbps data rates - Unlicensed 2.4 GHz band
- IEEE 802.11 compliant - Frequency Hopping Spread Spectrum
- --------------------------------------------------------------------------------
*Each Aironet Wireless LAN product series includes an Access Point and a
family of client adapters: PC Cards for portable computers, PCI and ISA
card for PCs, Universal Client and MultiClient adapters, and management
software.
- --------------------------------------------------------------------------------
WIRELESS BRIDGE PRODUCTS
Provide point-to-point or point-to-multipoint connectivity to networks
between two or more buildings with line-of-sight ranges of up to 15 miles
at 11 Mbps and up to 25 miles at 2 Mbps."
There are three graphics at the bottom of the page depicting that Aironet has
received the following product awards: Network Magazine Product of the Year
1999, 1999 Network Computing Well-Connected Award and Network Computing
Editor's Choice.]
<PAGE> 101
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6,000,000 SHARES
AIRONET LOGO
COMMON STOCK
----------------------------
PRICE $ PER SHARE
----------------------------
DAIN RAUSCHER WESSELS
a division of Dain Rauscher Incorporated
PRUDENTIAL SECURITIES
CIBC WORLD MARKETS
----------------------------
, 1999
----------------------------
UNTIL , 1999, ALL DEALERS THAT EFFECT TRANSACTIONS
IN THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION
TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 102
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered hereby, other than
underwriting discounts and commissions. All amounts are estimated except the
Securities and Exchange Commission registration fee, the National Association of
Securities Dealers, Inc. filing fee and the Nasdaq National Market listing fee.
<TABLE>
<CAPTION>
DESCRIPTION AMOUNT
----------- ------
<S> <C>
Securities and Exchange Commission registration fee......... $ 21,100.20
Nasdaq National Market listing fee and expenses............. $ 86,000.00
National Association of Securities Dealers, Inc. filing
fee....................................................... $ 8,090.00
Blue Sky fees and expenses (including related legal fees)... +
Printing and engraving expenses............................. +
Legal fees and expenses (other than Blue Sky)............... +
Accounting fees and expenses................................ +
Transfer Agent and Registrar's fee.......................... +
Miscellaneous............................................... +
-----------
Total............................................. $ +
===========
</TABLE>
- ---------------
+ To be completed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify Directors and officers as well as other employees and
individuals against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement in connection with specified actions, suits or
proceedings, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation, a "derivative action") if
they acted in good faith and in a manner they reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, if they had no reasonable cause to believe their
conduct was unlawful. A similar standard is applicable in the case of derivative
actions, except that indemnification only extends to expenses (including
attorneys' fees) incurred in connection with the defense or settlement of such
actions, and the statute requires court approval before there can be any
indemnification where the person seeking indemnification has been found liable
to the corporation. The statute provides that it is not exclusive of other
indemnification that may be granted by a corporation's bylaws, disinterested
Director vote, stockholder vote, agreement or otherwise.
Our Amended and Restated Certificate of Incorporation provides that each
person who was or is made a party or is threatened to be made a party to or is
involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that such person, or a
person of whom such person is the legal representative, is or was one of our
Directors or officers or is or was serving at our request as a Director,
officer, employee or agent of another corporation or of a partnership, joint
venture, trust or other enterprise, including service with respect to employee
benefit plans, whether the basis of such proceeding is an alleged action in an
official capacity as a Director, officer, employee or agent or in any other
capacity while serving as a director, officer, employee or agent, will be
indemnified and held harmless by us to the fullest extent authorized by the
Delaware General Corporation Law, as the same exists or may hereafter be amended
(but, in the case of any such
II-1
<PAGE> 103
amendment, only to the extent that such amendment permits us to provide broader
indemnification rights than the law permitted prior to such amendment), against
all expense, liability and loss reasonably incurred or suffered by such person
in connection therewith. Such right to indemnification includes the right to
have us pay the expenses incurred in defending any such proceeding in advance of
its final disposition, subject to the provisions of the Delaware General
Corporation Law. Such rights are not exclusive of any other right which any
person may have or thereafter acquire under any statute, provision of the
certificate, bylaws, agreement, vote of stockholders or disinterested directors
or otherwise. No repeal or modification of such provision will in any way
diminish or adversely affect the rights of any of our directors, officers,
employees or agents thereunder in respect of any occurrence or matter arising
prior to any such repeal or modification. The certificate also specifically
authorizes us to maintain insurance and to grant similar indemnification rights
to our employees or agents.
The Delaware General Corporation Law permits a corporation to provide in
its certificate of incorporation that a director of the corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability for (i) any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) payments of unlawful dividends or unlawful
stock repurchases or redemptions, or (iv) any transaction from which the
director derived an improper personal benefit.
The certificate provides that our directors will not be personally liable
to us or our stockholders for monetary damages for breach of fiduciary duty as a
director, except, if required by the Delaware General Corporation Law as amended
from time to time, for liability (i) for any breach of the director's duty of
loyalty to us or our stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the Delaware General Corporation Law, which concerns
unlawful payments of dividends, stock purchases or redemptions, or (iv) for any
transaction from which the director derived an improper personal benefit.
Neither the amendment nor repeal of such provision will eliminate or reduce the
effect of such provision in respect of any matter occurring, or any cause of
action, suit or claim that, but for such provision, would accrue or arise prior
to such amendment or repeal.
The underwriting agreement for this offering provides for indemnification
by the underwriters of us, our directors and officers, and by the registrant of
the underwriters, for certain liabilities, including liabilities arising under
the Act, and affords certain rights of contribution with respect thereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following information is being furnished with regard to all securities
sold by us within the last three years that were not registered under the
Securities Act of 1933, except as follows:
(a) From March 1998 through December 1998, we issued and sold an aggregate
of 1,206,348 units, each consisting of one share of common stock and one warrant
to purchase three tenths of one share of common stock, for aggregate
consideration of $4,222,218.
(b) In March 1998, we granted Furneaux & Company, LLC warrants to purchase
100,000 shares of our common stock at $3.50 per share, for business and
financial advisory services.
(c) In September 1996, we granted options to purchase an aggregate of
975,500 shares of common stock, at an exercise price of $1.86 per share. In
January 1997, we granted options to purchase an aggregate of 65,000 shares of
common stock, at an exercise price of $1.86 per share. In March 1998, we granted
options to purchase an aggregate of 500,000 shares of common stock, at an
exercise price of $3.50 per share. In July 1998, we granted options to purchase
an aggregate of 5,000 shares of common stock at an aggregate exercise price of
$3.50 per share and in August 1998, we granted options to
II-2
<PAGE> 104
purchase an aggregate of 100,000 shares of common stock, at an exercise price of
$3.50 per share. In February 1999, we granted options to purchase an aggregate
of 400,000 shares of common stock, at an exercise price of $9.00 per share. In
May 1999, we granted options to purchase an aggregate of 125,000 shares of
common stock, at an exercise price of $9.00 per share.
(d) From March 1996 through March 1999, we issued and sold an aggregate of
275,833 shares of common stock, for aggregate consideration of $513,049.38, upon
the exercise of employee stock options.
The sales of the above securities were deemed to be exempt from
registration under the Securities Act of 1933 in reliance on Section 4(2) or
Regulation D promulgated thereunder, or Rule 701 promulgated under Section 3(b)
of the Securities Act of 1933, as transactions by an issuer not involving a
public offering or transactions pursuant to compensatory benefit plans and
contracts relating to compensation as provided under such Rule 701. The
recipients of securities in each such transaction represented their intention to
acquire the securities for investment only and not with a view to, or for sale
in connection with, any distribution thereof, and appropriate legends were
affixed to share certificates and instruments issued in such transactions. All
recipients had adequate access, through their relationships with us, to
information about us.
II-3
<PAGE> 105
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
1 Form of Underwriting Agreement
3.1* Form of Amended and Restated Certificate of Incorporation of
Aironet Wireless Communications, Inc. (to be effective
immediately prior to the closing of this offering)
3.2* Form of Second Amended and Restated Bylaws of Aironet
Wireless Communications, Inc. (to be effective immediately
prior to the closing of this offering)
4.1 Specimen of certificate for shares of Aironet's common stock
4.2* Form of Rights Agreement between Aironet Wireless
Communications, Inc. and Harris Trust and Savings Bank, as
Rights Agent, dated as of , 1999, including
form of rights certificate
4.3* Warrant certificate issued to Furneaux & Company, LLC
5+ Opinion of Goodman Weiss Miller LLP
10.1 Aironet's Compensation and Benefits Plans
10.1.1* Aironet Wireless Communications, Inc. 1996 Stock
Option Plan
10.1.2* Amended and Restated Aironet Wireless
Communications, Inc. 1996 Stock Option Plan
10.1.3* First Amendment to Amended and Restated Aironet
Wireless Communications, Inc. 1996 Stock Option Plan
10.1.4* Aironet Wireless Communications, Inc. 1999 Employee
Stock Purchase Plan
10.1.5* Aironet Wireless Communications, Inc. 1999 Omnibus
Stock Incentive Plan
10.1.6* Aironet Wireless Communications, Inc. 1999 Stock
Option Plan for Non-Employee Directors
10.1.7* Employment Agreement between Aironet and Roger J.
Murphy, Jr.
10.1.8* Employment Letter Agreement between Aironet and
Richard G. Holmes
10.1.9* Employment Letter Agreement between Aironet and
Ronald B. Willis
10.1.10* Employment Letter Agreement between Aironet and
Harvey A. Ikeman
10.1.11* Promissory Note made by Roger J. Murphy, Jr. to the
order of Aironet in the principal amount of $372,000
10.1.11.1* Amendment to Promissory Note, included as Exhibit
10.1.11
10.1.12* Telxon's Retirement & Uniform Matching Profit
Sharing Plan, as amended (in which Aironet's employees
participate pursuant to the Services Agreement
included as Exhibit 10.7)
10.1.12.1* Supplemental Participation Agreement and
Certificate of Resolution to Telxon's Retirement & Uniform
Matching Profit Sharing Plan, as amended
10.1.13* Telxon 1995 Employee Stock Purchase Plan
10.2 Material Leases
10.2.1* Lease between Aironet and Telxon Corporation for 91
Springside Drive, Akron, Ohio, dated as of April 1, 1998
10.2.2* Sublease Agreement between Aironet and Telxon
Corporation for 3875 Embassy Parkway, Bath, Ohio dated as of
September 1, 1998
10.2.3 Lease renewal between Telxon Corporation and
Aironet, dated June 16, 1999, for Lease included as Exhibit
10.2.1 and Sublease included as 10.2.2
10.3* Loan Agreement between Aironet and The Huntington National
Bank, dated as of July 24, 1998
10.4* Subscription Agreement by and among Aironet and the
investors who executed the same, dated as of March 31, 1998
10.4.1* Form of warrant issued pursuant to the Subscription
Agreement included as Exhibit 10.4
10.4.2* Stockholders Agreement by and among Aironet and its
stockholders party thereto, dated as of March 31, 1998, in
connection with the transactions under the
Subscription Agreement included as Exhibit 10.4
</TABLE>
II-4
<PAGE> 106
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.4.2.1* Form of Addendum to Stockholders Agreement
included as Exhibit 10.4.2
10.4.3* Registration Rights Agreement by and among Aironet
and certain of its security holders, dated as of March 31,
1998
10.4.3.1* Form of Addendum to Registration Rights Agreement
included as Exhibit 10.4.3
10.4.3.2* Addendum by Telantis Venture Partners IV, Inc. to
Registration Rights Agreement included as Exhibit 10.4.3
10.5* License, Rights and Supply Agreement between Aironet and
Telxon Corporation, dated as of March 31, 1998
10.5.1* First Amendment to License, Rights and Supply
Agreement dated as of March 31, 1999
10.6* Tax Benefit and Indemnification Agreement between Aironet
and Telxon Corporation, dated as of March 31, 1998
10.6.1* Promissory Note made by Aironet to the order of
Telxon Corporation with the Tax Benefit and Indemnification
Agreement included as Exhibit 10.6
10.7* Services Agreement between Aironet and Telxon Corporation,
dated as of March 31, 1998
10.8* Assignment of Patent Applications made by Telxon Corporation
in favor of Aironet, dated as of March 30, 1998
10.9* Assignment of Patent Applications made by Aironet in favor
of Telxon Corporation, dated as of March 30, 1998
10.10* Cross Covenant Not to Sue between Aironet and Telxon
Corporation, dated as of March 31, 1998
10.11* AirAware Acknowledgment between Aironet and Telxon
Corporation, dated as of March 30, 1998
10.12* LM3000 Software Agreement between Aironet and Telxon
Corporation, dated as of March 30, 1998
10.13* Patent Continuation in Part Agreement between Aironet and
Telxon Corporation, dated as of March 30, 1998
10.14* Patent License Agreement between Aironet and Telxon
Corporation, dated as of March 30, 1998
10.15* Nondisclosure Agreement between Aironet and Telxon
Corporation, dated as of March 31, 1998
21* Aironet's Subsidiaries
23.1 Consent of PricewaterhouseCoopers LLP
23.2+ Consent of Goodman Weiss Miller LLP (included in Exhibit 5)
23.3 Consent of International Data Corporation
24.1* Power of Attorney (included on page II-7)
27.1 Financial Data Schedule
27.2 Financial Data Schedule
27.3 Financial Data Schedule
</TABLE>
- ---------------
* Previously filed
+ To be filed by amendment
(b) FINANCIAL STATEMENT SCHEDULE
Report of Independent Accountants on Financial Statement Schedule
Schedule II -- Valuation and Qualifying Accounts
All other Schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission have been
omitted because they are not required under the related instructions, are not
applicable or the information has been provided in the Financial Statements or
the Notes thereto.
II-5
<PAGE> 107
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing of this offering specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act of 1933 shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-6
<PAGE> 108
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Akron, Ohio, on the 1st
day of July, 1999.
AIRONET WIRELESS COMMUNICATIONS, INC.
By: /s/ ROGER J. MURPHY, JR.
-----------------------------------------
Roger J. Murphy, Jr., President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ ROGER J. MURPHY, JR. President and Chief Executive July 1, 1999
- ------------------------------------ Officer (principal executive
Roger J. Murphy, Jr. officer)
/s/ RICHARD G. HOLMES Senior Vice President and Chief July 1, 1999
- ------------------------------------ Financial Officer (principal
Richard G. Holmes financial and accounting
officer)
/s/ JAMES H. FURNEAUX* Director, Chairman of the Board July 1, 1999
- ------------------------------------
James H. Furneaux
/s/ SAMUEL F. MCKAY* Director July 1, 1999
- ------------------------------------
Samuel F. McKay
/s/ JOHN W. PAXTON, SR.* Director July 1, 1999
- ------------------------------------
John W. Paxton, Sr.
*By: /s/ ROGER J. MURPHY, JR.
- ------------------------------------
Roger J. Murphy, Jr.
Attorney-in-fact
</TABLE>
II-7
<PAGE> 109
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
TO THE BOARD OF DIRECTORS
OF AIRONET WIRELESS COMMUNICATIONS, INC.
Our audits of the consolidated financial statements referred to in our
report dated May 25, 1999 appearing in the prospectus also included an audit of
the financial statement schedule listed in Item 16 of the Form S-1. In our
opinion, this financial statement schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements.
PricewaterhouseCoopers LLP
Cleveland, Ohio
May 25, 1999
II-8
<PAGE> 110
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS DEDUCTIONS
----------------------- -------------------------
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF CHARGED TO OTHER WRITE-OFFS CREDITED TO END OF
DESCRIPTION FISCAL YEAR EXPENSE ACCOUNTS AND RETURNS EXPENSE FISCAL YEAR
- ------------------------------ ------------ ---------- ---------- ----------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL
ACCOUNTS
1997 $ 35 $ 222 $ -- $ -- $ -- $ 257
1998 257 154 -- 224 -- 187
1999 187 307 -- 122 -- 372
INVENTORY OBSOLESCENCE RESERVE
1997 $1,034 $1,024 $ -- $1,181 $ -- $ 877
1998 877 (48) -- 390 -- 439
1999 439 389 -- 271 -- 557
DEFERRED TAX ASSET VALUATION
ALLOWANCE
1997 $ 237 $4,549 $ -- $ -- $ -- $4,786
1998 4,786 67 -- -- 353 4,500
1999 4,500 -- -- 3,606 258 636
</TABLE>
II-9
<PAGE> 111
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
1 Form of Underwriting Agreement
3.1* Form of Amended and Restated Certificate of Incorporation of
Aironet Wireless Communications, Inc. (to be effective
immediately prior to the closing of this offering)
3.2* Form of Second Amended and Restated Bylaws of Aironet
Wireless Communications, Inc. (to be effective immediately
prior to the closing of this offering)
4.1 Specimen of certificate for shares of Aironet's common stock
4.2* Form of Rights Agreement between Aironet Wireless
Communications, Inc. and Harris Trust and Savings Bank, as
Rights Agent, dated as of , 1999, including
form of rights certificate
4.3* Warrant certificate issued to Furneaux & Company, LLC
5+ Opinion of Goodman Weiss Miller LLP
10.1 Aironet's Compensation and Benefits Plans
10.1.1* Aironet Wireless Communications, Inc. 1996 Stock
Option Plan
10.1.2* Amended and Restated Aironet Wireless
Communications, Inc. 1996 Stock Option Plan
10.1.3* First Amendment to Amended and Restated Aironet
Wireless Communications, Inc. 1996 Stock Option Plan
10.1.4* Aironet Wireless Communications, Inc. 1999 Employee
Stock Purchase Plan
10.1.5* Aironet Wireless Communications, Inc. 1999 Omnibus
Stock Incentive Plan
10.1.6* Aironet Wireless Communications, Inc. 1999 Stock
Option Plan for Non-Employee Directors
10.1.7* Employment Agreement between Aironet and Roger J.
Murphy, Jr.
10.1.8* Employment Letter Agreement between Aironet and
Richard G. Holmes
10.1.9* Employment Letter Agreement between Aironet and
Ronald B. Willis
10.1.10* Employment Letter Agreement between Aironet and
Harvey A. Ikeman
10.1.11* Promissory Note made by Roger J. Murphy, Jr. to the
order of Aironet in the principal amount of $372,000
10.1.11.1* Amendment to Promissory Note, included as Exhibit
10.1.11
10.1.12* Telxon's Retirement & Uniform Matching Profit
Sharing Plan, as amended (in which Aironet's employees
participate pursuant to the Services Agreement
included as Exhibit 10.7)
10.1.12.1* Supplemental Participation Agreement and
Certificate of Resolution to Telxon's Retirement & Uniform
Matching Profit Sharing Plan, as amended
10.1.13* Telxon 1995 Employee Stock Purchase Plan
10.2 Material Leases
10.2.1* Lease between Aironet and Telxon Corporation for 91
Springside Drive, Akron, Ohio, dated as of April 1, 1998
10.2.2* Sublease Agreement between Aironet and Telxon
Corporation for 3875 Embassy Parkway, Bath, Ohio dated as of
September 1, 1998
10.2.3 Lease renewal between Telxon Corporation and
Aironet, dated June 16, 1999, for Lease included as Exhibit
10.2.1 and Sublease included as 10.2.2
10.3* Loan Agreement between Aironet and The Huntington National
Bank, dated as of July 24, 1998
10.4* Subscription Agreement by and among Aironet and the
investors who executed the same, dated as of March 31, 1998
10.4.1* Form of warrant issued pursuant to the Subscription
Agreement included as Exhibit 10.4
10.4.2* Stockholders Agreement by and among Aironet and its
stockholders party thereto, dated as of March 31, 1998, in
connection with the transactions under the
Subscription Agreement included as Exhibit 10.4
10.4.2.1* Form of Addendum to Stockholders Agreement
included as Exhibit 10.4.2
</TABLE>
II-10
<PAGE> 112
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.4.3* Registration Rights Agreement by and among Aironet
and certain of its security holders, dated as of March 31,
1998
10.4.3.1* Form of Addendum to Registration Rights Agreement
included as Exhibit 10.4.3
10.4.3.2* Addendum by Telantis Venture Partners IV, Inc. to
Registration Rights Agreement included as Exhibit 10.4.3
10.5* License, Rights and Supply Agreement between Aironet and
Telxon Corporation, dated as of March 31, 1998
10.5.1* First Amendment to License, Rights and Supply
Agreement dated as of March 31, 1999
10.6* Tax Benefit and Indemnification Agreement between Aironet
and Telxon Corporation, dated as of March 31, 1998
10.6.1* Promissory Note made by Aironet to the order of
Telxon Corporation with the Tax Benefit and Indemnification
Agreement included as Exhibit 10.6
10.7* Services Agreement between Aironet and Telxon Corporation,
dated as of March 31, 1998
10.8* Assignment of Patent Applications made by Telxon Corporation
in favor of Aironet, dated as of March 30, 1998
10.9* Assignment of Patent Applications made by Aironet in favor
of Telxon Corporation, dated as of March 30, 1998
10.10* Cross Covenant Not to Sue between Aironet and Telxon
Corporation, dated as of March 31, 1998
10.11* AirAware Acknowledgment between Aironet and Telxon
Corporation, dated as of March 30, 1998
10.12* LM3000 Software Agreement between Aironet and Telxon
Corporation, dated as of March 30, 1998
10.13* Patent Continuation in Part Agreement between Aironet and
Telxon Corporation, dated as of March 30, 1998
10.14* Patent License Agreement between Aironet and Telxon
Corporation, dated as of March 30, 1998
10.15* Nondisclosure Agreement between Aironet and Telxon
Corporation, dated as of March 31, 1998
21* Aironet's Subsidiaries
23.1 Consent of PricewaterhouseCoopers LLP
23.2+ Consent of Goodman Weiss Miller LLP (included in Exhibit 5)
23.3 Consent of International Data Corporation
24.1* Power of Attorney (included on page II-7)
27.1 Financial Data Schedule
27.2 Financial Data Schedule
27.3 Financial Data Schedule
</TABLE>
- ---------------
* Previously filed
+ To be filed by amendment
II-11
<PAGE> 1
Exhibit 1
6,000,000 SHARES
AIRONET WIRELESS COMMUNICATIONS, INC.
COMMON STOCK, $0.01 PAR VALUE
UNDERWRITING AGREEMENT
[Date]
DAIN RAUSCHER WESSELS
PRUDENTIAL SECURITIES, INC.
CIBC WORLD MARKETS CORP.
As Representatives of the several Underwriters
c/o Dain Rauscher Wessels
60 South Street
Suite 1800
Minneapolis, MN 55402
Dear Sirs:
1. INTRODUCTORY. Aironet Wireless Communications, Inc., a Delaware
corporation (the "Company"), and Telxon Corporation, a Delaware
corporation (the "Selling Shareholder") propose to sell, pursuant to
the terms of this Agreement, to the several underwriters named in
Schedule A hereto (the "Underwriters," or, each, an "Underwriter"), an
aggregate of 6,000,000 shares of Common Stock, $0.01 par value (the
"Common Stock") of the Company. The aggregate of 6,000,000 shares so
proposed to be sold is hereinafter referred to as the "Firm Stock". The
Company and the Selling Shareholder also propose to sell to the
Underwriters, upon the terms and conditions set forth in Section 3
hereof, up to an additional 900,000 shares of Common Stock (the
"Optional Stock"). The Firm Stock and the Optional Stock are
hereinafter collectively referred to as the "Stock". Dain Rauscher
Wessels, a division of Dain Rauscher Incorporated ("Dain Rauscher
Wessels") and other Representatives are acting as representatives of
the several Underwriters and in such capacity are hereinafter referred
to as the "Representatives".
2. (a) REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
SHAREHOLDER. The Company represents and warrants to, and agrees with,
the several Underwriters and the Selling Shareholder, to the best of
its knowledge, represents and warrants to, and agrees with, the several
Underwriters that:
(i) A registration statement on Form S-1 (File No. 33-o ) in
the form in which it became or becomes effective and also in
such form as it may be when any post-effective amendment
thereto shall become effective with respect to the Stock,
<PAGE> 2
2
including any preeffective prospectuses included as part of
the registration statement as originally filed or as part of
any amendment or supplement thereto, or filed pursuant to Rule
424 under the Securities Act of 1933, as amended (the
"Securities Act"), and the rules and regulations (the "Rules
and Regulations") of the Securities and Exchange Commission
(the "Commission") thereunder, copies of which have heretofore
been delivered to you, has been carefully prepared by the
Company in conformity with the requirements of the Securities
Act and has been filed with the Commission under the
Securities Act; one or more amendments to such registration
statement, including in each case an amended preeffective
prospectus, copies of which amendments have heretofore been
delivered to you, have been so prepared and filed. If it is
contemplated, at the time this Agreement is executed, that a
post-effective amendment to the registration statement will be
filed and must be declared effective before the offering of
the Stock may commence, the term "Registration Statement" as
used in this Agreement means the registration statement as
amended by said post-effective amendment. The term
"Registration Statement" as used in this Agreement shall also
include any registration statement relating to the Stock that
is filed and declared effective pursuant to Rule 462(b) under
the Securities Act. The term "Prospectus" as used in this
Agreement means the prospectus in the form included in the
Registration Statement, or, (A) if the prospectus included in
the Registration Statement omits information in reliance on
Rule 430A under the Securities Act and such information is
included in a prospectus filed with the Commission pursuant to
Rule 424(b) under the Securities Act, the term "Prospectus" as
used in this Agreement means the prospectus in the form
included in the Registration Statement as supplemented by the
addition of the Rule 430A information contained in the
prospectus filed with the Commission pursuant to Rule 424(b)
and (B) if prospectuses that meet the requirements of Section
10(a) of the Securities Act are delivered pursuant to Rule 434
under the Securities Act, then (i) the term "Prospectus" as
used in this Agreement means the "prospectus subject to
completion" (as such term is defined in Rule 434(g) under the
Securities Act) as supplemented by (a) the addition of Rule
430A information or other information contained in the form of
prospectus delivered pursuant to Rule 434(b)(2) under the
Securities Act or (b) the information contained in the term
sheets described in Rule 434(b)(3) under the Securities Act,
and (ii) the date of such prospectuses shall be deemed to be
the date of the term sheets. The term "Preeffective
Prospectus" as used in this Agreement means the prospectus
subject to completion in the form included in the Registration
Statement at the time of the initial filing of the
Registration Statement with the Commission, and as such
prospectus shall have been amended from time to time prior to
the date of the Prospectus.
(ii) The Commission has not issued or threatened to issue any
order preventing or suspending the use of any Preeffective
Prospectus, and, at its date of issue, each Preeffective
Prospectus conformed in all material respects with the
requirements of the Securities Act and did not include any
untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to
make the
<PAGE> 3
3
statements therein, in light of the circumstances under which
they were made, not misleading; and, when the Registration
Statement becomes effective and at all times subsequent
thereto up to and including each of the Closing Dates (as
hereinafter defined), the Registration Statement and the
Prospectus and any amendments or supplements thereto contained
and will contain all material statements and information
required to be included therein by the Securities Act and
conformed and will conform in all material respects to the
requirements of the Securities Act and neither the
Registration Statement nor the Prospectus, nor any amendment
or supplement thereto, included or will include any untrue
statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which
they were made, not misleading; provided, however, that the
foregoing representations, warranties and agreements shall not
apply to information contained in or omitted from any
Preeffective Prospectus or the Registration Statement or the
Prospectus or any such amendment or supplement thereto in
reliance upon, and in conformity with, written information
furnished to the Company by or on behalf of any Underwriter,
directly or through you, specifically for use in the
preparation thereof; there is no franchise, lease, contract,
agreement or document required to be described in the
Registration Statement or Prospectus or to be filed as an
exhibit to the Registration Statement which is not described
or filed therein as required; and all descriptions of any such
franchises, leases, contracts, agreements or documents
contained in the Registration Statement are accurate and
complete descriptions of such documents in all material
respects.
(iii) Subsequent to the respective dates as of which
information is given in the Registration Statement and
Prospectus, and except as set forth or contemplated in the
Prospectus, neither the Company nor any of its subsidiaries
has incurred any liabilities or obligations, direct or
contingent, nor entered into any transactions not in the
ordinary course of business, and there has not been any
material adverse change in the condition (financial or
otherwise), properties, business, management, prospects, net
worth or results of operations of the Company and its
subsidiaries considered as a whole, or any change in the
capital stock, short-term or long-term debt of the Company and
its subsidiaries considered as a whole.
(iv) The financial statements, together with the related
notes, set forth in the Prospectus and elsewhere in the
Registration Statement fairly present, on the basis stated in
the Registration Statement, the financial position and the
results of operations and changes in financial position of the
Company and its consolidated subsidiaries at the respective
dates or for the respective periods therein specified. Such
statements and related notes and schedules have been prepared
in accordance with generally accepted accounting principles
applied on a consistent basis except as may be set forth in
the Prospectus. The selected financial and statistical data
set forth in the Prospectus under the caption "Summary
Financial Data" fairly present, on the basis stated in the
Registration Statement, the information set forth therein.
<PAGE> 4
4
(v) PricewaterhouseCoopers LLC, who have expressed their
opinions on the audited financial statements included in the
Registration Statement and the Prospectus are independent
public accountants as required by the Securities Act and the
Rules and Regulations.
(vi) The Company and each of its subsidiaries have been duly
organized and are validly existing and in good standing as
corporations under the laws of their respective jurisdictions
of organization, with power and authority (corporate and
other) to own or lease their properties and to conduct their
businesses as described in the Prospectus; the Company is and
each of its subsidiaries are in possession of and operating in
compliance with all franchises, grants, authorizations,
licenses, permits, easements, consents, certificates and
orders required for the conduct of its business, all of which
are valid and in full force and effect; and the Company is and
each of such subsidiaries are duly qualified to do business
and in good standing as foreign corporations in all other
jurisdictions where their ownership or leasing of properties
or the conduct of their businesses requires such
qualification. The Company has and each of its subsidiaries
have all requisite power and authority, and all necessary
consents, approvals, authorizations, orders, registrations,
qualifications, licenses and permits of and from all public
regulatory or governmental agencies and bodies to own, lease
and operate its properties and conduct its business as now
being conducted and as described in the Registration Statement
and the Prospectus, and no such consent, approval,
authorization, order, registration, qualification, license or
permit contains a materially burdensome restriction not
adequately disclosed in the Registration Statement and the
Prospectus. The Company owns or controls, directly or
indirectly, only the following corporations, associations or
other entities:
(vii) The Company's authorized and outstanding capital stock
is on the date hereof, and will be on the Closing Dates, as
set forth under the heading "Capitalization" in the
Prospectus; the outstanding shares of common stock (including
the outstanding shares of Stock) of the Company conform to the
description thereof in the Prospectus and have been duly
authorized and validly issued and are fully paid and
nonassessable; are duly listed on the Nasdaq National Market
and have been issued in compliance with all federal and state
securities laws and were not issued in violation of or subject
to any preemptive rights or similar rights to subscribe for or
purchase securities and conform to the description thereof
contained in the Prospectus. Except as disclosed in and or
contemplated by the Prospectus and the financial statements of
the Company and related notes thereto included in the
Prospectus, the Company does not have outstanding any options
or warrants to purchase, or any preemptive rights or other
rights to subscribe for or to purchase any securities or
obligations convertible into, or any contracts or commitments
to issue or sell, shares of its capital stock or any such
options, rights, convertible securities or obligations, except
for options granted subsequent to the date of information
provided in the Prospectus pursuant to the Company's employee
and stock option plans as disclosed in the Prospectus. The
description of the Company's stock option
<PAGE> 5
5
and other stock plans or arrangements, and the options or
other rights granted or exercised thereunder, as set forth in
the Prospectus, accurately and fairly presents the information
required to be shown with respect to such plans, arrangements,
options and rights. All outstanding shares of capital stock of
each subsidiary have been duly authorized and validly issued,
and are fully paid and nonassessable and (except for
directors' qualifying shares) are owned directly by the
Company or by another wholly owned subsidiary of the Company
free and clear of any liens, encumbrances, equities or claims.
(viii) The Stock to be issued and sold by the Company to the
Underwriters hereunder has been duly and validly authorized
and, when issued and delivered against payment therefor as
provided herein, will be duly and validly issued, fully paid
and nonassessable and free of any preemptive or similar rights
and will conform to the description thereof in the Prospectus.
(ix) Except as set forth in the Prospectus, there are no legal
or governmental proceedings pending to which the Company or
any of its subsidiaries or affiliates is a party or of which
any property of the Company or any subsidiary or affiliate is
subject, which, if determined adversely to the Company or any
such subsidiary or affiliate, might individually or in the
aggregate (A) prevent or adversely affect the transactions
contemplated by this Agreement, (B) suspend the effectiveness
of the Registration Statement, (C) prevent or suspend the use
of the Preeffective Prospectus in any jurisdiction or (D)
result in a material adverse change in the condition
(financial or otherwise), properties, business, management,
prospects, net worth or results of operations of the Company
and its subsidiaries considered as a whole and there is no
valid basis for any such legal or governmental proceeding; and
to the best of the Company's knowledge no such proceedings are
threatened or contemplated against the Company or any
subsidiary or affiliate by governmental authorities or others.
The Company is not a party nor subject to the provisions of
any material injunction, judgment, decree or order of any
court, regulatory body or other governmental agency or body.
The description of the Company's litigation under the heading
"Legal Proceedings" in the Prospectus is true and correct and
complies with the Rules and Regulations.
(x) The execution, delivery and performance of this Agreement
and the consummation of the transactions herein contemplated
(A) will not result in any violation of the provisions of the
certificate of incorporation, by-laws or other organizational
documents of the Company or its subsidiary, or any law, order,
rule or regulation of any court or governmental agency or body
having jurisdiction over the Company or its subsidiary or any
of their properties or assets, (B) will not conflict with or
result in a breach or violation of any of the terms or
provisions of or constitute a default under any indenture,
mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Company or any of its subsidiaries is
a party or by which it or any of its properties is or may be
bound, the Certificate of Incorporation, By-laws or other
organizational documents of the Company or any of
<PAGE> 6
6
its subsidiaries, or any law, order, rule or regulation of any
court or governmental agency or body having jurisdiction over
the Company or any of its subsidiaries or any of their
properties or will result in the creation of a lien.
(xi) No consent, approval, authorization or order of any court
or governmental agency or body is required for the execution,
delivery and performance of this Agreement by the Company and
the consummation of the transactions contemplated hereby,
except such as may be required by the National Association of
Securities Dealers, Inc. (the "NASD") or under the Securities
Act or the Securities Exchange Act of 1934, as amended (the
"Exchange Act") or the securities or "Blue Sky" laws of any
jurisdiction in connection with the purchase and distribution
of the Stock by the Underwriters.
(xii) The Company has the full corporate power and authority
to enter into this Agreement and to perform its obligations
hereunder (including to issue, sell and deliver the Stock),
and this Agreement has been duly and validly authorized,
executed and delivered by the Company and is a valid and
binding obligation of the Company, enforceable against the
Company in accordance with its terms, except to the extent
that rights to indemnity and contribution hereunder may be
limited by federal or state securities laws or the public
policy underlying such laws.
(xiii) The Company and its subsidiaries are in all material
respects in compliance with, and conduct their businesses in
conformity with, all applicable federal, state, local and
foreign laws, rules and regulations or any court or
governmental agency or body; to the knowledge of the Company,
otherwise than as set forth in the Registration Statement and
the Prospectus, no prospective change in any of such federal
or state laws, rules or regulations has been adopted which,
when made effective, would have a material adverse effect on
the operations of the Company and its subsidiaries. In the
ordinary course of business, employees of the Company conduct
periodic reviews of the effect of Environmental Laws (as
defined below) on the business operations and properties of
the Company and its subsidiaries, in the ordinary course of
which they seek to identify and evaluate associated costs and
liabilities. Except as disclosed in the Registration
Statement, the Company and its subsidiaries are in compliance
with all applicable existing federal, state, local and foreign
laws and regulations relating to the protection of human
health or the environment or imposing liability or requiring
standards of conduct concerning any Hazardous Materials
("Environmental Laws"), except for such instances of
noncompliance which, either singly or in the aggregate, would
not have a material adverse effect. The term "Hazardous
Material" means (A) any "hazardous substance" as defined by
the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, (B) any "hazardous waste"
as defined by the Resource Conservation and Recovery Act, as
amended, (C) any petroleum or petroleum product, (D) any
polychlorinated biphenyl and (E) any pollutant or contaminant
or hazardous, dangerous or toxic
<PAGE> 7
7
chemical, material, waste or substance regulated under or
within the meaning of any other Environment Law.
(xiv) The Company and its subsidiaries have filed all
necessary federal, state, local and foreign income, payroll,
franchise and other tax returns and have paid all taxes shown
as due thereon or with respect to any of their properties, and
there is no tax deficiency that has been, or to the knowledge
of the Company is likely to be, asserted against the Company
or any of its subsidiaries or any of their respective
properties or assets that would adversely affect the financial
position, business or operations of the Company and its
subsidiaries.
(xv) No person or entity has the right to require registration
of shares of Common Stock or other securities of the Company
because of the filing or effectiveness of the Registration
Statement or otherwise, except for persons and entities who
have expressly waived such right or who have been given proper
notice and have failed to exercise such right within the time
or times required under the terms and conditions of such
right.
(xvi) Neither the Company nor any of its officers, directors
or affiliates has taken or will take, directly or indirectly,
any action designed or intended to stabilize or manipulate the
price of any security of the Company, or which caused or
resulted in, or which might in the future reasonably be
expected to cause or result in, stabilization or manipulation
of the price of any security of the Company.
(xvii) The Company has provided you with all financial
statements since 199[_] to the date hereof that are available
to the officers of the Company, including financial statements
for the months of [______] and [______] of 1999.
(xviii) The Company and its subsidiaries own or possess the
right to use all patents, trademarks (including "Aironet",
"Aironet Wireless Communications", the Aironet logo and the
Stylized Aironet with logo), trademark registrations, service
marks, service mark registrations, trade names, copyrights,
licenses, inventions, trade secrets and rights described in
the Prospectus as being owned by them or any of them or
necessary for the conduct of their respective businesses, and
the Company is not aware of any claim to the contrary or any
challenge by any other person to the rights of the Company and
its subsidiaries with respect to the foregoing. The Company's
business as now conducted and as proposed to be conducted does
not and will not infringe or conflict with in any material
respect patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses or other intellectual
property or franchise right of any person. Except as described
in the Prospectus, no claim has been made against the Company
alleging the infringement by the Company of any patent,
trademark, service mark, trade name, copyright, trade secret,
license in or other intellectual property right or franchise
right of any person.
<PAGE> 8
8
(xix) The Company and its subsidiaries have performed all
material obligations required to be performed by them under
all contracts required by Item 601(b)(10) of Regulation S-K
under the Securities Act to be filed as exhibits to the
Registration Statement, and neither the Company nor any of its
subsidiaries nor any other party to such contract is in
default under or in breach of any such obligations. Neither
the Company nor any of its subsidiaries has received any
notice of such default or breach.
(xx) The Company is not involved in any labor dispute nor is
any such dispute threatened. The Company is not aware that (A)
any executive, key employee or significant group of employees
of the Company or any subsidiary plans to terminate employment
with the Company or any such subsidiary or (B) any such
executive or key employee is subject to any noncompete,
nondisclosure, confidentiality, employment, consulting or
similar agreement that would be violated by the present or
proposed business activities of the Company and its
subsidiaries. Neither the Company nor any subsidiary has or
expect to have any liability for any prohibited transaction or
funding deficiency or any complete or partial withdrawal
liability with respect to any pension, profit sharing or other
plan which is subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), to which the
Company or any subsidiary makes or ever has made a
contribution and in which any employee of the Company or any
subsidiary is or has ever been a participant. With respect to
such plans, the Company and each subsidiary are in compliance
in all material respects with all applicable provisions of
ERISA.
(xxi) The Company has obtained the written agreement described
in Section 8(l) of this Agreement from each of its officers,
directors and holders of Common Stock listed on Schedule C
hereto.
(xxii) The Company and its subsidiaries have, and the Company
and its subsidiaries as of the Closing Dates will have, good
and marketable title in fee simple to all real property and
good and marketable title to all personal property owned or
proposed to be owned by them which is material to the business
of the Company or of its subsidiaries, in each case free and
clear of all liens, encumbrances and defects except such as
are described the Prospectus or such as would not have a
material adverse effect on the Company and its subsidiaries
considered as a whole; and any real property and buildings
held under lease by the Company and its subsidiaries or
proposed to be held after giving effect to the transactions
described in the Prospectus are, or will be as of each of the
Closing Dates, held by them under valid, subsisting and
enforceable leases with such exceptions as would not have a
material adverse effect on the Company and its subsidiaries
considered as a whole, in each case except as described in or
contemplated by the Prospectus.
(xxiii) The Company and its subsidiaries are insured by
insurers of recognized financial responsibility against such
losses and risks and in such amounts as are customary in the
businesses in which they are engaged or propose to engage
after
<PAGE> 9
9
giving effect to the transactions described in the Prospectus;
and neither the Company nor any subsidiary of the Company has
any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires
or to obtain similar coverage from similar insurers as may be
necessary to continue their business at a cost that would not
materially and adversely affect the condition, financial or
otherwise, or the earnings, business or operations of the
Company and its subsidiaries considered as a whole, except as
described in or contemplated by the Prospectus.
(xxiv) Other than as contemplated by this Agreement, there is
no broker, finder or other party that is entitled to receive
from the Company any brokerage or finder's fee or other fee or
commission as a result of any of the transactions contemplated
by this Agreement.
(xxv) The Company has complied with all provisions of Section
517.075 Florida Statutes (Chapter 92-198; Laws of Florida).
(xxvi) The Company and each of its subsidiaries maintain a
system of internal accounting controls sufficient to provide
reasonable assurances that (A) transactions are executed in
accordance with management's general or specific
authorization; (B) transactions are recorded as necessary to
permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain
accountability for assets; (C) access to assets is permitted
only in accordance with management's general or specific
authorization; and (D) the recorded accountability for assets
is compared with existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(xxvii) To the Company's knowledge, neither the Company nor
any of its subsidiaries nor any employee or agent of the
Company or any of its subsidiaries has made any payment of
funds of the Company or any of its subsidiaries or received or
retained any funds in violation of any law, rule or
regulation, which payment, receipt or retention of funds is of
a character required to be disclosed in the Prospectus.
(xxviii) Neither the Company nor any of its subsidiaries is
or, after application of the net proceeds of this offering as
described under the caption "Use of Proceeds" in the
Prospectus, will become an "investment company" or an entity
"controlled" by an "investment company" as such terms are
defined in the Investment Company Act of 1940, as amended.
(xxix) Each certificate signed by any officer of the Company
and delivered to the Underwriters or counsel for the
Underwriters shall be deemed to be a representation and
warranty by the Company as to the matters covered thereby.
(xxx) There are no issues related to the Company's, or any of
its subsidiaries', preparedness for the Year 2000 that (A) are
of a character required to be described
<PAGE> 10
10
or referred to in the Registration Statement or Prospectus by
the Securities Act or the Rules and Regulations which have not
been accurately described in the Registration Statement or
Prospectus or (B) might reasonably be expected to result in
any material adverse change in the condition (financial or
otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as
one enterprise or that might materially affect their
properties, assets or rights. All internal computer systems
and each Constituent Component (as defined below) of those
systems and all computer-related products and each Constituent
Component (as defined below) of those products of the Company
and each of its subsidiaries fully comply with the Year 2000
Qualification Requirements. "Year 2000 Qualification
Requirements" means that the internal computer systems and
each Constituent Component (as defined below) of those systems
and all computer-related products and each Constituent
Component (as defined below) of those products of the Company
and each of its subsidiaries (i) have been reviewed to confirm
that they store, process (including sorting and performing
mathematical operations, calculations and computations), input
and output data containing date and information correctly
regardless of whether the date contains dates and times
before, on or after January 1, 2000, (ii) have been designated
to ensure date and time entry recognition, calculations that
accommodate same century and multi-century formulas and date
values, leap year recognition and calculations, and date data
interface values that reflect the century, (iii) accurately
manage and manipulate data involving dates and times,
including single century formulas and multi-century formulas,
and will not cause an abnormal ending scenario with the
application or generate incorrect values or invalid results
involving such dates, (iv) accurately process any date
rollover, and (v) accept and respond to two-digit year date
input in a manner that resolves any ambiguities as to the
century. "Constituent Component" means all software (including
operating systems, programs, packages and utilities),
firmware, hardware, networking components, and peripherals
provided as part of the configuration.
(b) REPRESENTATIONS AND WARRANTIES AND AGREEMENTS OF THE SELLING
SHAREHOLDER. The Selling Shareholder further represents and warrants
to, and agrees with, the several Underwriters that such Selling
Shareholder:
(i) Now has, and on the Closing Dates will have, valid and
marketable title to the Shares to be sold by such Selling
Shareholder, free and clear of any lien, claim, security
interest or other encumbrance, including, without limitation,
any restriction on transfer, and, to the extent such Selling
Shareholder is a corporation, has been duly organized and is
validly existing and in good standing as a corporation under
the laws of its jurisdiction of organization.
(ii) Now has, and on each of the Closing Dates will have, upon
delivery of and payment for each share of Stock hereunder,
full right, power and authority, any approval required by law
to sell, transfer, assign and deliver the Stock being sold by
such Selling Shareholder hereunder, and each of the several
Underwriters will acquire
<PAGE> 11
11
valid and marketable title to all of the Stock being sold to
the Underwriters by such Selling Shareholder, free and clear
of any liens, encumbrances, equities claims, restrictions on
transfer or other defects whatsoever.
(iii) For a period of one hundred eighty (180) days after the date
of this Agreement, without the consent of Dain Rauscher
Wessels, such Selling Shareholder will not offer to sell,
sell, contract to sell or otherwise dispose of any Stock or
securities convertible into or exchangeable for Stock,
including, without limitation Stock which may be deemed to be
beneficially owned by such Selling Shareholder in accordance
with the Rules and Regulations, except for the Stock being
sold hereunder.
(iv) Has, by execution and delivery of this Agreement created valid
and binding obligations of such Selling Shareholder,
enforceable against such Selling Shareholder in accordance
with its terms, except to the extent that rights to indemnity
hereunder may be limited by federal or state securities laws
or the public policy underlying such laws.
(v) The performance of this Agreement and the consummation of the
transactions contemplated hereby will not result in a breach
or violation by such Selling Shareholder of any of the terms
or provisions of, or constitute a default by such Selling
Shareholder under, any indenture, mortgage, deed of trust,
trust (constructive or other), loan agreement, lease,
franchise, license or other agreement or instrument to which
such Selling Shareholder is a party or by which such Selling
Shareholder or any of its properties is bound, or any judgment
of any court or governmental agency or body applicable to such
Selling Shareholder or any of its properties, or to such
Selling Shareholder's knowledge, any statute, decree, order,
rule or regulation of any court or governmental agency or body
applicable to such Selling Shareholder or any of its
properties.
The Selling Shareholder agrees that the obligations of such
Selling Shareholder hereunder shall not be terminated by
operation of law, whether by the death or incapacity,
liquidation or distribution of such Selling Shareholder, or
any other event, that if such Selling Shareholder should die
or become incapacitated or is liquidated or dissolved or any
other event occurs, before the delivery of the Stock
hereunder, certificates for the Stock to be sold by such
Selling Shareholder shall be delivered on behalf of such
Selling Shareholder in accordance with the terms and
conditions of this Agreement shall be as valid as if such
death, incapacity, liquidation or dissolution or other event
had not occurred.
3. PURCHASE BY, AND SALE AND DELIVERY TO, UNDERWRITERS-CLOSING DATES. The
Company and the Selling Shareholder agree to sell to the Underwriters
the Firm Stock, with the number of shares to be sold by the Company and
the Selling Shareholder being the number of Shares set opposite its
name in Schedule B; and on the basis of the representations,
warranties, covenants and agreements herein contained, but subject to
the terms and conditions herein
<PAGE> 12
12
set forth, the Underwriters agree, severally and not jointly, to
purchase the Firm Stock from the Company and the Selling Shareholder,
the number of shares of Firm Stock to be purchased by each Underwriter
being set opposite its name in Schedule A, subject to adjustment in
accordance with Section 12 hereof.
The purchase price per share to be paid by the Underwriters to the
Company and the Selling Shareholder will be the price per share set for
[____] in the table on the cover page of the Prospectus under the
heading "Proceeds to the Company" (the "Purchase Price").
The Company and the Selling Shareholder will deliver the Firm Stock to
the Representatives for the respective accounts of the several
Underwriters (in the form of definitive certificates, issued in such
names and in such denominations as the Representatives may direct by
notice in writing to the Company and the Selling Shareholder given at
or prior to 12:00 Noon, New York Time, on the second full business day
preceding the First Closing Date (as defined below) or, if no such
direction is received, in the names of the respective Underwriters or
in such other names as Dain Rauscher Wessels may designate (solely for
the purpose of administrative convenience) and in such denominations as
Dain Rauscher Wessels may determine, against payment of the aggregate
Purchase Price therefor by certified or official bank check or checks
in immediately available funds (same day funds), payable to the order
of the Company and the Selling Shareholder, all at the offices of
[________________]. The time and date of the delivery and closing shall
be at 10:00 A.M., New York Time, on [_____________], 1999, in
accordance with Rule 15c6-1 of the Exchange Act. The time and date of
such payment and delivery are herein referred to as the "First Closing
Date". The First Closing Date and the location of delivery of, and the
form of payment for, the Firm Stock may be varied by agreement between
among the Company, the Selling Shareholder and Dain Rauscher Wessels.
The First Closing Date may be postponed pursuant to the provisions of
Section 12.
The Company and the Selling Shareholder shall make the certificates for
the Stock available to the Representatives for examination on behalf of
the Underwriters not later than 10:00 A.M., New York Time, on the
business day preceding the First Closing Date at the offices of Dain
Rauscher Wessels, 60 South Street, Suite 1800, Minneapolis, MN 55402.
It is understood that Dain Rauscher Wessels or other Representatives,
individually and not as Representatives of the several Underwriters,
may (but shall not be obligated to) make payment to the Company or to
the Selling Shareholder on behalf of any Underwriter or Underwriters,
for the Stock to be purchased by such Underwriter or Underwriters. Any
such payment by Dain Rauscher Wessels or other Representative shall not
relieve such Underwriter or Underwriters from any of its or their other
obligations hereunder.
The several Underwriters agree to make an initial public offering of
the Firm Stock at the initial public offering price as soon after the
effectiveness of the Registration Statement as in their judgment is
advisable. The Representatives shall promptly advise the Company and
the Selling Shareholder of the making of the initial public offering.
<PAGE> 13
13
For the purpose of covering any over-allotments in connection with the
distribution and sale of the Firm Stock as contemplated by the
Prospectus, the Company and the Selling Shareholder hereby grants to
the Underwriters an option to purchase, severally and not jointly, up
to the aggregate number of shares of Optional Stock set forth opposite
the Company's and each such Selling Shareholder's respective names on
Schedule B hereto, for an aggregate of up to 900,000 shares. The price
per share to be paid for the Optional Stock shall be the Purchase
Price. The option granted hereby may be exercised as to all or any part
of the Optional Stock at any time, and from time to time, not more than
thirty (30) days subsequent to the effective date of this Agreement. No
Optional Stock shall be sold and delivered unless the Firm Stock
previously has been, or simultaneously is, sold and delivered. The
right to purchase the Optional Stock or any portion thereof may be
surrendered and terminated at any time upon notice by the Underwriters
to the Company and the Selling Shareholder.
The option granted hereby may be exercised by the Underwriters by
giving written notice from Dain Rauscher Wessels to the Company and the
Selling Shareholders setting forth the number of shares of the Optional
Stock to be purchased by them and the date and time for delivery of and
payment for the Optional Stock. Each date and time for delivery of and
payment for the Optional Stock (which may be the First Closing Date,
but not earlier) is herein called the "Option Closing Date" and shall
in no event be earlier than two (2) business days nor later than ten
(10) business days after written notice is given. (The Option Closing
Date and the First Closing Date are herein called the "Closing Dates".)
All purchases of Optional Stock from the Company and the Selling
Shareholders shall be made on a pro rata basis. Optional Stock shall be
purchased for the account of each Underwriter in the same proportion as
the number of shares of Firm Stock set forth opposite such
Underwriter's name in Schedule B hereto bears to the total number of
shares of Firm Stock (subject to adjustment by the Underwriters to
eliminate odd lots). Upon exercise of the option by the Underwriters,
the Company and the Selling Shareholders agree to sell to the
Underwriters the number of shares of Optional Stock set forth in the
written notice of exercise and the Underwriters agree, severally and
not jointly and subject to the terms and conditions herein set forth,
to purchase the number of such shares determined as aforesaid.
The Company and the Selling Shareholder will deliver the Optional Stock
to the Underwriters (in the form of definitive certificates, issued in
such names and in such denominations as the Representatives may direct
by notice in writing to the Selling Shareholders given at or prior to
12:00 Noon, New York Time, on the second full business day preceding
the Option Closing Date or, if no such direction is received, in the
names of the respective Underwriters or in such other names as Dain
Rauscher Wessels may designate (solely for the purpose of
administrative convenience) and in such denominations as Dain Rauscher
Wessels may determine, against payment of the aggregate Purchase Price
therefor by certified or official bank check or checks in Clearing
House funds (next day funds), payable to the order of the Company and
the Selling Shareholders all at the offices of [_________]. The Selling
Shareholder shall make the certificates for the Optional Stock
available to the Underwriters for examination not later than 10:00
A.M., New York Time, on the business day preceding the Option Closing
Date at the offices of Dain Rauscher
<PAGE> 14
14
Wessels, 60 South Street, Suite 1800, Minneapolis, MN 55402. The Option
Closing Date and the location of delivery of, and the form of payment
for, the Option Stock may be varied by agreement between among the
Company, the Selling Shareholder and Dain Rauscher Wessels. The Option
Closing Date may be postponed pursuant to the provisions of Section 12.
4. COVENANTS AND AGREEMENTS OF THE COMPANY. The Company covenants and
agrees with the several Underwriters that:
(a) The Company will (i) if the Company and the Representatives
have determined not to proceed pursuant to Rule 430A of the of
the Rules and Regulations, use its best efforts to cause the
Registration Statement to become effective, (ii) if the
Company and the Representatives have determined to proceed
pursuant to Rule 430A of the Rules and Regulations, use its
best efforts to comply with the provisions of and make all
requisite filings with the Commission pursuant to Rule 430A
and Rule 424 of the Rules and Regulations and (iii) if the
Company and the Representatives have determined to deliver
Prospectuses pursuant to Rule 434 of the Rules and
Regulations, to use its best efforts to comply with all the
applicable provisions thereof. The Company will advise the
Representatives promptly as to the time at which the
Registration Statement becomes effective, will advise the
Representatives promptly of the issuance by the Commission of
any stop order suspending the effectiveness of the
Registration Statement or of the institution of any
proceedings for that purpose, and will use its best efforts to
prevent the issuance of any such stop order and to obtain as
soon as possible the lifting thereof, if issued. The Company
will advise the Representatives promptly of the receipt of any
comments of the Commission or any request by the Commission
for any amendment of or supplement to the Registration
Statement or the Prospectus or for additional information and
will not at any time file any amendment to the Registration
Statement or supplement to the Prospectus which shall not
previously have been submitted to the Representatives a
reasonable time prior to the proposed filing thereof or to
which the Representatives shall reasonably object in writing
or which is not in compliance with the Securities Act and the
Rules and Regulations.
(b) The Company will prepare and file with the Commission,
promptly upon the request of the Representatives, any
amendments or supplements to the Registration Statement or the
Prospectus which in the opinion of the Representatives may be
necessary to enable the several Underwriters to continue the
distribution of the Stock and will use its best efforts to
cause the same to become effective as promptly as possible.
(c) If at any time after the effective date of the Registration
Statement when a prospectus relating to the Stock is required
to be delivered under the Securities Act any event relating to
or affecting the Company or any of its subsidiaries occurs as
a result of which the Prospectus or any other prospectus as
then in effect would include an untrue statement of a material
fact, or omit to state any material fact
<PAGE> 15
15
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or
if it is necessary at any time to amend the Prospectus to
comply with the Securities Act, the Company will promptly
notify the Representatives thereof and will prepare an amended
or supplemented prospectus which will correct such statement
or omission; and in case any Underwriter is required to
deliver a prospectus relating to the Stock nine (9) months or
more after the effective date of the Registration Statement,
the Company upon the request of the Representatives and at the
expense of such Underwriter will prepare promptly such
prospectus or prospectuses as may be necessary to permit
compliance with the requirements of Section 10(a)(3) of the
Securities Act.
(d) The Company will deliver to the Representatives, at or before
each of the Closing Dates, signed copies of the Registration
Statement, as originally filed with the Commission, and all
amendments thereto including all financial statements and
exhibits thereto and will deliver to the Representatives such
number of copies of the Registration Statement, including such
financial statements but without exhibits, and all amendments
thereto, as the Representatives may reasonably request. The
Company will deliver or mail to or upon the order of the
Representatives, from time to time until the effective date of
the Registration Statement, as many copies of the Preeffective
Prospectus as the Representatives may reasonably request. The
Company will deliver or mail to or upon the order of the
Representatives on the date of the initial public offering,
and thereafter from time to time during the period when
delivery of a prospectus relating to the Stock is required
under the Securities Act, as many copies of the Prospectus, in
final form or as thereafter amended or supplemented as the
Representatives may reasonably request; provided, however,
that the expense of the preparation and delivery of any
prospectus required for use nine (9) months or more after the
effective date of the Registration Statement shall be borne by
the Underwriters required to deliver such prospectus.
(e) The Company will make generally available to its shareholders
as soon as practicable, but not later than fifteen (15) months
after the effective date of the Registration Statement, an
earning statement which will be in reasonable detail (but
which need not be audited) and which will comply with Section
11(a) of the Securities Act, covering a period of at least
twelve (12) months beginning after the "effective date" (as
defined in Rule 158 under the Securities Act) of the
Registration Statement.
(f) The Company will cooperate with the Representatives to enable
the Stock to be registered or qualified for offering and sale
by the Underwriters and by dealers under the securities laws
of such jurisdictions as the Representatives may designate and
at the request of the Representatives will make such
applications and furnish such consents to service of process
or other documents as may be required of it as the issuer of
the Stock for that purpose; provided, however, that the
Company shall not be required to qualify to do business or to
file a general consent (other than that arising out of the
offering or sale of the Stock) to service of process in any
such
<PAGE> 16
16
jurisdiction where it is not now so subject. The Company will,
from time to time, prepare and file such statements and
reports as are or may be required of it as the issuer of the
Stock to continue such qualifications in effect for so long a
period as the Representatives may reasonably request for the
distribution of the Stock. The Company will advise the
Representatives promptly after the Company becomes aware of
the suspension of the qualifications or registration of (or
any such exception relating to) the Common Stock of the
Company for offering, sale or trading in any jurisdiction or
of any initiation or threat of any proceeding for any such
purpose, and in the event of the issuance of any orders
suspending such qualifications, registration or exception, the
Company will, with the cooperation of the Representatives use
its best efforts to obtain the withdrawal thereof.
(g) The Company will furnish to its shareholders annual reports
containing financial statements certified by independent
public accountants and with quarterly summary financial
information in reasonable detail which may be unaudited.
During the period of five (5) years from the date hereof, the
Company will deliver to the Representatives and, upon request,
to each of the other Underwriters, as soon as they are
available, copies of each annual report of the Company and
each other report furnished by the Company to its shareholders
and will deliver to the Representatives, (i) as soon as they
are available, copies of any other reports (financial or
other) which the Company shall publish or otherwise make
available to any of its shareholders as such, (ii) as soon as
they are available, copies of any reports and financial
statements furnished to or filed with the Commission or any
national securities exchange and (iii) from time to time such
other information concerning the Company as you may request.
So long as the Company has active subsidiaries, such financial
statements will be on a consolidated basis to the extent the
accounts of the Company and its subsidiaries are consolidated
in reports furnished to its shareholders generally. Separate
financial statements shall be furnished for all subsidiaries
whose accounts are not consolidated but which at the time are
significant subsidiaries as defined in the Rules and
Regulations.
(h) The Company will use its best efforts to list the Stock,
subject to official notice of issuance, on the Nasdaq National
Market concurrently with the effectiveness of the Registration
Statement.
(i) The Company will maintain a transfer agent and registrar for
its Common Stock.
(j) Prior to filing its quarterly statements on Form 10-Q, the
Company will have its independent auditors perform a limited
quarterly review of its quarterly numbers.
(k) The Company will not offer, sell, assign, transfer, encumber,
contract to sell, grant an option to purchase or otherwise
dispose of, other than by operation of law, gifts, pledges or
dispositions by estate representatives, any shares of Common
Stock or securities convertible into or exercisable or
exchangeable for Common Stock (including, without limitation,
Common Stock of the Company which may be
<PAGE> 17
17
deemed to be beneficially owned by the Company in accordance
with the Rules and Regulations) during the one hundred eighty
(180) days following the date on which the price of the Common
Stock to be purchased by the Underwriters is set, other than
the Company's sale of Common Stock hereunder and the Company's
issuance of Common Stock upon the exercise of warrants and
stock options which are presently outstanding and described in
the Prospectus.
(l) Prior to filing with the Commission any reports on Form SR
pursuant to Rule 463 of Rules and Regulations, the Company
will furnish a copy thereof to the counsel for the
Underwriters and receive and consider its comments thereon,
and will deliver promptly to the Representatives a signed copy
of each report on Form SR filed by it with the Commission.
(m) The Company will apply the net proceeds from the sale of the
Stock as set forth in the description under "Use of Proceeds"
in the Prospectus, which description complies in all respects
with the requirements of Item 504 of Regulation S-K.
(n) The Company will supply you with copies of all correspondence
to and from, and all documents issued to and by, the
Commission in connection with the registration of the Stock
under the Securities Act.
(o) Prior to each of the Closing Dates the Company will furnish to
you, as soon as they have been prepared, copies of any
unaudited interim consolidated financial statements of the
Company and its subsidiaries for any periods subsequent to the
periods covered by the financial statements appearing in the
Registration Statement and the Prospectus.
(p) Prior to each of the Closing Dates the Company will issue no
press release or other communications directly or indirectly
and hold no press conference with respect to the Company or
any of its subsidiaries, the financial condition, results of
operations, business, prospects, assets or liabilities of any
of them, or the offering of the Stock, without your prior
written consent. For a period of twelve (12) months following
the first Closing Date, the Company will use its best efforts
to provide to you copies of each press release or other public
communications with respect to the financial condition,
results of operations, business, prospects, assets or
liabilities of the Company at least twenty-four (24) hours
prior to the public issuance thereof or such longer advance
period as may reasonably be practicable.
(q) During the period of five (5) years hereafter, the Company
will furnish to the Representatives, and upon request of the
Representatives, to each of the Underwriters: (i) as soon as
practicable after the end of each fiscal year, copies of the
Annual Report of the Company containing the balance sheet of
the Company as of the close of such fiscal year and statements
of income, stockholders' equity and cash flows for the year
then ended and the opinion thereon of the Company's
independent public accountants; (ii) as soon as practicable
after the filing thereof,
<PAGE> 18
18
copies of each proxy statement, Annual Report on Form 10-K,
Quarterly Report on Form 10-Q, Report on Form 8-K or other
report filed by the Company with the Commission, or the NASD
or any securities exchange; and (iii) as soon as available,
copies of any report or communication of the Company mailed
generally to holders of its Common Stock.
5. PAYMENT OF EXPENSES. (a) The Company will pay (directly or by
reimbursement) all costs, fees and expenses incurred in connection with
expenses incident to the performance of its obligations under this
Agreement and in connection with the transactions contemplated hereby,
including but not limited to (i) all expenses and taxes incident to the
issuance and delivery of the Stock to the Representatives; (ii) all
expenses incident to the registration of the Stock under the Securities
Act; (iii) the costs of preparing stock certificates (including
printing and engraving costs); (iv) all fees and expenses of the
registrar and transfer agent of the Stock; (v) all necessary issue,
transfer and other stamp taxes in connection with the issuance and sale
of the Stock to the Underwriters; (vi) fees and expenses of the
Company's counsel and the Company's independent accountants; (vii) all
costs and expenses incurred in connection with the preparation,
printing filing, shipping and distribution of the Registration
Statement, each Preeffective Prospectus and the Prospectus (including
all exhibits and financial statements) and all amendments and
supplements provided for herein, the "Agreement Among Underwriters"
between the Representatives and the Underwriters, the Master Selected
Dealers' Agreement, the Underwriters' Questionnaire and the Blue Sky
memoranda (including related fees and expenses of counsel to the
Underwriters) and this Agreement; (viii) all filing fees, attorneys'
fees and expenses incurred by the Company or the Underwriters in
connection with exemptions from the qualifying or registering (or
obtaining qualification or registration of) all or any part of the
Stock for offer and sale and determination of its eligibility for
investment under the Blue Sky or other securities laws of such
jurisdictions as the Representatives may designate; (ix) fees and
expenses of counsel to the Underwriters; (x) all fees and expenses paid
or incurred in connection with filings made with the NASD; and (xi) all
other costs and expenses incident to the performance of its obligations
hereunder which are not otherwise specifically provided for in this
Section.
(b) The Selling Shareholder will pay (directly or by
reimbursement) all fees and expenses incident to the
performance of such Selling Shareholder's obligations under
this Agreement which are not otherwise specifically provided
for herein, including but not limited to any fees and expenses
of counsel for such Selling Shareholder and all expenses and
taxes incident to the sale and delivery of the Stock to be
sold by such Selling Shareholder to the Underwriters
hereunder.
(c) In addition to their other obligations under Section 6(a) and
(b) hereof, the Company and the Selling Shareholder jointly
and severally agree that, as an interim measure during the
pendency of any claim, action, investigation, inquiry or other
proceeding arising out of or based upon (i) any statement or
omission or any alleged statement or omission, (ii) any act or
failure to act or any alleged act or failure to act or (iii)
any breach or inaccuracy in their representations and
warranties, they will reimburse each Underwriter on a
quarterly basis for all reasonable legal or other
<PAGE> 19
19
expenses incurred in connection with investigating or
defending any such claim, action, investigation, inquiry or
other proceeding, notwithstanding the absence of a judicial
determination as to the propriety and enforceability of the
Company's and the Selling Shareholder's obligation to
reimburse each Underwriter for such expenses and the
possibility that such payments might later be held to have
been improper by a court of competent jurisdiction. To the
extent that any such interim reimbursement payment is so held
to have been improper, each Underwriter shall promptly return
it to the Company and each Selling Shareholder, as the case
may be, together with interest, compounded daily, determined
on the basis of the prime rate (or other commercial lending
rate for borrowers of the highest credit standing) announced
from time to timed by [_____________], New York, New York (the
"Prime Rate"). Any such interim reimbursement payments which
are not made to an Underwriter in a timely manner as provided
below shall bear interest at the Prime Rate from the due date
for such reimbursement. This expense reimbursement agreement
will be in addition to any other liability which the Company
or the Selling Shareholder may otherwise have. The request for
reimbursement will be sent to the Company with a copy to the
Selling Shareholder. In the event that the Company fails to
make such reimbursement payment within thirty (30) days of the
reimbursement request, the Representatives shall notify the
Selling Shareholder of their obligation to make such
reimbursement payments within fifteen (15) days; provided,
however, that the Selling Shareholder shall be required to
advance at such time only its pro rata portion of the
reimbursement payment.
(d) In addition to its other obligations under Section 6(c)
hereof, each Underwriter severally agrees that, as an interim
measure during the pendency of any claim, action,
investigation, inquiry or other proceeding arising out of or
based upon any statement or omission, or any alleged statement
or omission, described in Section 6(c) hereof which relates to
information furnished to the Company pursuant to Section 6(c)
hereof, it will reimburse the Company (and, to the extent
applicable, each officer, director, or controlling person or
Selling Shareholder) on a quarterly basis for all reasonable
legal or other expenses incurred in connection with
investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding
the absence of a judicial determination as to the propriety
and enforceability of the Underwriters' obligation to
reimburse the Company (and, to the extent applicable, each
officer, director, or controlling person or Selling
Shareholder) for such expenses and the possibility that such
payments might later be held to have been improper by a court
of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the
Company (and, to the extent applicable, each officer,
director, or controlling person or Selling Shareholder) shall
promptly return it to the Underwriters together with interest,
compounded daily, determined on the basis of the Prime Rate.
Any such interim reimbursement payments which are not made to
the Company within thirty (30) days of a request for
reimbursement shall bear interest at the Prime Rate from the
date of such request. This indemnity agreement will be in
addition to any liability which such Underwriter may otherwise
have.
<PAGE> 20
20
(e) It is agreed that any controversy arising out of the operation
of the interim reimbursement arrangements set forth in
paragraph (c) and/or (d) of this Section 5, including the
amounts of any requested reimbursement payments and the method
of determining such amounts, shall be settled by arbitration
conducted under the provisions of the Constitution and Rules
of the Board of Governors of the New York Stock Exchange, Inc.
or pursuant to the Code of Arbitration Procedure of the NASD.
Any such arbitration must be commenced by service of a written
demand for arbitration or written notice of intention to
arbitrate, therein electing the arbitration tribunal. In the
event the party demanding arbitration does not make such
designation of an arbitration tribunal in such demand or
notice, then the party responding to said demand or notice is
authorized to do so. Such an arbitration would be limited to
the operation of the interim reimbursement provisions
contained in paragraph (c) and/or (d) of this Section 5 and
would not resolve the ultimate propriety or enforceability of
the obligation to reimburse expenses which is created by the
provisions of Section 6.
6. INDEMNIFICATION AND CONTRIBUTION. (a) The Company agrees to indemnify
and hold harmless each Underwriter and each person, if any, who
controls such Underwriter within the meaning of the Securities Act and
the respective officers, directors, partners, employees,
representatives and agents of each of such Underwriter (collectively,
the "Underwriter Indemnified Parties" and, each, an "Underwriter
Indemnified Party"), against any losses, claims, damages, liabilities
or expenses (including the reasonable cost of investigating and
defending against any claims therefor and counsel fees incurred in
connection therewith), joint or several, which may be based upon the
Securities Act, or any other statute or at common law, (i) on the
ground or alleged ground that any Preeffective Prospectus, the
Registration Statement or the Prospectus (or any Preeffective
Prospectus, the Registration Statement or the Prospectus as from time
to time amended or supplemented) includes or allegedly includes an
untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading, unless such statement or omission was made in
reliance upon, and in conformity with, written information furnished to
the Company by any Underwriter, directly or through the
Representatives, specifically for use in the preparation thereof or
(ii) for any act or failure to act or any alleged act or failure to act
by any Underwriter in connection with, or relating in any manner to,
the Stock or the offering contemplated hereby, and which is included as
part of or referred to in any loss, claim, damage, liability or expense
arising out of or based upon matters covered by clause (i) above
(provided that the Company shall not be liable under this clause (ii)
to the extent that it is determined in a final judgment by a court of
competent jurisdiction that such loss, claim, damage, or liability or
expense resulted directly from any such acts or failures to act
undertaken or omitted to be taken by such Underwriter through its gross
negligence or willful misconduct). The Company will be entitled to
participate at its own expense in the defense or, if it so elects, to
assume the defense of any suit brought to enforce any such liability,
but if the Company elects to assume the defense, such defense shall be
conducted by counsel chosen by it and reasonably acceptable to the
Underwriters. In the event the
<PAGE> 21
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Company elects to assume the defense of any such suit and retain such
counsel, any Underwriter Indemnified Parties, defendant or defendants
in the suit, may retain additional counsel but shall bear the fees and
expenses of such counsel unless (A) the Company shall have specifically
authorized the retaining of such counsel or (B) the parties to such
suit include any such Underwriter Indemnified Parties, and the Company
and such Underwriter Indemnified Parties at law or in equity have been
advised by counsel to the Underwriters that one or more legal defenses
may be available to it or them which may not be available to the
Company, in which case the Company shall not be entitled to assume the
defense of such suit notwithstanding its obligation to bear the fees
and expenses of such counsel. This indemnity agreement is not exclusive
and will be in addition to any liability which the Company might
otherwise have and shall not limit any rights or remedies which may
otherwise be available at law or in equity to each Underwriter
Indemnified Party.
(b) The Selling Shareholder agrees to indemnify and hold harmless
each Underwriter Indemnified Party against any losses, claims,
damages, liabilities or expenses (including, unless such
Selling Shareholder elects to assume the defense, the
reasonable cost of investigating and defending against any
claims therefor and counsel fees incurred in connection
therewith), joint or several, which may be based upon the
Securities Act, or any other statute or at common law, on the
ground or alleged ground that any Preeffective Prospectus, the
Registration Statement or the Prospectus (or any Preeffective
Prospectus, the Registration Statement or the Prospectus, as
from time to time amended and supplemented) includes an untrue
statement of a material fact or omits to state a material fact
required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under
which they were made, not misleading, unless such statement or
omission was made in reliance upon, and in conformity with,
written information furnished to the Company by any
Underwriter, directly or through the Representatives,
specifically for use in the preparation thereof. Such Selling
Shareholder shall be entitled to participate at his own
expense in the defense, or, if it so elects, to assume the
defense of any suit brought to enforce any such liability,
but, if such Selling Shareholder elects to assume the defense,
such defense shall be conducted by counsel chosen by him. In
the event that any Selling Shareholder elects to assume the
defense of any such suit and retain such counsel, the
Underwriter Indemnified Parties, defendant or defendants in
the suit, may retain additional counsel but shall bear the
fees and expenses of such counsel unless (i) such Selling
Shareholder shall have specifically authorized the retaining
of such counsel or (ii) the parties to such suit include such
Underwriter Indemnified Parties and such Selling Shareholder
and such Underwriter Indemnified Parties have been advised by
counsel that one or more legal defenses may be available to it
or them which may not be available to such Selling
Shareholder, in which case such Selling Shareholder shall not
be entitled to assume the defense of such suit notwithstanding
its obligation to bear the fees and expenses of such counsel.
This indemnity agreement is not exclusive and will be in
addition to any liability which such Selling Shareholder might
otherwise have and shall not limit any rights or remedies
which may otherwise be available at law or in equity to each
Underwriter Indemnified
<PAGE> 22
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Party. The Company and the Selling Shareholder may agree, as
among themselves and without limiting the rights of the
Underwriters under this Agreement, as to their respective
amounts of such liability for which they each shall be
responsible.
(c) Each Underwriter severally and not jointly agrees to indemnify
and hold harmless the Company, each of its directors, each of
its officers who have signed the Registration Statement and
each person, if any, who controls the Company within the
meaning of the Securities Act (collectively, the "Company
Indemnified Parties") and the Selling Shareholder and each
person, if any, who controls the Selling Shareholder within
the meaning of the Securities Act (collectively, the
"Shareholder Indemnified Parties"), against any losses,
claims, damages, liabilities or expenses (including, unless
the Underwriter or Underwriters elect to assume the defense,
the reasonable cost of investigating and defending against any
claims therefor and counsel fees incurred in connection
therewith), joint or several, which arise out of or are based
in whole or in part upon the Securities Act, the Exchange Act
or any other federal, state, local or foreign statute or
regulation, or at common law, on the ground or alleged ground
that any Preeffective Prospectus, the Registration Statement
or the Prospectus (or any Preeffective Prospectus, the
Registration Statement or the Prospectus, as from time to time
amended and supplemented) includes an untrue statement of a
material fact or omits to state a material fact required to be
stated therein or necessary in order to make the statements
therein, in light of the circumstances in which they were
made, not misleading, but only insofar as any such statement
or omission was made in reliance upon, and in conformity with,
written information furnished to the Company by such
Underwriter, directly or through the Representatives,
specifically for use in the preparation thereof; provided,
however, that in no case is such Underwriter to be liable with
respect to any claims made against any Company Indemnified
Party or Shareholder Indemnified Party against whom the action
is brought unless such Company Indemnified Party or
Shareholder Indemnified Party shall have notified such
Underwriter in writing within a reasonable time after the
summons or other first legal process giving information of the
nature of the claim shall have been served upon the Company
Indemnified Party or Shareholder Indemnified Party, but
failure to notify such Underwriter of such claim shall not
relieve it from any liability which it may have to any Company
Indemnified Party or Shareholder Indemnified Party otherwise
than on account of its indemnity agreement contained in this
paragraph. Such Underwriter shall be entitled to participate
at its own expense in the defense, or, if it so elects, to
assume the defense of any suit brought to enforce any such
liability, but, if such Underwriter elects to assume the
defense, such defense shall be conducted by counsel chosen by
it. In the event that any Underwriter elects to assume the
defense of any such suit and retain such counsel, the Company
Indemnified Parties or Shareholder Indemnified Parties and any
other Underwriter or Underwriters or controlling person or
persons, defendant or defendants in the suit, shall bear the
fees and expenses of any additional counsel retained by them,
respectively. The Underwriter against whom indemnity may be
sought shall not be liable to indemnify any person for any
settlement of any such claim effected without
<PAGE> 23
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such Underwriter's consent. This indemnity agreement is not
exclusive and will be in addition to any liability which such
Underwriter might otherwise have and shall not limit any
rights or remedies which may otherwise be available at law or
in equity to any Company Indemnified Party or Shareholder
Indemnified Party.
(d) If the indemnification provided for in this Section 6 is
unavailable or insufficient to hold harmless an indemnified
party under subsection (a) or (b) or (c) above in respect of
any losses, claims, damages, liabilities or expenses (or
actions in respect thereof) referred to herein, then each
indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of such losses,
claims, damages, liabilities or expenses (or actions in
respect thereof) in such proportion as is appropriate to
reflect the relative benefits received by the Company and the
Selling Shareholder on the one hand and the Underwriters on
the other from the offering of the Stock. If, however, the
allocation provided by the immediately preceding sentence is
not permitted by applicable law, then each indemnifying party
shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to
reflect not only such relative benefits but also the relative
fault of the Company and the Selling Shareholder on the one
hand and the Underwriters on the other in connection with the
statements or omissions which resulted in such losses, claims,
damages, liabilities or expenses (or actions in respect
thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company
and the Selling Shareholder on the one hand and the
Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company and the Selling
Shareholder bear to the total underwriting discounts and
commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the
Company, the Selling Shareholder or the Underwriters and the
parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company, the Selling Shareholder and the Underwriters
agree that it would not be just and equitable if contribution
were determined by pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or
by any other method of allocation which does not take account
of the equitable considerations referred to above. The amount
paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities or expenses (or actions
in respect thereof) referred to above shall be deemed to
include any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating,
defending, settling or compromising any such claim.
Notwithstanding the provisions of this subsection (d), no
Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the
shares of the Stock underwritten by it and distributed to the
public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to
pay by reason of
<PAGE> 24
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such untrue or alleged untrue statement or omission or alleged
omission. The Underwriters' obligations to contribute are
several in proportion to their respective underwriting
obligations and not joint. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent
misrepresentation.
7. SURVIVAL OF INDEMNITIES, REPRESENTATIONS, WARRANTIES, ETC. The
respective indemnities, covenants, agreements, representations,
warranties and other statements of the Company, the Selling Shareholder
and the several Underwriters, as set forth in this Agreement or made by
them respectively, pursuant to this Agreement, shall remain in full
force and effect, regardless of any investigation made by or on behalf
of any Underwriter, the Selling Shareholder, the Company or any of its
officers or directors or any controlling person, and shall survive
delivery of and payment for the Stock.
8. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The respective obligations of
the several Underwriters hereunder shall be subject to the accuracy, at
and (except as otherwise stated herein) as of the date hereof and at
and as of each of the Closing Dates, of the representations and
warranties made herein by the Company and the Selling Shareholder, to
compliance at and as of each of the Closing Dates by the Company and
the Selling Shareholder with their covenants and agreements herein
contained and other provisions hereof to be satisfied at or prior to
each of the Closing Dates, and to the following additional conditions:
(a) The Registration Statement shall have become effective and no
stop order suspending the effectiveness thereof shall have
been issued and no proceedings for that purpose shall have
been initiated or, to the knowledge of the Company or the
Representatives, shall be threatened by the Commission, and
any request for additional information on the part of the
Commission (to be included in the Registration Statement or
the Prospectus or otherwise) shall have been complied with to
the reasonable satisfaction of the Representatives. Any
filings of the Prospectus, or any supplement thereto, required
pursuant to Rule 424(b) or Rule 434 of the Rules and
Regulations, shall have been made in the manner and within the
time period required by Rule 424(b) and Rule 434 of the Rules
and Regulations, as the case may be.
(b) The Representatives shall have been satisfied that there shall
not have occurred any change, on a consolidated basis, prior
to each of the Closing Dates in the condition (financial or
otherwise), properties, business, management, prospects, net
worth or results of operations of the Company and its
subsidiaries considered as a whole, or any change in the
capital stock, short-term or long-term debt of the Company and
its subsidiaries considered as a whole, such that (i) the
Registration Statement or the Prospectus, or any amendment or
supplement thereto, contains an untrue statement of fact
which, in the opinion of the Representatives, is material, or
omits to state a fact which, in the opinion of the
Representatives, is required to be stated therein or
<PAGE> 25
25
is necessary to make the statements therein not misleading, or
(ii) it is unpracticable in the reasonable judgment of the
Representatives to proceed with the public offering or
purchase the Stock as contemplated hereby.
(c) The Representatives shall be satisfied that no legal or
governmental action, suit or proceeding affecting the Company
which is material and adverse to the Company or which affects
or may affect the Company's or the Selling Stockholder's
ability to perform their respective obligations under this
Agreement shall have been instituted or threatened and there
shall have occurred no material adverse development in any
existing such action, suit or proceeding.
(d) At the time of execution of this Agreement, the
Representatives shall have received from
PricewaterhouseCoopers LLC, independent certified public
accountants, a letter, dated the date hereof, in form and
substance satisfactory to the Underwriters.
(e) The Representatives shall have received from
PricewaterhouseCoopers LLC, independent certified public
accountants, letters, dated each of the Closing Dates, to the
effect that such accountants reaffirm, as of each of the
Closing Dates, and as though made on each of the Closing
Dates, the statements made in the letter furnished by such
accountants pursuant to paragraph (d) of this Section 8.
(f) The Representatives shall have received from Goodman Weiss
Miller, LLP, counsel for the Company, opinions, dated each of
the Closing Dates, to the effect set forth in Exhibit I
hereto.
(g) The Representatives shall have received from Goodman Weiss
Miller, LLP counsel for the Selling Shareholders, an opinion
dated each of the Closing Dates to the effect set forth in
Exhibit [__] hereto.
(h) The Representatives shall have received from Testa, Hurwitz &
Thibeault, LLP, counsel for the Underwriters, their opinions
dated each of the Closing Dates with respect to the
incorporation of the Company, the validity of the Stock, the
Registration Statement and the Prospectus and such other
related matters as it may reasonably request, and the Company
and the Selling Shareholder shall have furnished to such
counsel such documents as they may request for the purpose of
enabling them to pass upon such matters.
(i) The Representatives shall have received a certificates, dated
each of the Closing Dates, of the chief executive officer or
the President and the chief financial or accounting officer of
the Company to the effect that:
(i) No stop order suspending the effectiveness of the
Registration Statement has been issued, and, to the
best of the knowledge of the signers, no proceedings
for that purpose have been instituted or are pending
or contemplated under the Securities Act;
<PAGE> 26
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(ii) Neither any Preeffective Prospectus, as of its date,
nor the Registration Statement nor the Prospectus,
nor any amendment or supplement thereto, as of the
time when the Registration Statement became effective
and at all times subsequent thereto up to the
delivery of such certificate, included any untrue
statement of a material fact or omitted to state any
material fact required to be stated therein or
necessary to make the statements therein, in light of
the circumstances under which they were made, not
misleading;
(iii) Subsequent to the respective dates as of which
information is given in the Registration Statement
and the Prospectus, and except as set forth or
contemplated in the Prospectus, neither the Company
nor any of its subsidiaries has incurred any material
liabilities or obligations, direct or contingent, nor
entered into any material transactions not in the
ordinary course of business and there has not been
any material adverse change in the condition
(financial or otherwise), properties, business,
management, prospects, net worth or results of
operations of the Company and its subsidiaries
considered as a whole, or any change in the capital
stock, short-term or long-term debt of the Company
and its subsidiaries considered as a whole;
(iv) The representations and warranties of the Company in
this Agreement are true and correct at and as of each
of the Closing Dates, and the Company has complied
with all the agreements and performed or satisfied
all the conditions on its part to be performed or
satisfied at or prior to the Closing Dates; and
(v) Since the respective dates as of which information is
given in the Registration Statement and the
Prospectus, and except as disclosed in or
contemplated by the Prospectus, (A) there has not
been any material adverse change or a development
involving a material adverse change in the condition
(financial or otherwise), properties, business,
management, prospects, net worth or results of
operations of the Company and its subsidiaries
considered as a whole; (B) the business and
operations conducted by the Company and its
subsidiaries have not sustained a loss by strike,
fire, flood, accident or other calamity (whether or
not insured) of such a character as to interfere
materially with the conduct of the business and
operations of the Company and its subsidiaries
considered as a whole; (C) no legal or governmental
action, suit or proceeding is pending or threatened
against the Company which is material to the Company,
whether or not arising from transactions in the
ordinary course of business, or which may materially
and adversely affect the transactions contemplated by
this Agreement; (D) since such dates and except as so
disclosed, the Company has not incurred any material
liability or obligation, direct, contingent or
indirect, made any change in its capital stock
(except pursuant to its stock
<PAGE> 27
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plans), made any material change in its short-term or
funded debt or repurchased or otherwise acquired any
of the Company's capital stock; and (E) the Company
has not declared or paid any dividend, or made any
other distribution, upon its outstanding capital
stock payable to stockholders of record on a date
prior to the Closing Date.
(j) The Representatives shall have received a certificate or
certificates, dated each of the Closing Dates, of the Selling
Shareholder to the effect that as of each of the Closing Dates
its representations and warranties in this Agreement are true
and correct as if made on and as of each of the Closing Dates,
and that it has performed all its obligations and satisfied
all the conditions on its part to be performed or satisfied at
or prior to the Closing Dates.
(k) The Company and the Selling Shareholder shall have furnished
to the Representatives such additional certificates as the
Representatives may have reasonably requested as to the
accuracy, at and as of each of the Closing Dates, of the
representations and warranties made herein by them and as to
compliance at and as of each of the Closing Dates by them with
their covenants and agreements herein contained and other
provisions hereof to be satisfied at or prior to each of the
Closing Dates, and as to satisfaction of the other conditions
to the obligations of the Underwriters hereunder.
(l) Dain Rauscher Wessels shall have received the written
agreements, substantially in the form of Exhibit II hereto, of
the officers, directors and holders of Common Stock listed in
Schedule C that each will not offer, sell, assign, transfer,
encumber, contract to sell, grant an option to purchase or
otherwise dispose of, other than by operation of law, gifts,
pledges or dispositions by estate representatives, any shares
of Common Stock (including, without limitation, Common Stock
which may be deemed to be beneficially owned by such officer,
director or holder in accordance with the Rules and
Regulations) during the one hundred eighty (180) days
following the date of the final Prospectus, except for the
Stock being sold hereunder by the Selling Shareholder.
The Nasdaq National Market shall have approved the stock for listing,
subject only to official notice of issuance.
All opinions, certificates, letters and other documents will be in
compliance with the provisions hereunder only if they are satisfactory
in form and substance to the Representatives. The Company will furnish
to the Representatives conformed copies of such opinions, certificates,
letters and other documents as the Representatives shall reasonably
request. If any of the conditions hereinabove provided for in this
Section shall not have been satisfied when and as required by this
Agreement, this Agreement may be terminated by the Representatives by
notifying the Company of such termination in writing or by telegram at
or prior to each of the Closing Dates, but Dain Rauscher Wessels, on
behalf of the Representatives, shall be entitled to waive any of such
conditions.
<PAGE> 28
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9. EFFECTIVE DATE. This Agreement shall become effective immediately as to
Sections 5, 6, 7, 9, 10, 11, 13, 14, 15, 16 and 17 and, as to all other
provisions, at 11:00 a.m. New York City time on the first full business
day following the effectiveness of the Registration Statement or at
such earlier time after the Registration Statement becomes effective as
the Representatives may determine on and by notice to the Company or by
release of any of the Stock for sale to the public. For the purposes of
this Section 9, the Stock shall be deemed to have been so released upon
the release for publication of any newspaper advertisement relating to
the Stock or upon the release by you of telegrams (i) advising
Underwriters that the shares of Stock are released for public offering
or (ii) offering the Stock for sale to securities dealers, whichever
may occur first.
10. TERMINATION. This Agreement (except for the provisions of Section 5)
may be terminated by the Company at any time before it becomes
effective in accordance with Section 9 by notice to the Representatives
and may be terminated by the Representatives at any time before it
becomes effective in accordance with Section 9 by notice to the
Company. In the event of any termination of this Agreement under this
or any other provision of this Agreement, there shall be no liability
of any party to this Agreement to any other party, other than as
provided in Sections 5, 6 and 11 and other than as provided in Section
12 as to the liability of defaulting Underwriters.
This Agreement may be terminated after it becomes effective by the
Representatives by notice to the Company (i) if at or prior to the
First Closing Date trading in securities on any of the New York Stock
Exchange, American Stock Exchange, Nasdaq National Market System,
Chicago Board of Options Exchange, Chicago Mercantile Exchange or the
Chicago Board of Trade shall have been suspended or minimum or maximum
prices shall have been established on any such exchange or market, or a
banking moratorium shall have been declared by New York or United
States authorities; (ii) trading of any securities of the Company shall
have been suspended on any exchange or in any over-the-counter market;
(iii) if at or prior to the First Closing Date there shall have been
(A) an outbreak or escalation of hostilities between the United States
and any foreign power or of any other insurrection or armed conflict
involving the United States or (B) any change in financial markets or
any calamity or crisis which, in the judgment of the Representatives,
makes it impractical or inadvisable to offer or sell the Stock on the
terms contemplated by the Prospectus; (iv) if there shall have been any
development or prospective development involving particularly the
business or properties or securities of the Company or any of its
subsidiaries or the transactions contemplated by this Agreement, which,
in the judgment of the Representatives, makes it impracticable or
inadvisable to offer or deliver the Stock on the terms contemplated by
the Prospectus; (v) if there shall be any litigation or proceeding,
pending or threatened, which, in the judgment of the Representatives,
makes it impracticable or inadvisable to offer or deliver the on the
terms contemplated by the Prospectus; or (vi) if there shall have
occurred any of the events specified in the immediately preceding
clauses (i) - (v) together with any other such event that makes it, in
the judgment of the Representatives, impractical or inadvisable to
offer or deliver the Stock on the terms contemplated by the Prospectus.
<PAGE> 29
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11. REIMBURSEMENT OF UNDERWRITERS. Notwithstanding any other provisions
hereof, if this Agreement shall not become effective by reason of any
election of the Company pursuant to the first paragraph of Section 10
or shall be terminated by the Representatives under Section 8 or
Section 10, the Company will bear and pay the expenses specified in
Section 5 hereof and, in addition to its obligations pursuant to
Section 6 hereof, the Company will reimburse the reasonable
out-of-pocket expenses of the several Underwriters (including
reasonable fees and disbursements of counsel for the Underwriters)
incurred in connection with this Agreement and the proposed purchase of
the Stock, and promptly upon demand the Company will pay such amounts
to you as Representatives.
12. SUBSTITUTION OF UNDERWRITERS. If any Underwriter or Underwriters shall
default in its or their obligations to purchase shares of Stock
hereunder and the aggregate number of shares which such defaulting
Underwriter or Underwriters agreed but failed to purchase does not
exceed ten percent (10%) of the total number of shares underwritten,
the other Underwriters shall be obligated severally, in proportion to
their respective commitments hereunder, to purchase the shares which
such defaulting Underwriter or Underwriters agreed but failed to
purchase. If any Underwriter or Underwriters shall so default and the
aggregate number of shares with respect to which such default or
defaults occur is more than ten percent (10%) of the total number of
shares underwritten and arrangements satisfactory to the
Representatives and the Company for the purchase of such shares by
other persons are not made within forty-eight (48) hours after such
default, this Agreement shall terminate.
If the remaining Underwriters or substituted Underwriters are required
hereby or agree to take up all or part of the shares of Stock of a
defaulting Underwriter or Underwriters as provided in this Section 12,
(i) the Company and the Selling Shareholder shall have the right to
postpone the Closing Dates for a period of not more than five (5) full
business days in order that the Company and the Selling Shareholder may
effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees promptly to file any amendments to
the Registration Statement or supplements to the Prospectus which may
thereby be made necessary, and (ii) the respective numbers of shares to
be purchased by the remaining Underwriters or substituted Underwriters
shall be taken as the basis of their underwriting obligation for all
purposes of this Agreement. Nothing herein contained shall relieve any
defaulting Underwriter of its liability to the Company, the Selling
Shareholder or the other Underwriters for damages occasioned by its
default hereunder. Any termination of this Agreement pursuant to this
Section 12 shall be without liability on the part of any non-defaulting
Underwriter, the Selling Shareholder or the Company, except for
expenses to be paid or reimbursed pursuant to Section 5 and except for
the provisions of Section 6.
13. NOTICES. All communications hereunder shall be in writing and, if sent
to the Underwriters shall be mailed, delivered or telegraphed and
confirmed to you, as their Representatives c/o Dain Rauscher Wessels 60
South Street, Suite 1800, Minneapolis, MN 55402 except that notices
given to an Underwriter pursuant to Section 6 hereof shall be sent to
such
<PAGE> 30
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Underwriter at the address furnished by the Representatives or, if sent
to the Company, shall be mailed, delivered or telegraphed and confirmed
c/o [-----------------].
14. SUCCESSORS. This Agreement shall inure to the benefit of and be binding
upon the several Underwriters, the Company and the Selling Shareholder
and their respective successors and legal representatives. Nothing
expressed or mentioned in this Agreement is intended or shall be
construed to give any person other than the persons mentioned in the
preceding sentence any legal or equitable right, remedy or claim under
or in respect of this Agreement, or any provisions herein contained,
this Agreement and all conditions and provisions hereof being intended
to be and being for the sole and exclusive benefit of such persons and
for the benefit of no other person; except that the representations,
warranties, covenants, agreements and indemnities of the Company and
the Selling Shareholder contained in this Agreement shall also be for
the benefit of the person or persons, if any, who control any
Underwriter or Underwriters within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, and the indemnities
of the several Underwriters shall also be for the benefit of each
director of the Company, each of its officers who has signed the
Registration Statement and the person or persons, if any, who control
the Company or any Selling Shareholder within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act.
15. APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
16. AUTHORITY OF THE REPRESENTATIVES. In connection with this Agreement,
you will act for and on behalf of the several Underwriters, and any
action taken under this Agreement by Dain Rauscher Wessels, as
Representative, will be binding on all the Underwriters.
17. PARTIAL UNENFORCEABILITY. The invalidity or unenforceability of any
Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision
hereof. If any Section, paragraph or provision of this Agreement is for
any reason determined to be invalid or unenforceable, there shall be
deemed to be made such minor changes (and only such minor changes) as
are necessary to make it valid and enforceable.
18. GENERAL. This Agreement constitutes the entire agreement of the parties
to this Agreement and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings and negotiations with
respect to the subject matter hereof.
In this Agreement, the masculine, feminine and neuter genders and the
singular and the plural include one another. The section headings in
this Agreement are for the convenience of the parties only and will not
affect the construction or interpretation of this Agreement. This
Agreement may be amended or modified, and the observance of any term of
this Agreement may be waived, only by a writing signed by the Company,
the Selling Shareholder and the Representatives.
<PAGE> 31
31
19. COUNTERPARTS. This Agreement may be signed in two (2) or more
counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument.
<PAGE> 32
32
If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that
purpose, whereupon this letter and your acceptance shall constitute a
binding agreement between us.
Very truly yours,
AIRONET WIRELESS COMMUNICATIONS, INC.
By:____________________________
President
SELLING SHAREHOLDER
By:
By:______________________________
Accepted and delivered in
- as of
the date first above written.
DAIN RAUSCHER WESSELS
PRUDENTIAL SECURITIES, INC.
CIBC WORLD MARKETS CORP.
Acting on their own behalf and as Representatives of several
Underwriters referred to in the foregoing Agreement.
By:
By: ______________________________
<PAGE> 33
33
SCHEDULE A
Number Number of
of Firm Optional
Shares Shares
to be to be
Name Purchased Purchased
---- --------- ---------
Dain Rauscher
Wessels................................
Prudential Securities, Inc.............
CIBC World Markets Corp................
--------- --------
Total..............................
========= ========
<PAGE> 34
SCHEDULE B
<TABLE>
<CAPTION>
Number of
Number of Firm Optional
Shares to Shares to
be Sold be Sold
------- -------
<S> <C> <C>
Aironet Wireless Communication, Inc........................... 4,000,000 600,000
Selling Shareholder........................................... 2,000,000 300,000
--------- -------
Total...................................................... 6,000,000 900,000
===== ========= ========
</TABLE>
<PAGE> 35
SCHEDULE C
<PAGE> 36
[Form of Opinion of Issuer's Counsel]
Exhibit I
[Date]
DAIN RAUSCHER WESSELS
PRUDENTIAL SECURITIES, INC.
CIBC WORLD MARKETS CORP.
As Representatives of the several Underwriters
c/o Dain Rauscher Wessels
60 South Street
Suite 1800
Minneapolis, MN 55402
Re: Aironet Wireless Communications, Inc.
6,000,000 Shares Of Common Stock
Dear Sirs:
We have acted as counsel for Aironet Wireless Communications, Inc., a
Delaware corporation (the "Company"), in connection with the sale by
the Company and Telxon Corporation (the "Selling Stockholder") and
purchase of 6,000,000 shares of Common Stock, par value $0.01 per
share, of the Company (the "Shares") by the several Underwriters listed
in Schedule A to the Underwriting Agreement, dated ____, among the
Company, Dain Rauscher Wessels, a division of Dain Raucher
Incorporated, Prudential Securities, Inc. and CIBC World Markets Corp.,
as Representatives of the several Underwriters named therein (the
"Underwriting Agreement"). This opinion is being furnished pursuant to
Section 8(f) of the Underwriting Agreement. All defined terms not
defined herein shall have the meanings ascribed to them in the
Underwriting Agreement.
We are of the opinion that:
1. The Company and each of its subsidiaries have been duly incorporated
and are validly existing as corporations in good standing under the
laws of their respective jurisdictions of incorporation, are duly
qualified to do business and are in good standing as foreign
corporations in each jurisdiction in which their respective ownership
or lease of property or the conduct of their respective businesses
requires such qualification, and have all power and authority necessary
to own or hold their respective properties and conduct the businesses
in which they are engaged;
2. The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock off the
Company have been duly and validly authorized and issued, are fully
paid and non-assessable and all of the Shares to be issued and sold by
the Company to the Underwriters pursuant to the Underwriting Agreement
have been duly and validly authorized and, when issued and delivered
against payment therefor as provided for in the Underwriting Agreement,
shall be duly and validly issued, fully paid and non-assessable; and
all of the issued shares of capital stock of each subsidiary of the
Company have been duly and validly authorized and issued and are fully
paid, non-
<PAGE> 37
assessable and are owned directly or indirectly by the Company, free
and clear of all liens, encumbrances, equities or claims;
3. There are no preemptive or other rights to subscribe for or to
purchase, nor any restriction upon the voting or transfer of, any of
the Shares pursuant to the Company's Certificate of Incorporation or
By-Laws or any agreement or other instrument;
4. There are no legal or governmental proceedings pending to which the
Company or any of its subsidiaries is a party or of which any property
or assets of the Company or any of its Subsidiaries is the subject
which, if determined adversely to the Company or any of its
subsidiaries, could have a material adverse effect on the Company and
its subsidiaries; and, to the best of our knowledge, no such
proceedings are threatened or contemplated by governmental authorities
or other third parties;
5. The Company and each of its subsidiaries own or possess all patents,
trademarks, trademark registrations, service marks, service mark
registrations, trade names, copyrights, licenses, inventions, trade
secrets and rights described in the Prospectus as being owned by them
or any of them or necessary for the conduct of their respective
businesses, and the Company is not aware of any claim to the contrary
or any challenge by any other person to the rights of the Company or
any of its subsidiaries with respect to the foregoing. The Company's
business as now conducted and as proposed to be conducted does not and
will not infringe or conflict with any patents, trademarks, service
marks, trade names, copyrights, trade secrets, licenses or other
intellectual property or franchise right of any person;
6. The Company and each of its subsidiaries have, and the Company and
each of its subsidiaries as of the Closing Dates will have, good and
marketable title in fee simple to all real property and good and
marketable title to all personal property owned or proposed to be owned
by them which is material to the business of the Company or any of its
subsidiaries, in each case free and clear of all liens, encumbrances
and defects; and any real property and buildings held under lease by
the Company and its subsidiaries or proposed to be held after giving
effect to the transactions described in the Prospectus are, or will be
as of the Closing Dates, held by them under valid, subsisting and
enforceable leases with such exceptions as would not have a material
adverse effect on the Company and its subsidiaries considered as a
whole;
7. The Company has full corporate power and authority to enter into the
Underwriting Agreement and to perform its obligations thereunder
(including to issue, sell and deliver the Shares), and the Underwriting
Agreement has been duly and validly authorized, executed and delivered
by the Company and is a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except to
the extent that rights to indemnification and contribution thereunder
may be limited by federal or state securities laws or the public policy
underlying such laws;
<PAGE> 38
8. The execution, delivery and performance of the Underwriting
Agreement and the consummation of the transactions therein contemplated
will not result in a breach or violation of any of the terms or
provisions of or constitute a default under any indenture, mortgage,
deed of trust, note agreement or other agreement or instrument to which
the Company or any of its subsidiaries is a party or by which any of
them or any of their properties is or may be bound, the Certificate of
Incorporation, By-laws or other organizational documents of the Company
or any of its subsidiaries, or any law, order, rule or regulation of
any court or governmental agency or body having jurisdiction over the
Company or any of its subsidiaries or any of their properties or result
in the creation of a lien;
9. No consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation by the
Company of the transactions contemplated by the Underwriting Agreement,
except such as may be required by the National Association of
Securities Dealers, Inc. (the "NASD") or under the Securities Act or
the securities or "Blue Sky" laws of any jurisdiction in connection
with the purchase and distribution of the Shares by the Underwriters;
10. The Company and each of its subsidiaries are in compliance with,
and conduct their businesses in conformity with, all applicable
federal, state, local and foreign laws, rules and regulations,
including, but not limited to, those of any governmental agency, court
or tribunal; to the best of our knowledge, no prospective change in any
of such federal, state, local or foreign laws, rules or regulations has
been adopted which, when made effective, would have a material adverse
effect on the operations of the Company and its subsidiaries. The
Company and its subsidiaries are in compliance with all applicable
federal, state, local and foreign laws and regulations relating to the
protection of human health or the environment or imposing liability or
requiring standards of conduct concerning any Hazardous Materials;
11. The Registration Statement was declared effective under the
Securities Act as of __________, 1999, the Prospectus was filed with
the Commission pursuant to Rule 424(b) of the Rules and Regulations on
__________, 1999 and no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceeding for that
purpose is pending or, to the best of our knowledge, threatened by the
Commission;
12. The Registration Statement and the Prospectus and any amendments or
supplements thereto comply as to form in all respects with the
requirements of the Securities Act and the Rules and Regulations;
13. To the best of our knowledge, there are no contracts or other
documents which are required by the Securities Act or by the Rules and
Regulations to be described in the Prospectus or filed as exhibits to
the Registration Statement which have not been described in the
Prospectus or filed as exhibits to the Registration Statement or
incorporated therein by reference as permitted by the Rules and
Regulations;
<PAGE> 39
14. Other than as described in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person
granting such person the right (other than rights which have been
waived or satisfied) to require the Company to file a registration
statement under the Securities Act with respect to any securities of
the Company owned or to be owned by such person or to require the
Company to include such securities in the securities registered
pursuant to this Registration Statement or in any securities being
registered pursuant to any other registration statement filed by the
Company under the Securities Act;
l5. The descriptions in the Registration Statement and Prospectus of
statutes, rules, regulations, legal or governmental proceedings,
contracts and other documents are accurate and such descriptions fairly
present the information required to be disclosed; and to the best of
our knowledge, there are no legal or governmental proceedings,
statutes, ruler or regulations, or any contracts or documents of a
character required to be described in the Registration Statement or
Prospectus or to be filed as exhibits to the Registration Statement
which are not described and filed as required;
16. The statements under the captions "Risk Factors"; and
"Business-Government Regulation", to the extent they reflect matters of
federal law arising under the laws of the United States or legal
conclusions relating to such law, accurately summarize and fairly
present the legal and regulatory matters described therein :
17. The Company has complied with all provisions of Section 517.075 of
the Florida Statutes (Chapter 92 - l98; Laws of Florida); and
18. The Company and each of its subsidiaries are not, nor will they be
immediately after receiving the proceeds from the sale of the Shares,
an "investment company" or an entity "controlled" by an "investment
company" as such terms are defined in the Investment Company Act of
1940, as amended.
The foregoing opinion is limited to matters governed by the Federal
laws of the United States of America, the general corporate law of the
State of Delaware and the laws of the State of Ohio.
We have acted as counsel to the Company on a regular basis, have acted
as counsel to the Company in connection with previous financing
transactions and have acted as counsel to the Company in connection
with the preparation and filing of the Registration Statement and the
Prospectus, and based on the foregoing, no facts have come to our
attention which lead us to believe that the Registration Statement or
any amendment thereto, as of the Effective Date, contained any untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the
statements therein not misleading, or that the Prospectus contains any
untrue statement of a material fact or omits to state a material fact
Required to be stated therein or necessary in order to
<PAGE> 40
make the statements therein, in light of the circumstances under which
they were made, not misleading.
<PAGE> 41
SCHEDULE A
[Underwriters]
<PAGE> 42
[Form of Lock Up]
Exhibit II
[Date]
DAIN RAUSCHER WESSELS
PRUDENTIAL SECURITIES, INC.
CIBC WORLD MARKETS CORP. As Representatives of the several
Underwriters
c/o Dain Rauscher Wessels
60 South Street
Suite 1800
Minneapolis, MN 55402
Re: AIRONET WIRELESS COMMUNICATIONS, INC.
6,000,000 SHARES OF COMMON STOCK
Ladies and Gentlemen:
The undersigned understands that Dain Rauscher Wessels, a
division of Dain Rauscher Wessels ("Dain Rauscher Wessels")
Prudential Securities, Inc. and CIBC World Markets Corp., as
Representatives (the "Representatives") of the several
underwriters (the "Underwriters"), proposes to enter into an
Underwriting Agreement (the "Underwriting Agreement") with
Aironet Wireless Communications, Inc. (the "Company") and
possibly with certain selling stockholders, providing for the
initial public offering by the Underwriters, including the
Representatives, of common stock (the "Common Stock") of the
Company (the "Initial Public Offering").
In consideration of the Underwriters' agreement to purchase
and undertake the Initial Public Offering of the Company's
Common Stock and for other good and valuable consideration,
the receipt and adequacy of which is hereby acknowledged, the
undersigned agrees that without the prior written consent of
Dain Rauscher Wessels, the undersigned will not, directly or
indirectly, offer, sell, pledge, contract to sell, grant any
option to purchase or otherwise dispose of any shares of
Common Stock beneficially owned or otherwise held by the
undersigned (including without limitation shares of Common
Stock which may be deemed to be beneficially owned by the
undersigned on the date hereof in accordance with the rules
and regulations of the Securities and Exchange Commission and
shares of Common Stock which may be issued upon exercise of a
stock option or warrant) or any securities convertible into,
derivative of or exercisable or exchangeable for such Common
Stock (collectively, the "Shares") for a period commencing on
the date hereof and ending 180 days after the date of the
final Prospectus circulated in connection with the Initial
Public Offering.
<PAGE> 43
The undersigned agrees that the Company may, and hereby
instructs the Company to, cause the transfer agent for the
Company to note stop transfer instructions, with respect to
any Shares for which the undersigned is the record holder, on
the transfer books and records of the Company.
The undersigned understands that the Company, the Underwriters
and the Representatives will proceed with the Initial Public
Offering in reliance on this Lock-up Agreement.
Notwithstanding the second paragraph of this Lock-up
Agreement, the undersigned may offer or otherwise dispose of,
directly or indirectly, any Shares now owned or hereafter
acquired by the undersigned (i) as a bona fide gift or gifts,
provided the donees thereof agree in writing to be bound by
the terms of this Agreement, (ii) as a distribution to
partners, members or shareholders of the undersigned, provided
that the recipients thereof agree in writing to be bound by
the terms of this Agreement, (iii) pursuant to a qualified
domestic relations court order, provided that the recipients
thereof agree in writing to be bound by the terms of this
Agreement, (iv) if the undersigned is an individual, as a
transfer during the undersigned's lifetime or on death, by
will or intestacy, to the undersigned's immediate family or a
trust or family limited partnership, the beneficiaries or
partners of which are exclusively the undersigned, a member of
the undersigned's immediate family, entities of which the
undersigned and members of the undersigned's immediate family
are the sole beneficial owners or a combination of the
foregoing, provided that the transferees thereof agree in
writing to be bound by the terms of this Agreement or (v) upon
exercise, exchange or conversion of securities convertible
into or exercisable or exchangeable for Common Stock, provided
that the shares of Common Stock issued upon any such exercise,
exchange or conversion remain subject to the terms of this
Agreement, without prior written consent of Dain Rauscher
Wessels.
The undersigned hereby represents and warrants that the
undersigned has full power and authority to enter into this
Lock-up Agreement. All authority herein conferred or agreed to
be conferred shall survive the death or incapacity of the
undersigned and any obligations of the undersigned shall be
binding upon the heirs, personal representatives, successors
and assigns of the undersigned. Very truly yours,
-------------------------
By: ______________________________
Name: ____________________________
Title: ___________________________
<PAGE> 44
<TABLE>
<CAPTION>
Number of Shares (prior to any stock split to be effected in
connection with the Initial Public Offering) owned or Certificate Number:
subject to -------------------
warrants, options or convertible securities:
--------------------------------------------
<S> <C>
---------------- -------------
---------------- -------------
---------------- -------------
---------------- -------------
</TABLE>
<PAGE> 1
Exhibit 4.1
AIRONET WIRELESS COMMUNICATIONS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
COMMON STOCK
CUSIP 00943A 10 7
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, $.01 PAR VALUE,
OF
AIRONET WIRELESS COMMUNICATIONS, INC.
(the "Corporation") transferable on the books of the Corporation by the holder
hereof in person or by duly authorized attorney, upon surrender of this
Certificate properly endorsed. This Certificate and the shares represented
hereby are subject to all of the terms and conditions contained in the
Certificate of Incorporation and all amendments thereto. This Certificate is not
valid unless countersigned and registered by the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
President and
Chief Executive Officer
Secretary
COUNTERSIGNED AND REGISTERED
HARRIS TRUST AND SAVINGS BANK
TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE> 2
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS
A STATEMENT OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES
THEREOF AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES
AND/OR RIGHTS.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM
TEN ENT
JT TEN
D
D
D
as tenants in common
as tenants by the entireties
as joint tenants with right
of survivorship and not as tenants
in common
UNIF GIFT MIN ACTD Custodian
(Cust)
(Minor)
under Uniform Gifts to Minors
Act
(State)
Additional abbreviations may also be used though not in the above list.
For value received,
hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING ZIP CODE OF
ASSIGNEE)
Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated
NOTICE:
THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON
THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM) PURSUANT TO
S.E.C. RULE 17Ad-15.
<PAGE> 3
This certificate also evidences and entitles the holder hereof to certain Rights
as set forth in a Rights Agreement between Aironet Wireless Communications, Inc.
and Harris Trust and Savings Bank (the "Rights Agent") dated as of ,
1999, as the same may be amended from time to time (the "Rights
Agreement"), the terms of which are hereby incorporated herein by reference and
a copy of which is on file at the principal offices of Aironet Wireless
Communications, Inc. Under certain circumstances, as set forth in the Rights
Agreement, such Rights may be redeemed, may expire, or may be evidenced by
separate certificates and will no longer be evidenced by this certificate.
Aironet Wireless Communications, Inc. will mail to the holder of this
certificate a copy of the Rights Agreement without charge within five (5) days
after receipt of a written request therefor. Under certain circumstances, Rights
issued to Acquiring Persons (as defined in the Rights Agreement) or certain
related persons and any subsequent holder of such Rights may become null and
void with respect to certain rights set forth in Section 11(a) (ii) of the
Rights Agreement.
<PAGE> 1
Exhibit 10.2.3
[TELXON LETTERHEAD]
June 16, 1999
Richard G. Holmes
Senior Vice President & CFO
Aironet Wireless Communications, Inc.
3875 Embassy Parkway, Suite 350
Akron, Ohio 44333
Re: Aironet's renewal of real estate agreements for 3875
Embassy Parkway and 91 Springside Drive
Dear Dale:
This letter confirms receipt of your June 1, 1999 notice specifying that Aironet
Wireless Communications, Inc. ("Aironet") has elected to extend the sublease and
lease for the above respective properties for an additional eighteen-month
period. Aironet's leasehold interest in each space will now expire on February
28, 2001.
Pursuant to the Sublease Agreement, commencing September 1, 1999. the monthly
rental for the Springside facility will increase to $14,437.50 per month, net of
all operating expenses. The rental charges for 3875 Embassy Parkway will remain
$35,393.75 per month, in addition to all operating expenses and pass-through
expenses from Dellagnese.
Please let me know if you have any questions concerning this matter.
Sincerely,
/s/ Dennis K. Oleksuk
Dennis K. Oleksuk
Senior Director, Corporate Services
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in this Registration Statement on Form S-1 of our
reports dated May 25, 1999 relating to the consolidated financial statements
and financial statement schedule of Aironet Wireless Communications, Inc.
and Subsidiaries, which appear in such Registration Statement. We also consent
to the references to us under the headings "Experts" and "Selected Financial
Data" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Cleveland, Ohio
July 1, 1999
<PAGE> 1
Exhibit 23.3
June 29, 1999
Laurie F. Pasmooij
Research Analyst
International Data Corporation
2131 Landings Drive
Mountain View, California 94043
Mr. Eric Erickson
Vice President of Marketing
Aironet Wireless Communications
3875 Embassy Parkway
P.O. Box 5292
Akron, Ohio 44334-0292
[via facsimile 330-664-7922]
Dear Eric:
Please consider this IDC's consent for Aironet's use and citation of our market
research statistics from our "Wireless LANs: Worldwide Market Review and
Forecast, 1997-2003" Publication #16377 in your documentation for your Initial
Public Offering filing.
If you should need anything additional, please feel free to contact me at (650)
962-6406.
Sincerely,
International Data Corporation
/s/ Laurie F. Pasmooij
- ------------------------
Laurie F. Pasmooij
Research Analyst
Local Area Networks
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 6,136,570
<SECURITIES> 0
<RECEIVABLES> 4,856,851
<ALLOWANCES> (371,632)
<INVENTORY> 4,625,519
<CURRENT-ASSETS> 20,612,847
<PP&E> 6,348,412
<DEPRECIATION> (3,967,809)
<TOTAL-ASSETS> 27,198,331
<CURRENT-LIABILITIES> 10,101,088
<BONDS> 0
0
0
<COMMON> 95,672
<OTHER-SE> 14,501,571
<TOTAL-LIABILITY-AND-EQUITY> 27,198,331
<SALES> 37,832,250
<TOTAL-REVENUES> 45,252,825
<CGS> 26,378,408
<TOTAL-COSTS> 26,378,408
<OTHER-EXPENSES> 19,587,550
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> (26,783)
<INCOME-PRETAX> (686,350)
<INCOME-TAX> 390,982
<INCOME-CONTINUING> (1,077,332)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,007,332)
<EPS-BASIC> 0.12
<EPS-DILUTED> 0.12
<FN>
<F1>$307,960 included in other costs and expenses
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 2,864,072
<SECURITIES> 0
<RECEIVABLES> 5,125,200
<ALLOWANCES> (187,038)
<INVENTORY> 4,020,254
<CURRENT-ASSETS> 16,356,141
<PP&E> 5,383,685
<DEPRECIATION> 2,728,183
<TOTAL-ASSETS> 23,633,193
<CURRENT-LIABILITIES> 11,140,386
<BONDS> 0
0
0
<COMMON> 93,391
<OTHER-SE> 11,504,385
<TOTAL-LIABILITY-AND-EQUITY> 23,633,193
<SALES> 39,353,151
<TOTAL-REVENUES> 45,134,395
<CGS> 26,301,096
<TOTAL-COSTS> 26,301,096
<OTHER-EXPENSES> 14,323,336
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 45,815
<INCOME-PRETAX> 4,464,148
<INCOME-TAX> 1,963,503
<INCOME-CONTINUING> 2,500,645
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,500,645
<EPS-BASIC> 0.31
<EPS-DILUTED> 0.30
<FN>
<F1>$154,231 included in other costs and expenses
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 1,608,529
<SECURITIES> 0
<RECEIVABLES> 3,278,642
<ALLOWANCES> (256,897)
<INVENTORY> 4,331,536
<CURRENT-ASSETS> 11,077,327
<PP&E> 5,075,618
<DEPRECIATION> 2,554,999
<TOTAL-ASSETS> 19,200,822
<CURRENT-LIABILITIES> 14,028,081
<BONDS> 0
0
0
<COMMON> 80,850
<OTHER-SE> 5,021,146
<TOTAL-LIABILITY-AND-EQUITY> 19,200,822
<SALES> 61,327,897
<TOTAL-REVENUES> 61,327,897
<CGS> 45,461,162
<TOTAL-COSTS> 45,461,162
<OTHER-EXPENSES> 12,808,116
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 130,435
<INCOME-PRETAX> 2,928,184
<INCOME-TAX> 2,039,567
<INCOME-CONTINUING> 888,617
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 888,617
<EPS-BASIC> 0.11
<EPS-DILUTED> 0.11
<FN>
<F1>$222,436 included in other costs and expenses
</FN>
</TABLE>
