<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 18, 1999.
REGISTRATION NO. 333-85697
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------------
Amendment No. 3
to
FORM S-1/A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
----------------------
AETHER SYSTEMS, INC.
(Exact Name of Registrant as Specified in Its Charter)
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<S> <C> <C>
DELAWARE 7373 52-2186634
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
----------------------
11460 CRONRIDGE DRIVE
OWINGS MILLS, MARYLAND 21117
(410) 654-6400
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
----------------------
DAVID S. OROS
CHAIRMAN, CHIEF EXECUTIVE OFFICER AND PRESIDENT
11460 CRONRIDGE DRIVE
OWINGS MILLS, MARYLAND 21117
(410) 654-6400
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
----------------------
with copies to:
<TABLE>
<S> <C>
MARK A. DEWIRE, ESQ. EVE N. HOWARD, ESQ.
ROGER J. PATTERSON, ESQ. HOGAN & HARTSON L.L.P.
WILMER, CUTLER & PICKERING 555 13TH STREET, N.W.
2445 M STREET, N.W. WASHINGTON, D.C. 20004
WASHINGTON, D.C. 20037 (202) 637-5600
(202) 663-6000
</TABLE>
----------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
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, please 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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT 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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID 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 REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED OCTOBER 18, 1999
PROSPECTUS
- ----------------
6,000,000 SHARES
[AETHER LOGO]
COMMON STOCK
------------------------
This is Aether Systems, Inc.'s initial public offering of common stock.
We expect the public offering price to be between $13 and $15 per share.
Currently, no public market exists for the shares. After pricing of the
offering, the common stock will be quoted on the Nasdaq National Market under
the symbol "AETH."
INVESTING IN THE COMMON STOCK INVOLVES RISKS WHICH ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 8 OF THIS PROSPECTUS.
------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
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<S> <C> <C>
Public Offering Price................................ $ $
Underwriting Discount................................ $ $
Proceeds, before expenses, to Aether Systems, Inc.... $ $
</TABLE>
The underwriters may also purchase up to an additional 900,000 shares at
the public offering price, less the underwriting discount, within 30 days from
the date of this prospectus to cover over allotments.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
------------------------
MERRILL LYNCH & CO.
ROBERTSON STEPHENS
DONALDSON, LUFKIN & JENRETTE
U.S. BANCORP PIPER JAFFRAY
------------------------
The date of this prospectus is , 1999
<PAGE> 3
DESCRIPTION OF INSIDE FRONT COVER: The inside front cover contains the
Aether Systems logo and the slogan: "Real Intelligence. Real Time." Below the
logo and slogan are photographs depicting three key aspects of our business:
wireless enterprise services, Aether Intelligent Messaging and OpenSky.
DESCRIPTION OF INSIDE GATEFOLD: At the top of the two-panel foldout is the
following text: "How We Do It. . . Wireless data is complex. We handle every
aspect of extending our customers' application to a variety of wireless networks
and handheld devices."
Graphics description: Below the text is a graphic depicting our business,
roughly portraying the flow of information from our customers' data sources,
through our software and network and customer support center, to various
wireless data networks and finally to various wireless handheld devices. From
left to right, this depiction shows:
- - Icons, with brief text labels, representing the three major business segments
Aether is targeting: Financial services (with the caption "Financial: Trading,
Quotes, News & Alerts"), other industries (with the caption "Other Target
Industries: Health Care, Transportation, Sales Force Automation") and OpenSky
(with the caption "OpenSky Opportunities: Developing Smart Web and E-mail
Access").
- - Each of the above icons connects to a box with the Aether logo. Beneath the
logo will be three separate boxes, each labelled for a different component of
our offerings: "Software Development and Engineering;" "Secure, Reliable
Network Operations Center" and "Complete Customer Support."
- - From the Aether box, there is a set of lines that runs to a box with the
Aether Intelligent Messaging logo, out of which there are lines pointing
further to the right which connect to icons of radio antennas, depicting the
various wireless data networks through which Aether delivers its services.
These antennas carry the text: "Today's Networks" and "Tomorrow's Networks."
- - From the antenna icons, curved lines depict radio waves radiating out to
photographs of the various wireless handheld devices through which Aether
delivers services. These devices include: A generic laptop computer of no
particular brand; a Palm Computing device, a Windows CE notebook computer, a
RIM 950 alphanumeric two-way pager and a wireless phone that is compatible
with the Wireless Applications Protocol. The following text labels accompany
the photographs: "Laptop computers," "Palm Computing devices," "Windows CE
devices," "Text enhanced pagers," "WAP phones."
<PAGE> 4
TABLE OF CONTENTS
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PAGE
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<S> <C>
Prospectus Summary.......................................... 4
Risk Factors................................................ 8
Forward Looking Statements.................................. 15
Use of Proceeds............................................. 16
Dividend Policy............................................. 16
Capitalization.............................................. 17
Dilution.................................................... 18
Selected Consolidated Financial Data........................ 19
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 21
Business.................................................... 29
Management.................................................. 43
Transactions Between Aether and its Officers, Directors or
Significant Stockholders.................................. 54
Principal Stockholders...................................... 58
Description of Capital Stock................................ 61
Shares Eligible for Future Sale............................. 64
Underwriting................................................ 66
Legal Matters............................................... 69
Experts..................................................... 69
Where You Can Find More Information......................... 69
Index to Consolidated Financial Statements.................. F-1
</TABLE>
3
<PAGE> 5
PROSPECTUS SUMMARY
This summary does not contain all the information that may be important to
you. You should read the entire prospectus carefully, including the financial
data and related notes beginning on page F-1, before making an investment
decision.
OUR COMPANY
We provide wireless data services and systems enabling people to use
wireless handheld devices for real-time data communications and transactions. We
offer a broad range of capabilities necessary to design, develop, sell and
support a full range of wireless data services. We can offer these capabilities
because of our engineering expertise, our wireless integration software and our
customer service and network operations center.
Our initial focus is on the financial services industry, including online
trading. We currently offer the Reuters MarketClip service for financial market
price quotes, alerts and information and TradeRunner, a real-time wireless
trading and financial information service offered to the online customers of
Discover Brokerage. We are developing similar services for other major financial
institutions, including Charles Schwab. We recently acquired Mobeo, Inc., a
provider of wireless foreign exchange information services, for a purchase price
of $11.7 million in cash and options to acquire shares of our common stock. The
Mobeo acquisition adds new services that complement our own, establishes our
relationship with additional financial institutions and significantly increases
our subscriber base. We are also targeting other industries, initially by
licensing our package of wireless messaging software and software development
tools known as Aether Intelligent Messaging, or AIM. Finally, we hold a 26%
interest in OpenSky, a company we recently formed with 3Com Corporation, which
will pursue the broader consumer and business mass market for wireless Internet
access, e-mail and Internet and other electronic transactions.
The market for wireless data applications is relatively undeveloped and has
been hindered by significant technological challenges, including incompatible
devices and networks, slow data speeds and uncertain security. We believe these
complexities have given us the opportunity to establish a position as an early
market leader in wireless data services.
We have all the resources necessary to provide our customers with complete
wireless data systems. We have a large, experienced development team, with 27
engineers who have worked an average of ten years in the wireless data field. We
have developed the AIM package of wireless messaging software and software
development tools, which serves as a bridge to integrate diverse corporate
in-house data systems with a wide variety of wireless carrier networks and end
user devices. We operate our own high-security network operations center, which
connects customer and other data to wireless networks, and maintain our own
customer service center. We have also cultivated close relationships with major
wireless network carriers, including AT&T Wireless Services, Bell Atlantic
Mobile and BellSouth Wireless Data and mobile equipment manufacturers, such as
3Com, Ericsson LM and Novatel Wireless, Inc.
Our strategy. Our strategy is to be the dominant provider of wireless data
services and systems by using our engineering expertise, our AIM package of
wireless messaging software and software development tools, our customer service
and network operations center and our other resources to offer businesses
complete systems for wireless data communications and transactions. We seek to
maximize recurring revenue initially by extending online trading and financial
information services to personal organizers, notebook computers, pagers and
mobile phones. Our strategy includes the key elements set forth below.
- Develop the market for existing and new products in the financial
services sector.
- Expand into new industries and international markets.
- Pursue mass-market opportunities, including wireless Internet access,
e-mail and Internet and other electronic transactions.
- Expand our customer base and strengthen the Aether brand through enhanced
sales and marketing efforts.
- Maintain and strengthen our strategic relationships with suppliers and
customers.
4
<PAGE> 6
- Use the expertise we gain by providing engineering services to develop
new Aether products.
- Pursue selective acquisitions to expand our capabilities.
Our services. We develop and support systems for businesses that allow
their employees or customers to access information and conduct transactions
using wireless handheld devices. Our services currently include delivering real-
time wireless financial market information and trading capabilities to
individual investors and financial market professionals. We also license the AIM
package of wireless messaging software and development tools to software
manufacturers and other corporations seeking to add wireless data capabilities
and provide engineering services to businesses seeking to design, develop and
support wireless data systems.
Operating results. We had revenue of $1.4 million in 1996, $1.8 million in
1997, $1.5 million in 1998 and $787,000 in the first six months of 1999. We had
net losses of $417,000 in 1996, $2.7 million in 1997, $4.7 million in 1998 and
$4.3 million in the first six months of 1999. As of June 30, 1999, we had
cumulative losses of $12.2 million. On a pro forma basis, giving effect to the
Mobeo acquisition, we had revenue of $10.1 million in 1998 and $5.8 million in
the first six months of 1999, and we had net losses of $6.8 million in 1998 and
$5.2 million in the first six months of 1999.
Other information. Aether is presently organized as a Delaware limited
liability company known as Aether Systems LLC. Prior to the closing of this
offering, each member of the limited liability company will contribute its units
in the limited liability company to Aether Systems, Inc., a newly-formed
Delaware corporation, in exchange for two and one-half shares of our common
stock. Following this contribution, this limited liability company will merge
into Aether. Unless otherwise indicated, all information in this prospectus
gives effect to our conversion from a limited liability company to a corporation
through this contribution and merger. All references to "we," "us," "our" or
"Aether" in this prospectus mean Aether Systems, Inc. and its subsidiaries or
Aether Systems LLC and its subsidiaries if the reference is as of a time before
completion of the conversion.
Our principal executive offices are located at 11460 Cronridge Drive,
Owings Mills, Maryland 21117, and our telephone number is (410) 654-6400. We
maintain a Web site at www.aethersystems.com. Information contained in our Web
site does not constitute a part of this prospectus.
5
<PAGE> 7
THE OFFERING
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<S> <C>
Common stock offered by us........................ 6,000,000 shares
Total common stock to be outstanding after the
offering........................................ 26,066,995 shares. We also will have outstanding
after the offering options and warrants to
purchase 4,771,520 shares of our common stock.
Use of proceeds................................... We intend to use approximately $14.8 million of
net proceeds to repay in full all indebtedness
incurred under our senior secured interim credit
facility with Merrill Lynch & Co., one of the
underwriters of this offering, of which $11.7
million was used to purchase Mobeo, approximately
$0.8 million was used to pay fees and expenses
related to the credit facility and the remaining
$2.3 million was allocated for general corporate
purposes. In addition, we intend to use
approximately $2.5 million of the net proceeds to
exercise a warrant to increase our ownership in
OpenSky from 26% to up to 33% on a fully diluted
basis and approximately $2.0 million to expand our
network operations center over the next 12 months.
We currently intend to use the remaining net
proceeds from the offering for general corporate
purposes, which may include some or all of the
following:
- enhance our sales and marketing activities;
- fund cash flow deficits and working capital
needs;
- enhance Mobeo service offerings;
- fund potential future acquisitions; and
- maintain our interest in OpenSky.
Risk factors...................................... See "Risk Factors" beginning at page 8 for a
discussion of factors you should consider
carefully before deciding to invest in shares of
our common stock.
Nasdaq National Market symbol..................... AETH
</TABLE>
6
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except share and per share data)
The following table summarizes our statements of operations for each of the
years ended December 31, 1996, 1997 and 1998 and for the six-month periods ended
June 30, 1998 and 1999, and our balance sheet as of June 30, 1999. The pro forma
consolidated financial information gives effect to the Mobeo acquisition. The
pro forma net loss per share information gives effect to our conversion from a
limited liability company to a corporation plus the offering of shares covered
by this prospectus and the application of the net proceeds as described in "Use
of Proceeds" at page 16. The pro forma consolidated as adjusted balance sheet
information gives effect to the Mobeo acquisition and our conversion to a
corporation plus the offering of shares covered by this prospectus and the
application of the net proceeds as described in "Use of Proceeds" at page 16.
We have provided the pro forma consolidated financial information and the
pro forma consolidated as adjusted balance sheet for informational purposes only
and you should not assume that our results would actually have been as shown if
we had acquired Mobeo, converted to a corporation or completed the offering on
the assumed dates, or that the information projects what our results will be as
a result of the Mobeo acquisition or if we convert to a corporation or complete
the offering. The pro forma consolidated statement of operations information
assumes that the transactions occurred on January 1, 1998, and the pro forma
consolidated balance sheet information assumes that the transactions occurred on
June 30, 1999. See our and Mobeo's financial statements and notes to those
statements included in this prospectus beginning on page F-1.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------------------------ ----------------------------------------
HISTORICAL 1998 HISTORICAL 1999
--------------------------------------- PRO FORMA ------------------------- PRO FORMA
1996 1997 1998 CONSOLIDATED 1998 1999 CONSOLIDATED
----------- ----------- ----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Subscriber revenue........... $ -- $ 161 $ 549 $ 9,130 $ 125 $ 599 $ 5,646
Engineering services
revenue.................... 1,355 1,625 963 963 436 188 188
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total revenue................ 1,355 1,786 1,512 10,093 561 787 5,834
Gross profit.................. 348 493 411 5,951 190 136 3,426
Total operating expenses...... 601 2,801 5,178 13,398 2,316 4,597 8,963
----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating loss................ (253) (2,308) (4,767) (7,447) (2,126) (4,461) (5,537)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net loss...................... $ (417) $ (2,747) $ (4,693) $ (6,843) $ (2,119) $ (4,320) $ (5,161)
=========== =========== =========== =========== =========== =========== ===========
Pro forma net loss per
share-basic and diluted...... $ (0.04) $ (0.22) $ (0.29) $ (0.31) $ (0.15) $ (0.22) $ (0.20)
=========== =========== =========== =========== =========== =========== ===========
Pro forma weighted average
shares used in computing net
loss per share-basic and
diluted...................... 10,554,795 12,655,901 15,916,383 21,916,383 14,270,568 19,877,855 25,877,855
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
---------------------------------------
PRO FORMA
PRO FORMA CONSOLIDATED
ACTUAL CONSOLIDATED(1) AS ADJUSTED
------ --------------- ------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................................. $ 457 $ 3,542 $ 65,149
Working capital (deficit).................................. 3,674 (10,199) 66,621
Total assets............................................... 5,867 25,756 86,916
Total debt(1).............................................. -- 14,830 --
Members' capital........................................... 4,841 5,215 --
Stockholders' equity....................................... -- -- 81,205
</TABLE>
- ---------------
(1) We financed the acquisition of Mobeo with a senior secured interim credit
facility, which will be repaid with the net proceeds of the offering.
7
<PAGE> 9
RISK FACTORS
Investing in our common stock involves risks. You should carefully
consider the following risks together with the other information contained in
this prospectus before deciding to buy our common stock.
OUR FUTURE RESULTS ARE UNCERTAIN BECAUSE OUR HISTORICAL REVENUE WAS DERIVED FROM
SERVICES OTHER THAN THOSE WE EXPECT TO BE THE FOCUS OF OUR BUSINESS IN THE
FUTURE.
We only have a limited history selling our current services on which you
can evaluate our business, financial condition and operating results. Although
we commenced operations in January 1996, until March 1997 all of our revenue
came from engineering services and not from monthly service subscriptions or AIM
licensing which we now provide and which will be our focus in the future. In
1997, 91.0% of our revenue was from engineering services and 9.0% was from
subscriber revenue. In 1998, 63.7% of our revenue was from engineering services
(or 9.5% on a pro forma basis including Mobeo) and 36.3% was from subscriber
revenue (or 90.5% on a pro forma basis including Mobeo). In the first six months
of 1999, 23.9% of our revenue was from engineering services (or 3.2% on a pro
forma basis including Mobeo) and 76.1% was from subscriber revenue (or 96.8% on
a pro forma basis including Mobeo). In addition, Transettlements and Reuters
accounted for 61.4% of our engineering services revenue in 1998. We have not had
any AIM licensing revenue through June 1999. Because of this change in focus,
you should not rely on our past performance to evaluate our future performance.
WE HAVE HISTORICALLY INCURRED LOSSES AND THESE LOSSES MAY INCREASE IN THE
FUTURE.
We reported net losses of $416,980, $2.7 million and $4.7 million for the
years ended December 31, 1996, 1997 and 1998, respectively, and a net loss of
$4.3 million for the six months ended June 30, 1999. Because we expect to
continue to incur significant sales and marketing, systems development and
administrative expenses, we will need to generate significant revenue to become
profitable and sustain profitability on a quarterly or annual basis. We may not
achieve or sustain our revenue or profit goals and our losses may continue or
grow in the future. As a result, we may not be able to increase revenue or
achieve profitability on a quarterly or annual basis.
THERE IS NO ESTABLISHED MARKET FOR OUR FINANCIAL DATA AND OTHER SERVICES AND WE
MAY NOT BE ABLE TO SELL ENOUGH OF OUR SERVICES TO BECOME PROFITABLE.
The markets for wireless data services and online trading are still
emerging and continued growth in demand for and acceptance of these services
remains uncertain. Current barriers to market acceptance of these services
include cost, reliability, functionality and ease of use. We cannot be certain
that these barriers will be overcome. We are currently developing financial
trading services for Charles Schwab and Bear Stearns pursuant to preliminary
agreements with these parties and we cannot assure you that Charles Schwab or
Bear Stearns will enter into contracts for our services. Our competitors may
develop alternative wireless data communications systems that gain broader
market acceptance than our systems. If the market for our services does not grow
or grows more slowly than we currently anticipate, we may not be able to attract
customers for our services and our revenues would be adversely affected.
OUR ACQUISITION OF MOBEO, OUR ONLY ACQUISITION TO DATE, MAY NOT DELIVER THE
VALUE WE PAID FOR IT AND MAY RESULT IN EXCESSIVE EXPENSES IF WE DO NOT
SUCCESSFULLY INTEGRATE MOBEO OR IF THE COSTS AND MANAGEMENT RESOURCES WE EXPEND
IN CONNECTION WITH THE INTEGRATION EXCEED OUR EXPECTATIONS.
Our acquisition of Mobeo is our only acquisition to date. Mobeo's revenue
was $8.6 million for the year ended December 31, 1998, which is more than five
times our revenue for that period. We expect that the Mobeo acquisition will
have a continuing, significant impact on our business, financial condition and
operating results. The value of Mobeo may be less than the amount we paid for it
if there is:
- a decline of Mobeo's position in the foreign exchange information
services market; or
- a decline of the foreign exchange information services market in general.
8
<PAGE> 10
The expenses associated with acquiring Mobeo (or any other business we may
acquire) may be greater, and the revenue may be smaller, than expected if:
- we fail to assimilate the acquired assets with our pre-existing business;
- we lose key employees of Mobeo or Aether as a result of the acquisition;
- we are unable to operate effectively in the market for foreign exchange
and commodities information;
- our management's attention is diverted from other business concerns; or
- we assume unanticipated liabilities related to the acquired assets.
Further, we cannot guarantee that we will realize the benefits or strategic
objectives we are seeking to obtain by acquiring Mobeo.
WE MAY NOT ACHIEVE PROFITABILITY IF WE ARE UNABLE TO MAINTAIN, IMPROVE AND
DEVELOP THE WIRELESS DATA SERVICES WE OFFER.
We believe that our future business prospects depend in part on our ability
to maintain and improve our current services and to develop new ones on a timely
basis. Our services will have to achieve market acceptance, maintain
technological competitiveness and meet an expanding range of customer
requirements. As a result of the complexities inherent in our service offerings,
major new wireless data services and service enhancements require long
development and testing periods. We may experience difficulties that could delay
or prevent the successful development, introduction or marketing of new services
and service enhancements. Additionally, our new services and service
enhancements may not achieve market acceptance. If we cannot effectively
maintain, improve and develop services we may not be able to recover our fixed
costs or otherwise become profitable.
IF WE DO NOT RESPOND EFFECTIVELY AND ON A TIMELY BASIS TO RAPID TECHNOLOGICAL
CHANGE, OUR SERVICES MAY BECOME OBSOLETE AND WE MAY LOSE SALES.
The wireless and data communications industries are characterized by
rapidly changing technologies, industry standards, customer needs and
competition, as well as by frequent new product and service introductions. Our
services are integrated with wireless handheld devices and the computer systems
of our corporate customers. Our services must also be compatible with the data
networks of wireless carriers. We must respond to technological changes
affecting both our customers and suppliers. We may not be successful in
developing and marketing, on a timely and cost-effective basis, new services
that respond to technological changes, evolving industry standards or changing
customer requirements. Our ability to grow and achieve profitability will
depend, in part, on our ability to accomplish all of the following in a timely
and cost-effective manner:
- effectively use and integrate new wireless and data technologies;
- continue to develop our technical expertise;
- enhance our wireless data, engineering and system design services;
- develop applications for new wireless networks; and
- influence and respond to emerging industry standards and other changes.
WE DEPEND UPON WIRELESS NETWORKS OWNED AND CONTROLLED BY OTHERS. IF WE DO NOT
HAVE CONTINUED ACCESS TO SUFFICIENT CAPACITY ON RELIABLE NETWORKS, WE MAY BE
UNABLE TO DELIVER SERVICES AND OUR SALES COULD DECREASE.
Our ability to grow and achieve profitability partly depends on our ability
to buy sufficient capacity on the networks of wireless carriers such as AT&T
Wireless Services or Bell Atlantic Mobile and on the reliability and security of
their systems. All of our services are delivered using airtime purchased from
third parties. We depend on these companies to provide uninterrupted and "bug
free" service and would not be able to satisfy our customers' needs if they
failed to provide the required capacity or needed level of service. In addition,
our expenses would increase and our profitability could be materially adversely
affected if wireless carriers were to increase the prices of their services. Our
existing agreements with the wireless carriers generally have one-year terms.
Some of these
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<PAGE> 11
wireless carriers are, or could become, our competitors and if they compete with
us they may decline to provide us with their services.
WE DEPEND ON THIRD PARTIES, PARTICULARLY DISCOVER BROKERAGE, FOR THE MARKETING
AND SALES OF SOME OF OUR SERVICES. IF THE MARKETING EFFORTS OF THESE THIRD
PARTIES ARE NOT EFFECTIVE, WE MAY NOT ACHIEVE A PROFITABLE LEVEL OF SALES.
We rely substantially on the efforts of others to market and sell some of
our wireless data communications services, including wireless trading with
Discover Brokerage. In 1998, third parties paid over $150,000 in marketing
expenses related to our products, which represented 18% of our own sales and
marketing expenses. We cannot control how those who sell and market our service
perform and we cannot be certain that their performance will be satisfactory. If
these third parties fail to market our services or their efforts fail to result
in new customers, we may be unable to attract new customers and our revenue
could be adversely effected.
OUR FAILURE TO DEVELOP RECOGNITION FOR THE AETHER BRAND COULD PREVENT US FROM
ACHIEVING A PROFITABLE LEVEL OF SALES.
Our sales and marketing activities to date have been limited. Our sales and
marketing expenses were $840,455 for the year ended December 31, 1998 and
$555,428 for the six months ended June 30, 1999. We intend to increase the
market presence of our brand over time, which will require us to increase the
amount we spend on sales and marketing. We have applied for, but have not
received, federal trademark registrations for the names "Aether," "Aether
Systems" or "AIM" and we may not be able to use these names effectively or at
all if we fail to obtain such registrations due to conflicting marks or
otherwise. As a result of the Mobeo acquisition, we expect to market Mobeo's
products under their existing brands. We may lose existing customers or fail to
attract new customers if the Aether and Mobeo brands are not well received by
our customers, if our marketing efforts are not productive, if we are otherwise
unsuccessful in increasing our brand awareness or if our competition has greater
brand recognition.
WE MAY FAIL TO SUPPORT OUR ANTICIPATED GROWTH IN OPERATIONS WHICH COULD REDUCE
DEMAND FOR OUR SERVICES AND MATERIALLY ADVERSELY AFFECT OUR REVENUE.
Our business strategy is based on the assumption that the number of
subscribers to our services, the amount of information they want to receive and
the number of services we offer will all increase. We must continue to develop
and expand our systems and operations to accommodate this growth. The expansion
and adaptation of our customer service and network operations center requires
substantial financial, operational and management resources. We may be unable to
expand our operations for one or more of the following reasons:
- we may not be able to locate or hire at reasonable compensation rates
qualified engineers and other employees necessary to expand our capacity;
- we may not be able to obtain the hardware necessary to expand our
capacity;
- we may not be able to expand our customer service, billing and other
related support systems; and
- we may not be able to obtain sufficient additional capacity from wireless
carriers.
Due to the limited deployment of our services to date, the ability of our
systems and operations to connect and manage a substantially larger number of
customers while maintaining superior performance is unknown. Any failure on our
part to develop and maintain our wireless data services as we experience rapid
growth could significantly reduce demand for our services and materially
adversely affect our revenue.
WE DEPEND ON RECRUITING AND RETAINING KEY MANAGEMENT AND TECHNICAL PERSONNEL
WITH WIRELESS DATA AND SOFTWARE EXPERIENCE AND WE MAY NOT BE ABLE TO DEVELOP NEW
PRODUCTS OR SUPPORT EXISTING PRODUCTS IF WE CANNOT HIRE OR RETAIN QUALIFIED
EMPLOYEES.
Because of the technical nature of our products and the dynamic market in
which we compete, our performance depends on attracting and retaining key
employees. Competition for qualified personnel in the wireless data and software
industries is intense and finding qualified personnel with experience in both
industries is even more difficult. We believe there are only a limited number of
individuals with the requisite skills in the field of wireless data
communication, and it is becoming increasingly difficult to hire and retain
these persons. Competitors and others have
10
<PAGE> 12
in the past attempted, and may in the future attempt, to recruit our employees.
Each of our 27 engineers has entered into a non-compete agreement with us for a
period of ten months after they leave Aether. These agreements will not prevent
our engineers from leaving or working for competitors relatively soon after they
leave us.
We currently maintain a key person life insurance policy for David S. Oros,
our chairman, chief executive officer and president. We do not maintain
insurance policies for any of our 82 other employees.
WE MAY NOT HAVE ADEQUATELY PROTECTED OUR INTELLECTUAL PROPERTY RIGHTS, WHICH
COULD ALLOW COMPETITORS TO DEVELOP SIMILAR PRODUCTS USING SIMILAR TECHNOLOGY AND
THUS REDUCE OUR SALES AND REVENUE.
We currently do not have patents on any of our intellectual property, and
we cannot assure you we will be successful in protecting any of our intellectual
property through patent law. We rely primarily on trade secret laws, copyright
law and confidentiality agreements to protect our intellectual property. If we
are not adequately protected, other companies with sufficient engineering
expertise could quickly develop competing products based on our intellectual
property and reduce our sales and thus our revenue.
WE MAY BE SUED BY THIRD PARTIES FOR INFRINGEMENT OF THEIR INTELLECTUAL PROPERTY
RIGHTS AND INCUR COSTS OF DEFENSE AND POSSIBLY ROYALTIES OR LOSE THE RIGHT TO
USE TECHNOLOGY IMPORTANT TO PROVIDING OUR SERVICES.
The telecommunications and software industries are characterized by the
existence of a large number of patents and frequent litigation based on
allegations of patent infringement or other violations of intellectual property
rights. As the number of participants in our market increases, the possibility
of an intellectual property claim against us could increase. Mobeo has received
at least one claim that it has infringed patents developed by other parties. Any
intellectual property claims, with or without merit, could be time-consuming and
expensive to litigate or settle, could require us to enter into costly royalty
arrangements and could divert management attention from administering our
business.
WE MAY BE SUBJECT TO LIABILITY FOR TRANSMITTING INFORMATION, AND OUR INSURANCE
COVERAGE MAY BE INADEQUATE TO PROTECT US FROM THIS LIABILITY.
We may be subject to claims relating to information transmitted over
systems we develop or operate. These claims could take the form of lawsuits for
defamation, negligence, copyright or trademark infringement or other actions
based on the nature and content of the materials. Although we carry general
liability insurance, our insurance may not cover potential claims of this type
or may not be adequate to cover all costs incurred in defense of potential
claims or to indemnify us for all liability that may be imposed.
DISRUPTION OF OUR SERVICES DUE TO ACCIDENTAL OR INTENTIONAL SECURITY BREACHES
MAY HARM OUR REPUTATION CAUSING A LOSS OF SALES AND COULD INCREASE OUR EXPENSES.
A significant barrier to the growth of wireless data services or
transactions on the Internet or by other electronic means has been the need for
secure transmission of confidential information. Our systems could be disrupted
by unauthorized access, computer viruses and other accidental or intentional
actions. We may incur significant costs to protect against the threat of
security breaches or to alleviate problems caused by such breaches. If a
third-party were able to misappropriate our users' personal or proprietary
information or credit card information, we could be subject to claims,
litigation or other potential liabilities that could materially adversely impact
our revenue and may result in the loss of customers.
ANY TYPE OF SYSTEMS FAILURE COULD REDUCE SALES, OR INCREASE COSTS OR RESULT IN
CLAIMS OF LIABILITY.
Our existing wireless data services-TradeRunner, Reuters MarketClip and its
predecessor AirBroker and the Mobeo services-are dependent on real-time,
continuous feeds from Reuters Selectfeed Plus and others. The ability of our
subscribers to make securities trades through Discover Brokerage requires timely
and uninterrupted connections with our wireless network carriers. Any disruption
from our satellite feeds or backup landline feeds could result in delays in our
subscribers' ability to receive information or execute trades. There can be no
assurance that our systems will operate appropriately if we experience a
hardware or software failure or if there is an earthquake, fire or other natural
disaster, a power or telecommunications failure, an act of God or an act of war.
A failure in our systems could
11
<PAGE> 13
cause delays in transmitting data, and as a result we may lose customers or face
litigation that could involve material costs and distract management from
operating our business.
OUR ABILITY TO SELL NEW AND EXISTING SERVICES AT A PROFIT COULD BE IMPAIRED BY
COMPETITORS.
Intense competition could develop in the market for services we offer. We
developed our software using standard industry development tools. Many of our
agreements with wireless carriers, wireless handheld device manufacturers and
data providers are non-exclusive. Our competitors may use the same products and
services in competition with us. With time and capital, it would be possible for
competitors to replicate our services. Our competitors could include wireless
network carriers such as AT&T Wireless Services and Bell Atlantic Mobile,
software developers such as Microsoft Corporation and Phone.com and systems
integrators such as International Business Machines Corporation. Many of our
competitors have significantly greater resources than we do. Furthermore,
competitors may develop a different approach to marketing the services we
provide in which subscribers may not be required to pay for the information
provided by our services. Competition could reduce our market share or force us
to lower prices to unprofitable levels. Additional information regarding our
competition is described under "Business-Competition" at page 40.
WE MAY LOSE THE OPPORTUNITY TO PURSUE DESIRABLE PROJECTS TO OPENSKY.
David S. Oros, our chairman, chief executive officer and president, also
serves as a director of OpenSky and Janice M. Roberts, one of our nominees for
director, is a director of OpenSky. OpenSky is a separate business in which we
have an equity interest that is developing applications for wireless access to
the Internet and related applications such as wireless e-mail access. Mr. Oros
and Ms. Roberts may learn of business opportunities that are appropriate for
both OpenSky and us, and Mr. Oros and Ms. Roberts may not be required to make
those opportunities available to us. If OpenSky pursues opportunities that we
would have an interest in pursuing, our business may fail to grow or our
existing business may suffer. Mr. Oros and Ms. Roberts may also have other
conflicts of interest with Aether because of their positions with OpenSky and
OpenSky's contractual relationships with Aether and 3Com. We describe those
contracts in "Transactions between Aether and its Officers, Directors or
Significant Stockholders-OpenSky" at page 56.
AN INTERRUPTION IN THE SUPPLY OF PRODUCTS AND SERVICES THAT WE OBTAIN FROM THIRD
PARTIES COULD CAUSE A DECLINE IN SALES OF OUR SERVICES.
In designing, developing and supporting our wireless data services, we rely
on wireless carriers, wireless handheld device manufacturers, content providers
and software providers. These suppliers may experience difficulty in supplying
us products or services sufficient to meet our needs or they may terminate or
fail to renew contracts for supplying us these products or services on terms we
find acceptable. Any significant interruption in the supply of any of these
products or services could cause a decline in sales of our services unless and
until we are able to replace the functionality provided by these products and
services. Specifically, Novatel Wireless, Inc. and Sierra Wireless Inc. are our
only suppliers of wireless modems, which are an integral hardware component to
our services. It can be difficult to obtain these wireless modems and their
parts. We also depend on third parties to deliver and support reliable products,
enhance their current products, develop new products on a timely and
cost-effective basis and respond to emerging industry standards and other
technological changes. In addition, we rely on the ability of our content
providers-Reuters, Bridge Information Systems America, the New York Stock
Exchange, Inc., the Chicago Board of Trade, the Nasdaq Stock Market, Inc. and
the Options Price Reporting Authority-to continue to provide us with
uninterrupted access to the news and financial information we provide to our
customers. The failure of third parties to meet these criteria, or their refusal
or failure to deliver the information for whatever reason, could materially harm
our business.
OUR SALES CYCLE IS LONG, AND OUR STOCK PRICE COULD DECLINE IF SALES ARE DELAYED
OR CANCELLED.
Quarterly fluctuations in our operating performance are exacerbated by the
length of time between our first contact with a business customer and the first
revenue from sales of services to that customer or end user. Because our
services represent a significant investment for our business customers, we spend
a substantial amount of time educating them regarding the use and benefits of
our services and they, in turn, spend a substantial amount of time
12
<PAGE> 14
performing internal reviews and obtaining capital expenditure approvals before
purchasing our services. As much as a year may elapse between the time we
approach a business customer and the time we begin to deliver services to a
customer or end user. Any delay in sales of our services could cause our
quarterly operating results to vary significantly from projected results, which
could cause our stock price to decline. In addition, we may spend a significant
amount of time and money on a potential customer that ultimately does not
purchase our services.
OUR SALES OF FINANCIAL DATA AND TRADING SERVICES COULD GO DOWN IF THERE IS A
DECLINE IN SECURITIES TRADING.
In the six months ended June 30, 1999, we earned 76.1% (or 96.8% on a pro
forma basis giving effect to the Mobeo acquisition) of our revenue from services
that provide financial information and wireless trading capability. If there is
a prolonged decline in the overall level of securities trading, or online
trading in particular, our operating results may decline. A decline in
securities trading may result from:
- loss of confidence in the reliability or security of online trading
systems;
- government regulation of the securities industry or online trading; or
- a downturn in the stock market.
OUR SOFTWARE MAY CONTAIN DEFECTS OR ERRORS, AND OUR SALES COULD GO DOWN IF THIS
INJURES OUR REPUTATION OR DELAYS SHIPMENTS OF OUR SOFTWARE.
The AIM package of wireless messaging and software development tools we
develop is complex and must meet the stringent technical requirements of our
customers. We must develop our services quickly to keep pace with the rapidly
changing software and telecommunications markets. Software as complex as ours is
likely to contain undetected errors or defects, especially when first introduced
or when new versions are released. Our software may not be free from errors or
defects after delivery to customers have begun, which could result in the
rejection of our software or services, damage to our reputation, lost revenue,
diverted development resources and increased service and warranty costs.
OUR YEAR 2000 COMPLIANCE EFFORTS MAY INVOLVE SIGNIFICANT TIME AND EXPENSE, AND
UNCORRECTED PROBLEMS COULD HARM OUR BUSINESS.
Many currently installed computer systems are not capable of distinguishing
21st century dates from 20th century dates. As a result, beginning on January 1,
2000, computer systems and software used by many companies in a wide variety of
industries, including technology, transportation, utilities, finance and
telecommunications will produce erroneous results or fail unless they have been
modified or upgraded to process date information correctly. Although our expense
of preparing for possible year 2000 problems has been less than $100,000 to
date, future year 2000 compliance efforts could involve significant time and
expense, and uncorrected problems could result in material costs or loss of
revenue. We may face claims based on year 2000 issues arising from the
integration of multiple products, including ours, within an overall system. Our
customers may also cease or delay purchase and installation of new complex
systems, such as our software products, as a result of, and during, their own
internal year 2000 testing. Similarly, our wireless network carriers and
suppliers could face similar year 2000 problems which could result in a
disruption in our ability to provide services.
THE STOCKHOLDER AGREEMENT AMONG OUR MAJOR STOCKHOLDERS WILL HAVE THE EFFECT OF
ALLOWING THEM TO CONTROL EIGHT OF OUR TEN DIRECTORS, WHICH WILL LIMIT THE
ABILITY OF NEW INVESTORS TO INFLUENCE CONTROL OF AETHER.
We expect NexGen Technologies, L.L.C., Telcom-ATI Investors, L.L.C.,
Reuters MarketClip Holdings Sarl, a subsidiary of Reuters Group plc, and 3Com
Corporation-who will together hold 66% of the shares of common stock outstanding
after the offering-to enter into a stockholder agreement that will govern voting
for our directors. The agreement will provide that each party will vote all of
its shares for two directors nominated by NexGen, two directors nominated by
Telcom-ATI Investors, two directors nominated jointly by NexGen and Telcom-ATI
Investors and one director nominated by each of Reuters and 3Com. As a result,
eight directors of our board will effectively be chosen by these major
stockholders. As we currently have authorized only ten directors, the voting
rights of our stockholders other than these major stockholders will effectively
apply to only two of our directors. In addition to its effect on the
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<PAGE> 15
voting rights of our new investors, the stockholder agreement could have the
effect of delaying or preventing a change in control.
WE MAY NEED ADDITIONAL CAPITAL AND WE MAY NOT BE ABLE TO OBTAIN IT, WHICH COULD
PREVENT US FROM CARRYING OUT OUR BUSINESS STRATEGY.
We currently anticipate that our available cash resources combined with the
net proceeds from this offering will be sufficient to fund our operating needs
for at least the next 12 months, including the expansion of our sales and
marketing program and any acquisitions we may pursue in the next 12 months.
Thereafter, we expect to require additional financing in an amount that we
cannot determine at this time. After the offering, we do not have any bank
credit facility or other working capital credit line under which we may borrow
funds for working capital or other general corporate purposes. If our plans or
assumptions change or are inaccurate, we may be required to seek capital sooner
than anticipated. We may need to raise funds through public or private debt or
equity financings.
If funds are raised through the issuance of equity securities, the
percentage ownership of our then-current stockholders may be reduced and the
holders of new equity securities may have rights, preferences or privileges
senior to those of the holders of our common stock. If additional funds are
raised through a bank credit facility or the issuance of debt securities, the
holder of this indebtedness would have rights senior to the rights of the
holders of our common stock and the terms of this indebtedness could impose
restrictions on our operations. If we need to raise additional funds, we may not
be able to do so on terms favorable to us, or at all. If we cannot raise
adequate funds on acceptable terms, we may not be able to continue to fund our
operations.
NEW LAWS AND REGULATIONS THAT IMPACT OUR INDUSTRY COULD INCREASE OUR COSTS OR
REDUCE OUR OPPORTUNITIES TO EARN REVENUE.
We are not currently subject to direct regulation by the Federal
Communications Commission or any other governmental agency, other than
regulations applicable to businesses in general. However, in the future, we may
become subject to regulation by the FCC or another regulatory agency. In
addition, the wireless carriers who supply us airtime are subject to regulation
by the FCC and regulations that affect them could increase our costs or reduce
our ability to continue selling and supporting our services.
OUR STOCK PRICE, LIKE THAT OF MANY TECHNOLOGY COMPANIES, MAY BE VOLATILE.
We expect that the market price of our common stock will be volatile. We
are involved in a highly visible, rapidly changing industry and stock prices in
our and similar industries have risen and fallen in response to a variety of
factors, including:
- announcements of new wireless data communications technologies and new
providers of wireless data communications;
- acquisitions of or strategic alliances among providers of wireless data
communications;
- changes in recommendations by securities analysts regarding the results
or prospects of providers of wireless data communications; and
- changes in investor perceptions of the acceptance or profitability of
wireless data communications.
WE HAVE ANTI-TAKEOVER DEFENSES THAT COULD DELAY OR PREVENT AN ACQUISITION AND
COULD ADVERSELY AFFECT THE PRICE OF OUR COMMON STOCK.
Provisions of our certificate of incorporation and bylaws and provisions of
Delaware law could delay, defer or prevent an acquisition or change of control
of Aether or otherwise adversely affect the price of our common stock. For
example, our bylaws limit the ability of stockholders to call a special meeting.
Our certificate of incorporation also permits our board to issue shares of
preferred stock without stockholder approval which means that the board could
issue shares with special voting rights or other provisions that could deter a
takeover. In addition to delaying or preventing an acquisition, the issuance of
a substantial number of preferred shares could adversely affect the price of the
common stock. Please refer to "Description of Capital Stock" at page 61 for a
more detailed discussion of these provisions.
14
<PAGE> 16
UPON COMPLETION OF THIS OFFERING, YOU WILL EXPERIENCE DILUTION.
Our tangible assets are readily identified assets like property, equipment,
cash, securities and accounts receivable. The value of these assets on our pro
forma balance sheet minus the value of our liabilities equals $2.53 per share,
giving effect to the Mobeo acquisition and the completion of this offering. The
offering price (assuming an offering price of $14 per share) exceeds this amount
by $11.47 per share. Therefore, you will be paying more for a share of stock
than the value reflected in our accounts of tangible assets for that share. If
we were forced to sell all our assets and distribute all the proceeds, you would
not recover the amount you paid for shares unless we can sell the assets for
more than the value we report for our tangible assets. We also have outstanding
a large number of stock options and warrants to purchase common stock with
exercise prices significantly below the price of shares in this offering. You
will experience further dilution to the extent these options or warrants are
exercised.
WE EXPECT ABOUT 19,499,495 SHARES OF COMMON STOCK TO BECOME AVAILABLE FOR SALE
180 DAYS FROM THE DATE OF THIS PROSPECTUS, AND SALES OF THESE SHARES MAY DEPRESS
OUR SHARE PRICE.
After this offering, we will have outstanding 26,066,995 shares of common
stock. Sales of a substantial number of our shares of common stock in the public
market following this offering-or the expectation of such sales-could cause the
market price of our common stock to drop. All the shares sold in this offering
will be freely tradable. The remaining common shares outstanding after this
offering will be available for sale in the public markets as follows:
<TABLE>
<CAPTION>
DATE OF AVAILABILITY FOR SALE NUMBER OF SHARES
----------------------------- ----------------
<S> <C>
, 2000 (180 days after the date of this
prospectus)............................................... 19,499,495
At various times thereafter upon the expiration of one-year
holding periods........................................... 567,500
</TABLE>
Of these shares, 19,441,995 shares are subject to a limitation on the
number of shares that can be sold in any three-month period. We have agreed,
however, to register the resale of substantially all of these shares upon demand
beginning one year after the date of this prospectus.
We intend to file a registration statement to register all shares of common
stock that we may issue to our employees under our equity incentive plan. After
this registration statement is effective, shares issued upon exercise of stock
options will be eligible for resale in the public market without restriction. As
of October 15, 1999, options and warrants to purchase 4,771,520 shares of our
common stock were issued and outstanding.
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements relating to, among
other things, future results of operations, our plans and expectations regarding
our future services and operations and our investment in OpenSky, and general
industry and business conditions applicable to Aether. These include projections
about the industry contained on pages 29 to 30. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are subject to a number of
risks, uncertainties and assumptions about Aether, including those we describe
in the "Risk Factors" section of this prospectus. In light of these risks,
uncertainties and assumptions, the forward-looking events discussed in this
prospectus might not occur. We undertake no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise.
We use market data and industry forecasts and projections throughout this
prospectus, which we have obtained from internal surveys, market research,
publicly available information and industry publications. Industry publications
generally state that the information they provide has been obtained from sources
believed to be reliable, but that the accuracy and completeness of such
information is not guaranteed. The forecasts and projections are based on
industry surveys and the preparers' experience in the industry and there is no
assurance that any of the projected amounts will be achieved. Similarly, we
believe that the surveys and market research we or others have performed are
reliable, but we have not independently verified this information. Neither we
nor any of the underwriters represents that any such information is accurate.
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<PAGE> 17
USE OF PROCEEDS
We expect to receive approximately $76.8 million in net proceeds from the
sale of 6,000,000 shares of common stock in this offering, assuming an initial
public offering price of $14 per common share. We estimate the net proceeds will
be approximately $88.5 million if the underwriters' over-allotment option is
exercised in full. We estimate the expenses of this offering will be
approximately $1.3 million.
The principal purposes of this offering are to obtain additional working
capital, to create a public market for our common stock and to facilitate our
future access to public equity markets. We intend to use approximately $14.8
million of net proceeds to repay in full all indebtedness incurred under the
senior secured interim credit facility with Merrill Lynch & Co., one of the
underwriters of this offering, of which $11.7 million was used to purchase
Mobeo, approximately $0.8 million was used to pay fees and expenses related to
the credit facility, and the remaining $2.3 million was allocated for general
corporate purposes. In addition, we intend to use approximately $2.5 million of
the net proceeds to exercise a warrant to increase our ownership in OpenSky from
26% to up to 33% on a fully diluted basis. We currently intend to use the
remaining net proceeds from the offering for general corporate purposes, which
we expect will include approximately $2.0 million over the next year to expand
our network operations center. We also may use proceeds to purchase additional
interests in OpenSky to maintain our percentage interest in OpenSky if OpenSky
issues additional equity interests. The amount necessary for this purpose would
depend on the amount and price of equity interests issued by OpenSky. We have
not developed any specific plans to date with respect to use of the remaining
proceeds but expect to use some portion of the proceeds to cover cash flow
deficits. We have experienced operating cash flow deficits of up to $4.8 million
per year, and we expect cash flow deficits to continue until our subscriber
levels reach a level sufficient to cover our operating expenses, which may be as
long as 18 months or more. We also expect our operating expenses will increase
in the next six to 18 months for items such as enhanced sales and marketing of
our brand and products and enhancement of Mobeo's service offerings. We have not
determined the amount of these expenses, and the extent to which offering
proceeds will be used to cover these expenses depends on the level of these and
other expenses and the extent to which our subscriber levels increase. Finally,
if we identify acquisition candidates that we believe advance our strategy, and
proceeds of the offering are available taking into consideration the needs
described above, we may use proceeds to fund acquisitions.
Pending these uses, the net proceeds of this offering will be invested in
short-term, investment grade, interest-bearing instruments.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock or,
when we were organized as a limited liability company, made any distributions to
our members. We currently intend to retain earnings, if any, to support the
development of our business and do not anticipate paying cash dividends for the
foreseeable future. Payment of future dividends, if any, will be at the
discretion of our board of directors after taking into account factors such as
our financial condition, operating results and current and anticipated cash
needs.
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<PAGE> 18
CAPITALIZATION
The table below sets forth the following information as of June 30, 1999:
- our actual capitalization;
- our pro forma capitalization giving effect to Mobeo acquisition as
if completed on June 30, 1999; and
- our capitalization adjusted to give effect to (1) the pro forma
adjustments described above, (2) the sale of 6,000,000 shares of
common stock at an assumed initial public offering price of $14 per
share in this offering after deducting the underwriting discounts
and commissions we expect to pay in connection with this offering
and estimated offering expenses payable by us and (3) our conversion
from a limited liability company to a corporation.
This table should be read in conjunction with our financial statements and
the notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" beginning on page 21. Details regarding pro
forma adjustments are set forth in the Unaudited Pro Forma Condensed
Consolidated Financial Information beginning on page F-29.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
-------------------------------------------
PRO PRO FORMA
FORMA CONSOLIDATED
ACTUAL CONSOLIDATED AS ADJUSTED
---------- ------------ ---------------
<S> <C> <C> <C>
Short-term debt:(1)
Notes payable............................................. $ -- $14,830,000 $ --
---------- ----------- -----------
Total short-term debt............................. -- 14,830,000 --
---------- ----------- -----------
Limited liability company equity............................ 4,840,882 5,214,882 --
Stockholders' equity:(2)
Preferred stock, $0.01 par value; 1,000,000 shares
authorized; 0 shares issued and outstanding (pro forma
consolidated, as adjusted)............................. -- -- --
Common stock, $0.01 par value; 75,000,000 shares
authorized; 26,066,995 shares issued and outstanding
(pro forma consolidated, as adjusted).................. -- -- 260,670
Additional paid-in-capital................................ -- -- 81,774,212
Accumulated deficit(1).................................... -- -- (830,000)
---------- ----------- -----------
Total stockholders' equity........................ -- -- 81,204,882
---------- ----------- -----------
Total capitalization.............................. $4,840,882 $ 5,214,882 $81,204,882
========== =========== ===========
</TABLE>
- ---------------
(1) We financed the acquisition of Mobeo with a senior secured interim credit
facility, which will be repaid with the net proceeds of the offering.
Deferred financing fees of $830,000 will be expensed at that time.
(2) The conversion from an LLC to a corporation has been accounted for on a
historical cost basis.
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<PAGE> 19
DILUTION
If you invest in our shares of common stock, your interest will be diluted
by the amount of the difference between the public offering price per share of
common stock and the pro forma as adjusted net tangible book value per share of
common stock after this offering.
Our pro forma net tangible book value as of June 30, 1999 was
$(11,309,116), or $(0.57) per share of common stock, after giving effect to:
- the Mobeo acquisition; and
- the conversion of Aether from a limited liability company to a
corporation and the exchange of units of the limited liability company
into shares of common stock of the corporation.
Pro forma net tangible book value per share is equal to our total tangible
assets less total liabilities, divided by the number of outstanding shares of
common stock.
After giving effect to our sale of 6,000,000 shares of common stock in this
offering at an assumed initial public offering price of $14.00 per share of
common stock, and after deducting the commissions and estimated offering
expenses, our as adjusted pro forma net tangible book value as of June 30, 1999
would have been $65,510,884, or $2.53 per share of common stock. This figure
represents an immediate increase in net tangible book value of $3.10 per share
of common stock to existing stockholders and an immediate dilution of $11.47 per
share of common stock to new investors. Dilution is determined by subtracting
the net tangible book value per share of common stock after the offering from
the amount of cash a new investor pays for a share of common stock. The
following table illustrates this per share dilution to new investors:
<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $14.00
Pro forma net tangible book value per share as of June 30,
1999................................................... $(0.57)
Increase per share attributable to this offering.......... $ 3.10
------
Pro forma net tangible book value per share after this
offering.................................................. $ 2.53
------
Dilution per share to new investors in this offering........ $11.47
======
</TABLE>
The table below shows on a pro forma basis as of June 30, 1999, after
giving effect to the acquisition of Mobeo and the conversion of Aether from a
limited liability company into a corporation, the difference between our
existing stockholders and our new investors with respect to the number of common
shares purchased, the total consideration paid and the average price per share
paid, before deducting 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............................. 19,877,855 76.8% $ 16,010,052 16.0% $ 0.81
New investors..................................... 6,000,000 23.2 84,000,000 84.0 14.00
---------- ----- ------------ -----
Total...................................... 25,877,855 100.0 100,010,052 100.0
========== ===== ============ =====
</TABLE>
If the underwriters exercise their over-allotment option in full, the
number of shares of common stock held by new investors will increase to
6,900,000, or 25.8% of the total common shares outstanding after this offering.
As of June 30, 1999, as adjusted to reflect the conversion of Aether from a
limited liability company to a corporation, we had outstanding options to
purchase 1,931,250 shares under our equity incentive plan at a weighted average
exercise price of $1.04 and warrants to purchase 2,082,805 shares at a weighted
average exercise price of $.90 per share. In addition, we expect to have options
to purchase approximately 3.3 million additional shares available for future
grant under our equity incentive plan. If the option holders exercise these
outstanding options, or any options we grant in the future, there will be
further dilution to new investors.
18
<PAGE> 20
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except share and per share amounts)
The table that follows presents portions of our financial statements and
are not complete. You should read the following selected consolidated financial
data together with our financial statements and related notes and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The statement of operations
data for the years ended December 31, 1996, 1997 and 1998, and the balance sheet
data as of December 31, 1997 and 1998, are derived from our financial
statements, which have been audited by KPMG LLP, independent auditors, and which
are included in this prospectus beginning on page F-1. The balance sheet data as
of December 31, 1996 are derived from audited financial statements that do not
appear in this prospectus. The statement of operations data for the six months
ended June 30, 1998 and 1999 are derived from our unaudited financial statements
included in this prospectus beginning on page F-1 and include, in the opinion of
our management, all adjustments, consisting only of normal recurring
adjustments, that we consider necessary for the fair presentation of our
financial position and results of operations for those periods. The historical
results presented below are not necessarily indicative of the results to be
expected for any future fiscal year. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" beginning on page 21.
The pro forma consolidated financial information gives effect to the Mobeo
acquisition. The pro forma net loss per share information gives effect to our
conversion from a limited liability company to a corporation plus the offering
of shares covered by this prospectus and the application of the net proceeds as
described in "Use of Proceeds" on page 16. The pro forma consolidated as
adjusted balance sheet information gives effect to the acquisition of Mobeo and
the conversion to a corporation plus the offering of shares covered by this
prospectus and the application of the net proceeds as described in "Use of
Proceeds" on page 16.
We have provided the pro forma consolidated information and the pro forma
consolidated as adjusted balance sheet for informational purposes only and you
should not assume that our results would actually have been as shown if we had
acquired Mobeo or if we had converted to a corporation or completed the offering
on the assumed dates, or that the information projects what our results will be
as a result of the Mobeo acquisition or after we convert to a corporation and
complete the offering. The pro forma consolidated statement of operations
information assumes that the transactions occurred on January 1, 1998, and the
pro forma consolidated balance sheet information assumes that the transactions
occurred on June 30, 1999. See our and Mobeo's financial statements and notes to
those statements included in this prospectus beginning on page F-1.
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<PAGE> 21
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
HISTORICAL 1998
-------------------------------------- PRO FORMA
1996 1997 1998 CONSOLIDATED
---------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Subscriber revenue.............. $ -- $ 161 $ 549 $ 9,130
Engineering services revenue.... 1,355 1,625 963 963
---------- ----------- ----------- -----------
Total revenue............... 1,355 1,786 1,512 10,093
Cost of subscriber revenue...... -- 447 797 3,838
Cost of engineering services
revenue....................... 1,007 846 304 304
---------- ----------- ----------- -----------
Total cost of revenue....... 1,007 1,293 1,101 4,142
---------- ----------- ----------- -----------
Gross profit................ $ 348 $ 493 $ 411 $ 5,951
Operating expenses:
Research and development........ 161 734 1,267 1,764
General and administrative...... 395 1,505 2,773 4,591
Selling and marketing........... -- 333 840 2,353
Depreciation and amortization... 45 189 265 3,023
Unit option and warrant
expense....................... -- 40 33 1,667
---------- ----------- ----------- -----------
Total operating expenses...... 601 2,801 5,178 13,398
---------- ----------- ----------- -----------
Operating loss................... (253) (2,308) (4,767) (7,447)
Interest income, net............. 8 7 74 79
Gain (loss) on disposal of
assets.......................... -- -- -- (14)
Equity in earnings (losses) of
investments..................... (172) (144) -- --
Realized loss on sale of
investment...................... -- (302) -- --
Other............................ -- -- -- --
---------- ----------- ----------- -----------
Net loss before income tax...... $ (417) $ (2,747) $ (4,693) $ (7,382)
---------- ----------- ----------- -----------
Income tax provision............ -- -- -- 539
Net loss........................ (417) (2,747) (4,693) (6,843)
Pro forma net loss per
share-basic and diluted....... $ (0.04) $ (0.22) $ (0.29) $ (0.31)
========== =========== =========== ===========
Pro forma weighted average
shares used in computing net
loss per share-basic and
diluted....................... 10,554,795 12,655,901 15,916,383 21,916,383
========== =========== =========== ===========
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------------------------
HISTORICAL 1999
------------------------- PRO FORMA
1998 1999 CONSOLIDATED
----------- ----------- ---------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Subscriber revenue.............. $ 125 $ 599 $ 5,646
Engineering services revenue.... 436 188 188
----------- ----------- -----------
Total revenue............... 561 787 5,834
Cost of subscriber revenue...... 200 531 2,288
Cost of engineering services
revenue....................... 171 120 120
----------- ----------- -----------
Total cost of revenue....... 371 651 2,408
----------- ----------- -----------
Gross profit................ $ 190 $ 136 $ 3,426
Operating expenses:
Research and development........ 589 1,002 1,429
General and administrative...... 1,273 1,583 2,518
Selling and marketing........... 314 555 1,359
Depreciation and amortization... 124 194 1,577
Unit option and warrant
expense....................... 16 1,263 2,080
----------- ----------- -----------
Total operating expenses...... 2,316 4,597 8,963
----------- ----------- -----------
Operating loss................... (2,126) (4,461) (5,537)
Interest income, net............. 7 141 156
Gain (loss) on disposal of
assets.......................... -- -- --
Equity in earnings (losses) of
investments..................... -- -- --
Realized loss on sale of
investment...................... -- -- --
Other............................ -- -- (50)
----------- ----------- -----------
Net loss before income tax...... $ (2,119) $ (4,320) $ (5,431)
----------- ----------- -----------
Income tax provision............ -- -- 270
Net loss........................ (2,119) (4,320) (5,161)
Pro forma net loss per
share-basic and diluted....... $ (0.15) $ (0.22) $ (0.20)
=========== =========== ===========
Pro forma weighted average
shares used in computing net
loss per share-basic and
diluted....................... 14,270,568 19,877,855 25,877,355
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999,
-------------------------------------------
AS OF DECEMBER 31, PRO FORMA
----------------------------------- PRO FORMA CONSOLIDATED
1996 1997 1998 ACTUAL CONSOLIDATED(1) AS ADJUSTED
---------- --------- ---------- ---------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................... $ 51 $ 132 $ 1,755 $ 457 $ 3,542 $65,149
Working capital (deficit)................... 181 (323) 7,519 3,674 (10,199) 66,621
Total assets................................ 1,269 822 8,765 5,867 25,756 86,916
Total debt(1)............................... -- 150 -- -- 14,830 --
Members' capital............................ 1,101 74 8,030 4,841 5,215 --
Stockholders' equity........................ -- -- -- -- -- 81,205
</TABLE>
- ---------------
(1) We financed the acquisition of Mobeo through a senior secured interim credit
facility, which will be repaid with the net proceeds of this offering.
20
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following description of our financial condition and
results of operations in conjunction with the financial statements and the notes
thereto and the unaudited pro forma condensed consolidated financial information
included in this prospectus beginning on page F-1.
OVERVIEW
Aether Systems LLC was originally formed as Aeros, L.L.C. in January 1996.
We changed our name to Aether Technologies International, L.L.C. effective
August 1996 and to Aether Systems LLC effective September 1999. Immediately
before we complete this offering, the limited liability company will be
converted into a corporation called Aether Systems, Inc.
From our inception until March 1997, we primarily provided wireless
engineering services, including the development of wireless software
applications for customers. In March 1997, we began offering services that
provide the users of wireless handheld devices access to real-time financial
information. During 1997, we made a strategic decision to focus a significant
portion of our engineering resources on the development of these and other
wireless data services and systems, including our AIM package of wireless
messaging software and software development tools (also known as a software
platform) and other wireless data applications. This resulted in a decrease in
engineering services revenue as a percentage of total revenue and an increase in
subscriber revenue as a percentage of total revenue. We expect this trend to
continue in the foreseeable future with an increasing percentage of our revenue
being derived from subscriber revenue. We also expect to derive revenue from the
licensing of our AIM software platform.
Our subscriber base was 150 and 687 for the years ended December 31, 1997
and December 31, 1998, respectively, and 982 for the six months ended June 30,
1999. The growth in subscribers over these periods was primarily the result of
the attraction of new subscribers to the service. Reuters MarketClip yearly
subscriptions started to expire in March 1999 and 75% of all subscribers
eligible to renew during the period from March to June 1999 renewed their
contracts for an additional one year period. Subscriber revenue was $161,400 and
$549,057 for the years ended December 31, 1997 and 1998, respectively, and
$598,810 for the six months ended June 30, 1999. Engineering services revenue
was $1.4 million, $1.6 million and $1.0 million for the years ended December 31,
1996, 1997 and 1998, respectively, and $188,274 for the six months ended June
30, 1999. We incurred net losses of approximately $416,980, $2.7 million and
$4.7 million for years ended December 31, 1996, 1997 and 1998, respectively, and
$4.4 million for the six months ended June 30, 1999.
For the six months ended June 30, 1999, our cost to acquire subscribers was
greater than the revenue we expect to derive from those customers over the
initial one-year contract term. The cost to acquire subscribers during this
period was approximately $546,000 and the contracts entered into during that
period provide for payments of approximately $305,000 during the one-year term
of the contracts. We expect that revenue from new customers will exceed
subscriber acquisition costs as the number of subscribers increases to cover our
fixed costs, but this will depend on the rate at which subscriber levels
increase and we cannot determine when this will occur or assure you that it will
ever occur.
On September 28, 1999, we acquired Mobeo, Inc. Mobeo provides employees and
customers of major banks and financial institutions with real-time price quotes
and news for foreign exchange, government securities and commodities markets on
wireless handheld devices. On a pro forma basis, giving effect to the Mobeo
acquisition, our revenue for the six months ended June 30, 1999 was $5.8
million. Mobeo accounted for 87% of this revenue.
Mobeo's subscriber base was 2,811 and 3,339 at December 31, 1997 and
December 31, 1998, respectively, and 3,356 at June 30, 1999. The net increase in
subscriber base from the end of 1997 to the end of 1998 was due to new
subscriptions of 1,660 and termination of 1,132 subscriptions. The net increase
in subscribers from December 31, 1998 to June 30, 1999 was due to the
termination of 591 subscriptions, and 608 new subscriptions. We believe that a
substantial number of the terminations and additions are the result of changes
in personnel at financial institutions whose traders are Mobeo subscribers.
Mobeo subscriber revenue was $7.1 million and $8.6 million for the years ended
December 31, 1997 and 1998, respectively, and $5.0 million for the six months
ended June 30, 1999. Mobeo (on a stand-alone basis) reported net income for the
six months ended June 30, 1998 and 1999 of $278,870 and $19,677,
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<PAGE> 23
respectively. The decrease from 1998 to 1999 was primarily attributable to
increases in operating expenses of $726,250 offset in part by an increase in
gross profits of $345,880 as described in detail in Results of Operations,
below. On a stand-alone basis, Mobeo reported a net loss for the years ended
December 31, 1998 and 1997 of $100,893 and $387,656, respectively. The decrease
in net loss from 1998 to 1999 was primarily attributable to an increase in gross
profits of $1.6 million partially offset by an increase in operating expenses of
$1.2 million as described in detail in Results of Operations below. Mobeo has
reported net losses for full years and net income for partial years because, as
a closely held company, Mobeo has recorded as compensation expense in each year
amounts paid to senior officers at year-end that typically equalled income
earned during the year. As a result of our acquisition of Mobeo, most of this
compensation expense to senior officers will no longer be paid as these senior
officers are no longer employed by Mobeo or us.
In August 1999, we entered into a joint venture with 3Com called OpenSky.
We and 3Com formed OpenSky to pursue opportunities in the emerging consumer and
business mass markets for wireless internet access, e-mail and Internet and
other electronic transaction applications. We have entered into a letter
agreement with OpenSky that requires OpenSky to pay us $3 million over a
12-month period ending in June 2000 in exchange for engineering services. We
have also given OpenSky a perpetual, non-exclusive, non-assignable, royalty
free, worldwide license to our AIM software platform. We have the right to offer
OpenSky's services to our subscribers in exchange for a monthly fee of $3 per
subscriber.
Since our inception, we have invested significant capital to build our
customer service and network operations center. Additionally, we have incurred
significant operating costs to develop our AIM software platform and other
software applications and to grow our business. As a result, we have incurred
operating losses since our inception. Part of our strategy is to continue to
invest in business development, research and development and marketing and
advertising. As a result, we expect to continue to incur operating losses for at
least the next several quarters.
RESULTS OF OPERATIONS
We derive our revenue from the sale of wireless data services and by
providing wireless engineering services. As a result of the Mobeo acquisition,
we also derive revenue from the sale of Mobeo's wireless foreign exchange
information services. Revenue from wireless data services consists of:
- a one time non-refundable activation fee, which we recognize upon service
activation;
- monthly service fees, which we recognize as services are provided to the
subscriber; and
- monthly exchange fees for access to financial information from the
securities exchanges and markets, which we recognize as services are
provided to the subscriber. We remit these fees to the various exchanges
and markets on a regular basis.
As part of our service offerings, we also provide our subscribers with the
option to purchase wireless handheld devices from us at cost, which we bill over
the initial term of the contract.
We also expect to derive revenue from the licensing of our AIM software
platform. We currently have one customer who is licensing our AIM software
platform but anticipate additional customers in the future.
Contracts with our wireless data subscribers are for a one-year period and
include a termination penalty if cancelled by the subscriber before the one-year
term expires. These contracts are generally renewable at the option of the
subscriber for additional one-year periods or otherwise continue on a monthly
basis until cancelled by the subscriber. Revenue from wireless engineering
services consists of amounts billed to our customers for engineering time on an
hourly basis or on a fixed per project basis. This revenue is recognized as the
work is performed.
Cost of subscriber revenue consists primarily of airtime costs, financial
data costs, wireless handheld device costs and securities exchange and market
fees. Our airtime costs are determined by agreements we have with several
wireless carriers. Typically, we have one-year contracts to buy data network
capacity either for an agreed amount of kilobytes at a flat fee or on a
cents-per-kilobyte basis. Cost of engineering services revenue consists of cash
compensation and related costs for engineers and other non-reimbursed,
project-related costs.
Research and development expenses consist primarily of cash compensation
and related costs for engineers engaged in research and development activities
and, to a lesser extent, costs of materials relating to these activities. We
expense research and development costs as we incur them. General and
administrative expenses consist primarily of cash compensation and related costs
for general corporate and business development personnel, along with rent and
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<PAGE> 24
other costs. Selling and marketing expenses consist primarily of advertising and
promotions, sales and marketing personnel, travel and entertainment and other
costs.
Depreciation and amortization expenses consist primarily of depreciation
expenses arising from equipment purchased for our network operations center and
other property and equipment purchases. On a pro forma basis, giving effect to
the Mobeo acquisition, depreciation and amortization expenses consist primarily
of amortization related to goodwill and other intangibles to be recognized as a
result of the Mobeo acquisition.
Equity-based expenses consist of expenses recorded to account for the
difference, on the date of grant, between the fair market value and the exercise
price of stock options issued to employees and the fair value of equity-based
awards to non-employees.
Net interest income consists primarily of interest earned on cash and cash
equivalents and short-term investments, net of fees paid to fund managers and
interest expense on monies borrowed.
SIX MONTHS ENDED JUNE 30, 1998 AND 1999
Subscriber revenue. Subscriber revenue increased from $124,576 for the six
months ended June 30, 1998 to $598,810 for the six months ended June 30, 1999.
The increase was primarily due to additional subscribers associated with the
launch of Reuters MarketClip, and we expect a significant portion of future
revenue to come from financial services and online trading products.
On a pro forma basis, giving effect to the Mobeo acquisition, subscriber
revenue for the six months ended June 30, 1999 was $5.6 million. Mobeo accounted
for 89% of this subscriber revenue. Subscriber revenue for Mobeo increased from
$4.5 million for the six months ended June 30, 1998 to $5.0 million for the six
months ended June 30, 1999. This increase was primarily due to price increases
for Mobeo's foreign exchange information services.
Engineering services revenue. Engineering services revenue decreased from
$436,090 for the six months ended June 30, 1998 to $188,274 for the six months
ended June 30, 1999. This decrease was primarily due to our decision to focus
our efforts on developing our AIM software platform and on wireless data
services.
Cost of subscriber revenue. Cost of subscriber revenue increased from
$199,559 for the six months ended June 30, 1998 to $530,823 for the six months
ended June 30, 1999. The increase was primarily due to an increase in the number
of subscribers to Reuters MarketClip, which was launched in March 1998. We
expect the number of subscribers for financial services and online trading
products to increase, resulting in an increase in the cost of subscriber
revenue.
On a pro forma basis, giving effect to the Mobeo acquisition, cost of
subscriber revenue for the six months ended June 30, 1999 was $2.3 million.
Mobeo accounted for 77% of this cost. Cost of subscriber revenue for Mobeo
increased from $1.5 million for the six months ended June 30, 1998 to $1.8
million for the six months ended June 30, 1999. This increase was primarily due
to an increase in airtime charges of $630,000 offset by cost savings of $330,000
relating to a change in financial data providers.
Cost of engineering services revenue. Cost of engineering services revenue
decreased from $170,812 for the six months ended June 30, 1998 to $119,829 for
the six months ended June 30, 1999. This decrease was primarily due to a
decrease in engineering services as discussed above.
Research and development expenses. Research and development expenses
increased from $589,148 for the six months ended June 30, 1998 to $1.0 million
for the six months ended June 30, 1999. This increase was primarily due to the
hiring of additional engineers for increased research and development activities
associated with the development of our AIM software platform and wireless data
services. We expect to continue to make substantial investments in research and
development and anticipate that these expenses will continue to increase.
On a pro forma basis, giving effect to the Mobeo acquisition, research and
development expenses for the six months ended June 30, 1999 were $1.4 million.
Mobeo accounted for 30% of these expenses. Research and development expenses for
Mobeo increased from $168,355 for the six months ended June 30, 1998 to $427,210
for the six months ended June 30, 1999. This increase was primarily due to
additional expenses associated with the development of wireless software
applications.
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<PAGE> 25
General and administrative expenses. General and administrative expenses
increased from $1.3 million for the six months ended June 30, 1998 to $1.6
million for the six months ended June 30, 1999. This increase was primarily due
to the addition of personnel performing general corporate and business
development activities. We expect general and administrative expenses to
increase as we add personnel and incur additional expenses related to the
anticipated growth of our business and our operation as a public company.
On a pro forma basis, giving effect to the Mobeo acquisition, general and
administrative expenses for the six months ended June 30, 1999 were $2.5
million. Mobeo accounted for 37% of these expenses. General and administrative
expenses for Mobeo increased from $1.2 million for the six months ended June 30,
1998 to $1.5 million for the six months ended June 30, 1999, before pro forma
adjustment. This increase was primarily due to increased personnel and related
costs.
Selling and marketing expenses. Selling and marketing expenses increased
from $313,775 for the six months ended June 30, 1998 to $555,428 for the six
months ended June 30, 1999. Of this increase $170,075 was primarily due to an
increase in advertising and promotion costs related to the launch of Reuters
MarketClip in March 1998 and $71,578 was due to an increase in personnel related
expenses. We expect selling and marketing expenses to increase significantly as
we incur additional expenses to increase brand awareness and add personnel.
On a pro forma basis, giving effect to the Mobeo acquisition, selling and
marketing expenses for the six months ended June 30, 1999 were $1.4 million.
Mobeo accounted for 59% of these expenses. Selling and marketing expenses for
Mobeo increased from $1.0 million for the six months ended June 30, 1998 to $1.3
million for the six months ended June 30, 1999, before pro forma adjustment.
This increase was primarily due to increased personnel costs of $118,300 and
increased advertising and marketing costs of $126,450.
Depreciation and amortization. Depreciation and amortization expenses
increased from $123,820 for the six months ended June 30, 1998 to $193,523 for
the six months ended June 30, 1999. This increase was primarily due to an
increase in the purchase of property and equipment related to the expansion of
our corporate offices.
On a pro forma basis, giving effect to the Mobeo acquisition, depreciation
and amortization expenses for the six months ended June 30, 1999 were $1.6
million. This amount primarily reflects amortization related to goodwill and
other intangibles to be recognized as a result of the Mobeo acquisition.
Unit option and warrant expense. Unit option and warrant expense increased
from $16,290 for the six months ended June 30, 1998 to $1.3 million for the six
months ended June 30, 1999. Of this increase $861,990 was primarily due to the
fact that warrants held by 3Com to acquire 57,466 units became exercisable in
the six months ended June 30, 1999 and $384,920 relates to an increase in the
number of options that vested during the period with exercise prices less than
the fair value on the date of grant.
On a pro forma basis, giving effect to the Mobeo acquisition, unit option
and warrant expense for the six months ended June 30, 1999 was $2.1 million. The
increase from Aether's historical amount is primarily due to expenses associated
with options expected to be granted to the selling stockholders of Mobeo for
consulting and employee services.
Interest income, net. Net interest income increased from $7,035 for the six
months ended June 30, 1998 to $140,753 for the six months ended June 30, 1999.
The increase was primarily due to increased cash balances as a result of our
private placement financings completed in August 1998 and October 1998.
FISCAL YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
Subscriber revenue. There was no subscriber revenue recognized for the year
ended December 31, 1996. Subscriber revenue increased from $161,400 to $549,057
for the years ended December 31, 1997 and December 31, 1998, respectively. The
increase in subscriber revenue was primarily due to the launch of Reuters
MarketClip in March 1998.
On a pro forma basis, giving effect to the Mobeo acquisition, subscriber
revenue for the year ended December 31, 1998 was $9.1 million. Mobeo accounted
for 94% of this subscriber revenue. Subscriber revenue for Mobeo increased from
$6.5 million to $7.1 million for the years ended December 31, 1996 and December
31, 1997, respectively and to $8.6 million for the year ended December 31, 1998.
The increase from 1996 to 1997 was primarily
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<PAGE> 26
due to an increase in the number of subscribers and the increase from 1997 to
1998 was primarily due to price increases for Mobeo's foreign exchange
information services.
Engineering services revenue. Engineering services revenue increased from
$1.4 million to $1.6 million for the years ended December 31, 1996 and December
31, 1997, respectively, and decreased to $1.0 million for the year ended
December 31, 1998. The increase in engineering services revenue from 1996 to
1997, was primarily due to increased engineering services activities. One of our
investors accounted for approximately 83% and 37% of engineering services
revenue for 1996 and 1997, respectively. The decrease in engineering services
revenue from 1997 to 1998 was primarily due to our decision to focus our efforts
on developing our AIM software platform and wireless data services.
Cost of subscriber revenue. There was no cost of subscriber revenue for the
year ended December 31, 1996. Cost of subscriber revenue increased from $447,480
to $797,165 for the years ended December 31, 1997 and December 31, 1998,
respectively. We began to incur costs of subscriber revenue in 1997 with the
March 1997 launch of our AirBroker service. The increase in the cost of
subscriber revenue from 1997 to 1998 was primarily due to the launch of the
Reuters MarketClip service in March 1998. We expect the number of subscribers
for financial services and on-line trading products to increase resulting in an
increase in the cost of subscriber revenue.
On a pro forma basis, giving effect to the Mobeo acquisition, cost of
subscriber revenue for the year ended December 31, 1998 was $3.8 million. Mobeo
accounted for 79% of these costs. Cost of subscriber revenue for Mobeo increased
from $2.9 million for the year ended December 31, 1996 to $3.1 million for the
year ended December 31, 1997 and decreased to $3.0 million for the year ended
December 31, 1998. The increase from 1996 to 1997 was primarily due to an
increase in the number of subscribers and the decrease from 1997 to 1998 was
primarily due to cost savings related to a change in financial data providers.
Cost of engineering services revenue. Cost of engineering services revenue
decreased from $1.0 million to $846,140 for the years ended December 31, 1996
and December 31, 1997, respectively, and decreased to $304,137 for the year
ended December 31, 1998. These decreases were primarily due to our decision to
focus our efforts on developing our AIM software platform and wireless data
services.
Research and development expenses. Research and development expenses
increased from $160,597 to $733,630 for the years ended December 31, 1996 and
December 31, 1997, respectively, and increased to $1.3 million for the year
ended December 31, 1998. These increases in research and development expenses
were primarily due to the hiring of additional engineers for increased research
and development activities associated with the development of our AIM software
platform and wireless data services.
On a pro forma basis, giving effect to the Mobeo acquisition, research and
development expenses for the year ended December 31, 1998 were $1.8 million.
Mobeo accounted for 28% of these expenses. Research and development expenses for
Mobeo increased from $94,609 to $174,867 for the years ended December 31, 1996
and December 31, 1997, respectively and to $496,570 for the year ended December
31, 1998. The increase from 1997 to 1998 was primarily due to an increase in the
number of engineering personnel and the increase from 1997 to 1998 was primarily
due to additional expenses associated with the development of wireless software
applications.
General and administrative expenses. General and administrative expenses
increased from $395,209 to $1.5 million for the years ended December 31, 1996
and December 31, 1997, respectively and increased to $2.8 million for the year
ended December 31, 1998. These increases were primarily due to the addition of
personnel performing general corporate and business development functions.
On a pro forma basis, giving effect to the Mobeo acquisition, general and
administrative expenses for the year ended December 31, 1998 were $4.6 million.
Mobeo accounted for 40% of these expenses. General and administrative expenses
for Mobeo increased from $1.1 million to $1.9 million for the years ended
December 31, 1996 and December 31, 1997, respectively, and to $2.7 million for
the year ended December 31, 1998, before pro forma adjustment. The increase from
1996 to 1997 was primarily due to a $235,000 increase in personnel and related
costs and a $40,000 increase in network support costs. In addition, general and
administrative expenses were reduced in 1996 by the reversal of $336,000
reserved in 1995 for a potential liability related to a data provider contract
termination and general and administrative expenses increased by $122,000 in
1997 due to a change in accounting
25
<PAGE> 27
policy relating to inventory of paging equipment. The increase from 1997 to 1998
was primarily due to increased personnel and related costs.
Selling and marketing expenses. There were no selling and marketing
expenses for the year ended December 31, 1996. Selling and marketing expenses
increased from $333,191 to $840,455 for the years ended December 31, 1997 and
December 31, 1998, respectively. Of this increase $324,152 was primarily due to
an increase in advertising and promotion costs related to the launch of Reuters
MarketClip in March 1998 and $183,112 relates to an increase in personnel and
costs associated with sales and marketing.
On a pro forma basis, giving effect to the Mobeo acquisition, selling and
marketing expenses for the year ended December 31, 1998 were $2.4 million. Mobeo
accounted for 64% of these expenses. Selling and marketing expenses for Mobeo
increased from $1.6 million to $1.8 million for the years ended December 31,
1996 and December 31, 1997, respectively, and to $2.3 million for the year ended
December 31, 1998 before pro forma adjustment. The increase from 1996 to 1997
was primarily due to a $50,000 increase in marketing costs, a $40,000 increase
in advertising costs and a $70,000 increase in sales commissions. The increase
from 1997 to 1998 was primarily due to increased personnel overhead costs.
Depreciation and amortization expenses. Depreciation and amortization
expenses increased from $45,245 to $189,160 for the years ended December 31,
1996 and December 31, 1997, respectively, and increased to $264,685 for the year
ended December 31, 1998. These increases were primarily due to additional
capital expenditures.
On a pro forma basis, giving effect to the Mobeo acquisition, depreciation
and amortization expenses for the year ended December 31, 1998 were $3.0
million. This amount primarily reflects amortization related to goodwill and
other intangibles to be recognized as a result of the Mobeo acquisition.
Unit option and warrant expense. There was no unit option and warrant
expense for the year ended December 31, 1996. Unit option and warrant expense
decreased from $40,277 to $32,580 for the years ended December 31, 1997 and
December 31, 1998, respectively. The increase in unit option and warrant expense
for 1997 and the decrease for 1998 reflect changes in the extent to which
options became exercisable during the period with exercise prices less than the
fair value on the date of grant.
On a pro forma basis, giving effect to the Mobeo acquisition, unit option
and warrant expense for the year ended December 31, 1998 were $1.7 million. The
increase from Aether's historical amount is primarily due to expenses associated
with options expected to be granted to the selling stockholders of Mobeo for
consulting and employee services.
Interest income, net. Net interest income decreased from $8,491 to $7,788
for the years ended December 31, 1996 and December 31, 1997, respectively, and
increased to $74,180 for the year ended December 31, 1998. The increase for 1998
was primarily due to increased cash balances as a result of our private
placement financings completed in August 1998 and October 1998.
Equity in losses of joint venture. Our equity in the loss of Real World
Solutions, a joint venture, was $172,487 and $70,368 for the years ended
December 31, 1996 and December 31, 1997, respectively. These amounts related to
losses of Real World Solutions recorded by us under the equity method of
accounting.
Realized loss on sale of investment in joint venture. In the year ended
December 31, 1997, we sold our interest in Real World Solutions and recorded a
loss of $302,145.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations primarily through
private placements of our equity securities, which have resulted in net proceeds
of $15.7 million through June 30, 1999. As of June 30, 1999, we had $4.4 million
in cash and short-term investments and $3.7 million of working capital.
Net cash used in operating activities was $346,200, $1.5 million and $4.4
million for the years ended December 31, 1996, 1997 and 1998, respectively, and
$2.5 million for the six months ended June 30, 1999. The principal use of cash
in each of these periods was to fund our losses from operations.
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Net cash used in investing activities was $1.2 million, $209,723, and $6.5
million for the years ended December 31, 1996, 1997 and 1998, respectively, and
cash provided from investing activities was $1.6 million for the six months
ended June 30, 1999. Cash used in investing activities for the year ended
December 31, 1996 was primarily for the purchase of a joint venture interest in
Real World Solutions and for purchases of property and equipment. Cash used in
investing activities for the year ended December 31, 1997 was primarily for the
purchase of property and equipment offset in part by proceeds from the sale of
our joint venture interest in Real World Solutions. Cash used in investing
activities for the year ended December 31, 1998 was primarily for the purchase
of short-term investments. For the six months ended June 30, 1999 we generated
cash from investment activities from the sale of short-term investments offset
in part by the purchase of property and equipment.
Net cash provided by financing activities was $1.6 million, $1.8 million
and $12.5 million for the years ended December 31, 1996, 1997 and 1998,
respectively. Cash provided by financing activities in each of these periods was
primarily attributable to proceeds from additional private sales of our equity
securities. There was no financing activity in the six months ended June 30,
1999.
On September 28, 1999, we borrowed $14.8 million under a senior secured
interim credit facility with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner
& Smith Incorporated, one of the underwriters of this offering, and Merrill
Lynch Capital Corporation. The loan is due and payable one year from the closing
date, with the possibility of a single extension up to one year. We can prepay
the loan at any time without any penalty. Interest on borrowings under the
credit facility will accrue at a rate of, at our option, either LIBOR plus a
specified margin which increases over time or the lender's base rate plus a
specified margin which also increases over time. The current interest rate per
annum is 11.1%. The facility is secured by substantially all of our assets and
the assets of our subsidiaries. The subsidiaries have also guaranteed repayment
under the credit facility. The credit facility contains terms and conditions
typical for credit facilities of this type and size and also includes financial
covenants. We intend to repay the loan in full upon completion of this offering,
at which time the credit facility will terminate.
In connection with this credit facility, Merrill Lynch Capital Corporation
has received warrants to purchase up to 2,419,690 shares of our common stock for
no consideration. These warrants only become exercisable if the credit facility
is not repaid in a timely manner. If we repay the loan in full out of the
proceeds of the offering, the warrants will become void and no shares will be
issued.
For the remainder of 1999, we expect to have the following expenditures and
requirements:
- $2.5 million to exercise a warrant to increase our interest in OpenSky;
- $1.0 million for expansion of our network operations center;
- enhancement of Mobeo's service offerings;
- increases in sales and marketing expenditures;
- research and development; and
- other working capital needs to grow our business.
We may also need funds to complete any acquisitions we may decide to pursue.
YEAR 2000 READINESS
Many currently installed computer systems and software products are coded
to accept or recognize only two digits rather four digits to define the year in
the date code field. These systems and software products will need to accept
four digit year entries to distinguish 21st century dates from 20th century
dates. Systems and products that are not corrected to do this could cause a
disruption of operations including a temporary inability to process
transactions, send invoices or engage in other normal business activities. We
maintain a significant number of computer software systems and operating systems
across our entire organization which are potentially subject to year 2000
problems.
We have taken several steps to prepare for the year 2000 transition. We
developed all our in-house software, including our AIM software platform, using
four digit date codes. We run all these applications on hardware and operating
systems that we have determined are year 2000 compliant. All our computer
hardware has been inventoried
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and checked against the manufacturers' year 2000 compliance declarations. All
non-compliant hardware has been upgraded if possible, or replaced. All
third-party software, including operating systems and applications, have been
inventoried and checked against the manufacturers' compliance statements. We
have upgraded and fixed software as recommended by the manufacturers.
We are actively seeking assurances from external entities that could affect
our business. We have been advised by our data providers, landline and wireless
network carriers, device manufacturers and current corporate customers that
their systems that might impact our own systems are year 2000 compliant.
We are developing a contingency plan to deal with failures that may occur
during the year 2000 transition. By the end of November 1999, we expect to
finish our contingency plan which will involve developing alternate methods to
provide mission-critical functions if they fail.
The most likely worst case scenario would be the failure of the landline or
wireless networks that carry data to us or from us to our customers. If this
happened, we would not be able to deliver our services to our customers and we
may lose revenue.
Any failure on the part of Mobeo or its data providers or network carriers
to maintain computer hardware and software that is year 2000 compliant could
adversely impact our business. In connection with the Mobeo acquisition, Mobeo
has represented to us that its computer hardware and software are year 2000
compliant.
Although we have taken the steps described above to make our systems year
2000 compliant, we may experience material problems and expenses associated with
year 2000 compliance that could adversely affect our business, results of
operations and financial condition. If the assurances we have received from
third parties or Mobeo regarding their compliance are inaccurate we may
experience disruption resulting in additional expense and loss of revenue. We
are also subject to outside forces that might generally affect industry and
commerce, such as year 2000 compliance failures by utility or transportation
companies. If our customers experience disruptions related to our services and
software systems, they may begin litigation against us even if the disruptions
were caused by their own systems or software provided by others.
We have purchased most of our equipment within the last four years, which
has kept the costs of year 2000 compliance efforts to a minimum. All
non-compliant software and equipment has been upgraded or replaced at a cost
that is not material to us and our total costs relating to year 2000 compliance
have been less than $100,000. Based on our review of compliance to date, we do
not expect any future costs related to year 2000 compliance to be material.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. The new standard establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. The
statement, as amended, is effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000. The statement is not expected to affect us as we
currently do not engage or plan to hold derivative instruments or engage in
hedging activities.
QUALITATIVE AND QUANTITATIVE DISCLOSURE REGARDING MARKET RISK
We have limited exposure to financial market risks, including changes in
interest rates. We manage our interest rate risk exposure by investing in debt
obligations with varying maturity dates. We have $14.8 million in floating rate
debt held by Merrill Lynch & Co., one of the underwriters of this offering. We
have not entered into any agreements that hedge the effect of changes in rates
on this indebtedness. At June 30, 1999, we had short-term investments of
approximately $4.0 million. These short-term investments consisted of highly
liquid investments in debt obligations of the U.S. Government and other
highly-rated entities with maturities of up to 30 years. These investments are
classified as available-for-sale and are considered short-term, because we
expect to sell them within 12 months. These investments are subject to interest
rate risk and will fall in value if market interest rates increase. At June 30,
1999, the value of our short-term investments was approximately $190,000 less
than our cost. If market interest rates continue to rise, the value of our
short-term investments will continue to decrease. We expect to sell these
investments prior to maturity, and therefore we may not realize the full value
of these investments. We currently hold no derivative instruments and do not
earn foreign-source income. We expect to invest only in debt obligations issued
by the U.S. government with maturities of less than one year.
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BUSINESS
OVERVIEW
We provide wireless data services and systems enabling people to use
wireless handheld devices for real-time data communications and transactions. We
offer a broad range of capabilities necessary to design, develop, sell and
support a full range of wireless data services. We can offer these capabilities
because of our engineering expertise, our wireless integration software and our
customer service and network operations center.
MARKET OPPORTUNITY
Growth of the Internet, Intranets and Extranets
The Internet and businesses' internal data networks, or intranets, have
emerged as global communications channels that allow users to share information
and conduct real-time business electronically. According to publicly available
industry estimates, there were approximately 150 million users of the Internet
at the end of 1998 and the number of users will increase to 500 million by the
end of 2003. Technology and communications research firm International Data
Corporation, or IDC, has published estimates that by 2001 there will be 133
million global intranet users. Businesses are also increasingly employing
extranets, which allow them to communicate and conduct transactions
electronically with their customers and suppliers. Forrester Research forecasts
that business to business electronic and internet commerce in the U.S. will
increase from an estimated $100 billion in 1999 to $1,300 billion in 2003. All
of the projections and estimates in this "Market Opportunity" section are based
on the qualifications described on page 15 of this prospectus.
Growth of Mobile Communications
Individuals are increasingly using mobile devices for convenience and
enhanced productivity when away from their home or office. The Yankee Group, a
technology and communications market research firm, estimates that in the U.S.
there were approximately 68.7 million subscribers to wireless voice services at
the end of 1998 and that there will be 152.8 million by the end of 2003. Use of
wireless telecommunications has grown rapidly as cellular, paging and personal
communications systems, or PCS, have become more widely available and affordable
for both the business and mass consumer markets. Advances in technology,
regulatory changes, the introduction of new service providers and price
reductions have contributed to this growth.
Growth of Wireless Data Applications and Communications
We believe an increasing number of people will carry wireless devices for
data communications rather than for voice communications alone. The latest
wireless communications devices in the United States, including handheld
personal organizers, notebook computers, pagers and mobile phones, are smaller,
less expensive, have longer battery life and more features than earlier devices.
According to publicly available estimates, the U.S. wireless data market will
grow from 3 million subscribers in 1999 to 36 million subscribers in 2003.
The market for wireless data applications is driven by the increased
reliance on the Internet, intranets and extranets and the emergence of a mobile
workforce. IDC forecasts that the remote and mobile workforce in the United
States will grow from 35.7 million individuals at the end of 1999 to 47.1
million at the end of 2003. Having grown accustomed to and dependent on the
information and applications available on their personal computers, we believe
workers and consumers want access to similar information when away from their
office or home.
Attractiveness of Financial Market Applications
The availability of real-time information, price quotes and trading
capabilities is critical to financial market participants, both professionals
and individuals. We believe that news, stock prices and other financial
information are among the most accessed content on the Internet. The Internet
has also enabled the growth of online trading activity. According to the Yankee
Group, the number of U.S. households investing online is expected to continue
its rapid growth, from 7.1 million in 1998 to 31.0 million in 2003.
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Increased Outsourcing Trends
As information technology, or IT, systems have become more complex,
companies have increasingly outsourced many of their IT requirements. U.S. firms
are now spending 20% of their IT budgets on outsourcing services, according to
the industry trade publication Internet Week. These include packaged application
software implementation and support, customer support and network development
and maintenance. Companies are choosing to focus on their core businesses and
seeking to reduce costs associated with developing and maintaining IT networks
and software applications. In addition, by outsourcing, companies avoid major
challenges faced in hiring and retaining qualified IT employees and realize
increased time-to-market benefits.
THE AETHER SOLUTION
Through our engineering staff, our AIM package of wireless messaging
software and development tools (also known as a software platform) and our
customer service and network operations center, we provide the services and
resources necessary to deliver wireless data systems. Our capabilities address
most of the common issues companies face when building wireless data systems.
Issue: Wireless data communications systems are complex.
Many information technology managers lack the engineers and system
resources to design, develop, install and maintain new software and
systems that give their companies' workforces and customers mobile
access to internal desktop applications.
Solution: We provide comprehensive wireless communications services.
We have all the resources necessary to design, develop, install and
maintain wireless data communications systems for customers. We have 27
engineers who have on average more than ten years of wireless data
experience. Our engineers use our AIM software platform to extend
corporate applications to almost any wireless environment. We have
established relationships with the leading wireless network carriers,
including AT&T Wireless Services, Bell Atlantic Mobile, BellSouth
Wireless Data and Ameritech Corp. We have negotiated favorable airtime
agreements with these carriers, allowing us to offer our end users
flat-rate pricing no matter how much data is transmitted or where a
device is used. Our network operations center offers a secure gateway to
wireless networks for data delivered to us by our customers, and our
customer service center provides devices and call center support to end
users. We provide as many, or as few, of these elements as customers
require to develop their systems.
Issue: There is a wide variety of incompatible standards.
To build a wireless data system, a business must integrate incompatible
networks, devices and operating systems. Companies often require
multiple networks to meet the needs of their workers and customers,
based on their geographic location and preferred devices, which may use
different communications protocols. This can involve complex
negotiations with several wireless carriers. Additionally, companies
typically use a variety of operating systems for their internal data
applications.
Solution: Our software and systems can integrate a wide variety of
networks, devices and operating systems.
We give our customers a high degree of flexibility and choice, freeing
them from the need to integrate technologies from a variety of parties
to develop their systems. Our AIM software platform interacts with the
most widely used data network systems, known as CDPD and Mobitex as well
as with dial-up circuit connections. As a result, our customers' end
users can choose the devices they prefer, including Palm, Windows CE and
other personal organizers, notebook computers, pagers and mobile phones.
We support and develop applications for the Wireless Applications
Protocol, known as WAP, a series of specifications that allow mobile
phones to display Internet information. We also are planning to extend
our AIM software platform's capabilities to the Microsoft micro-browser
and the operating system known as EPOC for handheld devices developed by
Symbian Ltd. (a wireless software company jointly owned by Ericsson,
Matsushita Communication Industrial Co., Ltd., Motorola, Nokia and Psion
plc). Our AIM software platform can interact with the major operating
systems on which most corporate applications run, including Windows NT,
UNIX, Linux and most mainframe operating systems. As connections to new
systems have
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become needed, our engineers have adapted our AIM software platform to
meet the needs of those systems. We believe that as the wireless data
market evolves there will continue to be a multitude of protocols for
networks, devices and operating systems. We plan to update our AIM
software platform continually to address the ongoing need to integrate
these protocols. We believe we are the only firm that currently provides
this level of service to companies seeking to develop wireless data
systems.
Issue: Wireless data transmissions are slow and expensive.
Most of today's wireless data networks operate at less than half the
speed of telephone dial-up connections, limiting the delivery of useful
data to only small amounts of text and few graphics. Data feeds
typically include large amounts of unnecessary data, including message
headers and routing information. Because wireless carriers typically
charge by the kilobyte of data transmitted, extraneous data add
unnecessary cost.
Solution: Our systems optimize data transmissions for wireless networks.
Our AIM software platform optimizes data transmission by employing
compression and data-thinning techniques. As a result, users get
information faster when they send queries from their devices, and they
get more useful information for the price. Our AIM software platform
reduces the number of data packets required in a typical wireless
transmission by as much as 66%. We ensure reliable message delivery
through measures that confirm data have arrived properly and resend data
if no acknowledgement has been received.
Over the next several years, wireless carriers and equipment vendors are
planning to build so-called third generation, or 3G, networks, which
promise to transmit data at much higher speeds and offer more
compatibility among devices. No matter how fast networks become, the
need for low cost, secure and reliable data transmission will continue.
We have designed our AIM software platform to grow with the capabilities
of wireless networks. For example, we are currently working with U.S.
and European wireless network carriers to develop our financial trading
services to operate over networks using General Packet Radio Services,
known as GPRS, a new high-speed wireless network standard being deployed
in some U.S. markets and abroad.
Issue: Corporate managers require rigorous security standards when
entrusting their data to third parties.
Solution: We provide a secure network operations center.
Our network operations center has numerous duplicate-or
redundant-elements and serves as a high-security physical link between
data feeds from our business customers' and others' data systems and
wireless carrier networks. This relieves corporations from the burden of
constructing similar facilities. We believe our network operations
center is capable of meeting the security standards for services we
developed or are developing for Reuters, Discover Brokerage, the Chicago
Board of Trade and Charles Schwab. We believe that our network
operations center is a vital component of our wireless data service
offerings and differentiates us from our competitors.
Issue: Corporate information technology managers are reluctant to
configure and maintain inventories of wireless devices and provide
ongoing customer support.
Solution: We provide product fulfillment and customer service.
We send end users fully functioning mobile devices configured for the
wireless data networks and applications they will use. We also have a
customer service center providing ongoing end user support. Companies do
not have to worry about configuring devices for use by their employees
and customers, fixing broken units, handling warranties or answering
questions from users.
THE AETHER STRATEGY
Our strategy is to be the dominant provider of wireless data services and
systems by using our engineering expertise, our AIM software platform, our
customer service and network operations center and our other resources to offer
businesses complete systems for wireless data communications and transactions.
We seek to maximize recurring revenue initially by extending online trading and
financial information services to wireless handheld devices. We also
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plan to enter new markets by licensing our AIM software platform to other
industries and by developing broader mass-market applications and services
through OpenSky. Our strategy includes the following key elements:
Develop the market for existing and new products in the financial services
sector. Our initial strategy is to tap into major segments of the financial
services industry, whose participants we believe are among the earliest adopters
of wireless data services. We focus on two types of financial services
subscribers, individual investors and market professionals, who understand the
value of receiving real-time information and trading capabilities. We believe
the same factors that fuel interest in online trading-easy access to accounts
and real-time market information and do-it-yourself buying and selling-will lead
investors to want wireless access to the same capabilities. In addition, we plan
to enhance the services offered by Mobeo by integrating Mobeo's software with
our AIM software platform. This will provide Mobeo subscribers with two-way
capabilities and access to additional financial information.
Expand into new industries and international markets. We believe that we
can apply our wireless experience and resources to other industries. For
example, transportation and health care companies, government workers and mobile
sales and repair forces could realize cost benefits and productivity gains
through wireless access to in-house data, e-mail and the Internet. Initially, we
will target new industries by licensing our AIM software platform to software
developers that want to integrate it with their software products and to
companies with extensive data needs and mobile workforces. We are also in
discussions with potential partners to expand into international markets.
Pursue mass-market opportunities, including wireless Internet access,
e-mail and Internet and other electronic transactions. OpenSky, a company we
recently formed with 3Com, is developing wireless Internet access, e-mail and
Internet and other electronic transaction services that address opportunities in
the emerging consumer and business mass markets. We have a 26% equity interest
in OpenSky on a fully diluted basis. We have a letter agreement with OpenSky to
provide engineering services for the design and development of OpenSky's
proposed systems and services, and OpenSky has a royalty-free license to use our
AIM software platform. Additionally, we have a two-year right of first refusal
to design and develop custom systems and applications for all services relating
to investment banking and brokerage activities. We also have the right to bundle
OpenSky services for a period of five years, as an added feature to the other
services we offer.
Expand our customer base and strengthen the Aether brand through enhanced
sales and marketing efforts. We intend to increase our sales and marketing
expenditures significantly to both increase our direct sales force and promote
the Aether brand. To build on our early success in the financial services
industry, we intend to build our sales force focused on financial institutions,
and we will also target companies that want to provide wireless access to their
data applications. We are also starting up a sales effort to market our AIM
software platform by targeting large corporations in other industries that both
invest heavily in technology and have significant numbers of mobile customers or
employees. In addition, we will continue to build relationships with third party
software developers who wish to use our AIM software platform to provide their
applications with wireless capabilities. Our branding efforts will include
advertising, public relations, speaking engagements and sponsorship of major
conferences.
Maintain and strengthen our strategic relationships with suppliers and
customers. A key to our ability to provide complete wireless data services to
our customers is our relationships with wireless network carriers and
manufacturers of wireless devices. These relationships take time to develop,
providing us with an advantage getting our services to market before our
competitors. We intend to maintain and strengthen these relationships by
negotiating more cost-effective rate plans with existing wireless network
carriers, testing our wireless services with providers of next-generation
high-speed wireless networks and working with manufacturers and industry forums
to guide development of new devices and applications.
Use the expertise we gain by providing engineering services to develop new
Aether products. The engineering services we provide our customers play an
important role in our product development strategy. While we no longer provide
engineering services strictly to generate revenue, we do take on engineering
assignments that might allow us to expand into new geographical markets or
industry sectors or to provide new services, in particular by introducing us to
new technologies. Examples of new services might include enhanced e-mail and
Web-browsing, wireless database search and retrieval, alerts based on the
occurrence of an event specified by the user, instant messaging and electronic
gaming.
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Pursue selective acquisitions to expand our capabilities. We intend to
pursue acquisitions that we believe would allow us to increase quickly the scale
and scope of our resources, such as expanding our engineering force, to expand
into new geographical markets or industry sectors or to provide new services.
SERVICES
The services we currently offer or are developing include:
- delivering real-time wireless financial market information and trading
capabilities;
- licensing our AIM software platform to corporations seeking to add
wireless data capabilities; and
- providing engineering services for the design, development and support of
wireless data systems.
The following table sets forth summary information regarding our services.
WIRELESS FINANCIAL INFORMATION AND TRADING
SERVICES
<TABLE>
<CAPTION>
EXISTING SERVICES USERS OF SERVICE DATE INTRODUCED REVENUE TYPE SERVICE DESCRIPTION
- --------------------------- -------------------- ------------------- ----------------- ------------------------------
<S> <C>
Reuters MarketClip Individual investors March 1998 Monthly recurring Market quotes, news and alerts
PitViper Chicago Board of July 1999 (Trial Monthly recurring Trade recording, commodities
Trade floor traders began) quotes, news and alerts
TradeRunner Discover Brokerage's August 1999 Monthly recurring Equities and options trading,
online investors market quotes, news and alerts
Mobeo FX Alert Financial market September 1999 Monthly recurring Foreign exchange, quotes, news
professionals and alerts
SERVICES UNDER DEVELOPMENT USERS OF SERVICE REVENUE TYPE SERVICE DESCRIPTION
- ------------------------------------------ ---------------- ----------------- --------------------------------
Trading and information for Charles Schwab Charles Schwab's Monthly recurring Equities and options trading,
customers online investors market quotes, news and alerts
Trading and information for Bear Stearns Brokers of firms Monthly recurring Customer account access and
clearing customers clearing through trading, market quotes, news and
Bear Stearns alerts
AIM LICENSING
CUSTOMER DATE OF CONTRACT REVENUE TYPE CUSTOMER'S USE OF AIM
- ----------------------- ----------------- ---------------- ---------------------------------------------------
Riverbed Technologies August 1999 Upfront and per Develop software for wireless update of handheld
user licensing devices to desktop computers
fees
ENGINEERING SERVICES
CUSTOMER'S TARGET
CUSTOMER MARKET DATE OF CONTRACT REVENUE TYPE SERVICE DESCRIPTION
- ----------------------- ----------------- ---------------- ----------------- --------------------------------
ORBCOMM Transportation September 1998 Engineering fees Develop location-tracking
industry capabilities for towing firms
Ericsson Industries July 1999 Marketing support Develop financial data services
needing real-time and engineering using two-way pagers
information fees
OpenSky Consumer and August 1999 Engineering fees Develop Internet access, e-mail
business mass and capabilities to conduct
market transactions on wireless
handheld devices
</TABLE>
Wireless Financial Information and Trading Services
Our wireless financial information and trading services and customers are
described below.
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- Reuters MarketClip. In March 1998, we introduced the Reuters MarketClip
service, which delivers news stories, real-time financial market price
quotes, historical graphs and stock alerts from Reuters to Palm and
Windows CE devices. We charge individual subscribers a flat monthly fee
for unlimited usage of this service in addition to the fees charged by
the securities exchanges and markets for the right to view real-time
price quotes. Based on our records, each MarketClip customer sends an
average of 110 queries per day. The service operates using the wireless
network systems known as CDPD and Mobitex. These networks cover
geographic areas that enable us to provide service to more than 90% of
the U.S. population. We also continue to support AirBroker, a predecessor
to Reuters MarketClip that provides market information using mobile
phones.
- Chicago Board of Trade. In June 1999, we began a limited trial of a
wireless trade recording system, PitViper, for the Chicago Board of
Trade. This trial allows up to 15 users of Palm devices to track and
record trades executed on the floor. Once a trade is entered on PitViper,
the terms of the trade are transmitted to Chicago Board of Trade's trade
confirmation system. Traders can also access real-time price quotes for
commodities and futures as well as news stories. We expect that the
Chicago Board of Trade will make PitViper available to the approximately
3,500 Chicago Board of Trade floor traders if the trial succeeds. We
intend to charge individual subscribers a flat monthly fee for the
service.
- Discover Brokerage TradeRunner. In August 1999, we launched TradeRunner,
a new service that allows Discover Brokerage's online customers to trade
stocks, mutual funds and options using Palm devices. In addition,
subscribers receive news stories, real-time financial market price
quotes, historical graphs and stock alerts from Reuters. We charge
Discover Brokerage account holders who subscribe to this service a flat
monthly fee for unlimited usage, in addition to the fees charged by the
securities exchanges and markets for the right to view real-time price
quotes. Users pay Discover Brokerage's regular commission fees for any
trades. Discover Brokerage is marketing and advertising TradeRunner
through radio, print media and its Web site, and we are marketing the
service through our Web site as well. We support TradeRunner through our
customer service and network operations center. The service operates
using CDPD or Mobitex networks. We are currently developing a market
trial for a similar service with Charles Schwab. We are developing the
system with Schwab based on a binding preliminary agreement and are
negotiating a definitive agreement. Under the preliminary agreement, we
have agreed that we or our business partners will spend at least $500,000
(and match up to an additional $500,000 spent by Schwab) on advertising
and marketing this service, and we will provide engineering support to
implement Schwab's service for no charge for two years. We cannot assure
you that we will sign a definitive agreement. We are also in discussions
with other brokerage firms to develop similar services.
- Bear Stearns. We are working with Bear Stearns to develop wireless
trading applications for the brokers and other market professionals of
firms that clear their trades through Bear Stearns. Using handheld
devices, subscribers will be able to access information and capabilities
similar to the Bear Stearns applications that reside on their desktop
computers. Firms who clear trades through Bear Stearns or their market
professionals will pay us a flat monthly per user fee for unlimited
usage. We began to develop the system for Bear Stearns after signing a
letter of intent with them in March 1999, but neither we nor Bear Stearns
has any obligation to the other until a definitive agreement is signed.
We cannot assure you that a definitive agreement will be signed.
- Mobeo services. As a result of the Mobeo acquisition, we offer and plan
to enhance Mobeo's financial information services. These services
supplement our own by providing additional data relating primarily to the
foreign exchange and selected commodities markets. Mobeo delivers
time-sensitive financial information from Bridge Information Systems
America, Inc. and its subsidiary Telerate, Inc. over wireless networks
that reach the largest 100 metropolitan markets in the United States.
Mobeo currently offers five services, each operating on pagers. Its
flagship service is F/X Alert, a real-time price quote, news and alert
service tracking more than 150 financial instruments including foreign
exchange, fixed income, futures/derivatives and commodities. Other
services called Scrappy, Energy and Pocket Futures track the scrap
metals, energy and futures markets, respectively. Early in 1999, Mobeo
began marketing Mobeo 1.0, a two-way financial market price quotes and
information service, similar to MarketClip, that operates using the RIM
950 two-way pager.
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Licensing the AIM Software Platform
Aether Intelligent Messaging, or AIM, is a package of wireless messaging
software and development tools-or software platform-that facilitates the
development of wireless data systems. We developed the AIM software platform in
1997 to improve the performance of data delivery over wireless networks and to
provide a development kit to speed the software development process. We use the
AIM software platform internally to develop and support wireless data services,
such as TradeRunner and PitViper. We recently launched a program to license the
AIM software platform to both software developers and large corporations.
Software developers can integrate the AIM software platform with their
applications to provide those applications with a wireless capability. When the
AIM-based application is sold, we can then earn one-time revenue from per-user
license fees or recurring revenue if the application is run from our network
operations center. Similarly, corporate customers who develop AIM-based
applications for their own use can pay us license fees per user or recurring
services fees if we host the application.
How the AIM Software Platform Works. The diagram below illustrates how the
AIM software platform works to integrate sources of data with wireless networks
and devices. Data and applications come from internal corporate systems, such as
those at Discover Brokerage, from public data sources via the Internet or from
proprietary systems such as Reuters Selectfeed Plus. The AIM software platform
then takes the data, replaces unnecessary or repetitive message-header
information with more streamlined tags, compresses and encrypts it so the data
can move quickly and securely outside the security system (or "firewall")
controlling access to and from the source's network and then sends it over the
airwaves using any of a number of wireless networks to the intended device. Not
all devices will work on all wireless carrier networks. Our AIM software
platform can be configured to support other networks as they are developed and
as customer needs require.
[HOW AIM WORKS FLOW CHART]
The AIM software platform has the following features and benefits.
- The AIM software platform enhances the speed, efficiency and security of
data transmission over wireless networks. The AIM software platform
trims unnecessary electronic message tags and compresses data, with
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no loss in the reliability of message delivery. As a result, users get
data quickly and at low cost. The AIM software platform uses a
sophisticated technology known as elliptic curve cryptography, or ECC,
which was developed by Certicom Corp., to encode the data so it cannot be
read by a third party that intercepts the data.
- The AIM software platform simplifies programming required to convert data
into a form that can be transmitted over wireless networks. The AIM
software platform uses industry-standard programming languages and
includes application program interfaces. The AIM software platform comes
with a software development kit that provides programmers step-by-step
guides and automatically generates code for major system components based
on the options selected. As a result, programmers can focus on the
business objectives the system is designed to meet, rather than becoming
immersed in unfamiliar and complex software and wireless network
protocols.
- The AIM software platform facilitates the interaction of major operating
systems on which most corporate applications run with the most widely
used wireless data networks and devices. To date, the AIM software
platform is compatible with the following wireless network carrier
protocols, mobile device operating systems and corporate operating
systems:
- wireless network carrier protocols: CDPD, Mobitex and ReFlex, a
two-way paging technology developed by Motorola;
- mobile device operating systems: Palm computing platform, Windows CE,
two-way pagers, mobile phones and Windows 95/98/NT and their
corresponding modems; and
- corporate operating systems: Windows NT, UNIX, Linux and most
mainframe operating systems.
As a result, our business customers can offer a wide variety of
applications for wireless transmission, and end users can similarly
choose from a number of devices. Our engineers continually develop the
capabilities of the AIM software platform as new systems, protocols and
devices emerge.
Engineering Services
We began operations in 1996 by providing engineering services to businesses
seeking to develop wireless data systems. Our customers have included the U.S.
Postal Service and Reuters Group Overseas Holding(UK) Limited. In addition,
Transettlements and Reuters accounted for 61.4% of our engineering services
revenue in 1998. Our engineers have experience in developing wireless
applications for a variety of businesses.
Since 1998, we have focused our efforts more on developing wireless data
services-such as MarketClip and TradeRunner-that will result in recurring
subscription revenue to us. While we therefore no longer provide engineering
services strictly to generate revenue, we do take on assignments that might
allow us to expand into new geographical markets or industry sectors or to
provide new services, in particular by introducing us to new technologies. In
addition to our contract with OpenSky, our current engineering services clients
include a subsidiary of Ericsson and ORBCOMM. The work we will do for Ericsson
will help us to enhance two-way paging services for the financial services
industry. Through our work with ORBCOMM, we hope to develop new services for the
transportation industry. We generally charge our clients for engineering time on
an hourly basis or a per project flat fee.
OPERATIONS
Engineering and Project Implementation
Our most important operational resource is our engineering staff. This
staff includes wireless systems engineers, software engineers who specialize in
developing applications for handheld devices and engineers who specialize in
systems integration and testing. We have steadily built our engineering ranks,
more than doubling the number from ten in 1998 to 27 in September 1999. Our
engineers have, on average, more than ten years of experience in the wireless
data industry. Many come from engineering departments at established companies,
including IBM, Westinghouse Electric Corporation and UPS/Roadnet. Mobeo
currently has one engineer and outsourcing relationships with several
engineering firms.
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Project implementation is critical to the effective delivery of services to
our customers. Projects generally consist of the following phases: project
definition, development, pilot testing, quality assurance and launch. Each
project has a project manager who works closely with the customer and
coordinates our engineers and our operations and marketing personnel through all
phases of the project. Our operations staff prepares documentation and training
manuals. During the product launch phase, we send operations teams to train
customer personnel on product use and support. Our marketing department works
closely with customers before commercial launch to coordinate advertising and
publicity.
Technology and Network Operations
We operate a secure network operations center at our headquarters in Owings
Mills, Maryland. We believe that this center is a vital component of our
wireless data service offerings and differentiates us from our competitors. By
outsourcing to us, our customers are relieved of the technology and operations
burden of managing a highly complex wireless data system. From our network
operations center, we maintain high speed data transmission lines (known as T1
connections) both to our customers' data sources and to the wireless data
networks we use. The center is equipped with Cisco and Hewlett-Packard
networking equipment, Sun Sparc UNIX servers and high-end clustered NT servers.
In the event of a catastrophic power failure, there is a diesel-powered
generator that is serviced on a weekly basis. We believe our network operations
center is capable of meeting the security standards for services we developed or
are developing for Reuters, Discover Brokerage, the Chicago Board of Trade and
Charles Schwab. We are planning to establish a remote backup facility in early
2000 to provide additional redundancy. The center is staffed from 8:00 a.m. to
8:00 p.m. Eastern time on weekdays and is monitored 24 hours a day, seven days a
week.
Sales and Marketing
We currently market our products and services to the following customer
types: individual investors, financial market professionals and corporations.
For our financial market services, we seek to involve other parties, including
our corporate customers, in our marketing activities, as has been the case with
Reuters, AT&T Wireless Services and Discover Brokerage. As of September 30,
1999, we had eight sales and marketing professionals. We intend to grow this
number significantly in the next 12 months. Our business development personnel
and senior executives, particularly our chief executive officer and chief
operating officer, also spend a considerable amount of time developing potential
customer relationships and selling and promoting our services. With the proceeds
from this offering, we are planning to make a significant investment in building
the Aether brand. Our target customer segments, the services we sell to them and
how we reach them are described below.
- Individual investors. We believe individual investors are the primary
subscribers to our wireless financial information and trading services,
such as MarketClip and TradeRunner. As of August 31, 1999, we had 934
subscribers to MarketClip and an additional 50 subscribers to its
predecessor, AirBroker. Print advertising in finance-related publications
is our primary means of marketing these services. Our strategy is to
share marketing and advertising costs with our strategic partners and
corporate customers associated with particular services. For example,
AT&T Wireless Services, which benefits from increased usage of its
wireless data network, has shared with Aether the cost of advertising for
MarketClip. Ericsson has agreed to join the marketing campaign for
MarketClip beginning in the fall of 1999. Discover Brokerage, which
benefits from an enhanced service offering and increased customer trading
activity, pays for all of the advertising of TradeRunner. Our wireless
financial information and trading services are also marketed to
individual investors at financial services industry trade shows and on
the Web sites of Aether, Discover Brokerage and Reuters. Our customer
service center handles in-bound calls generated from these marketing
efforts and signs up new subscribers.
- Financial market professionals. We seek to develop relationships with
financial institutions, whose market professionals become the end users
of our services. We are currently developing wireless trade recording
applications for Chicago Board of Trade floor traders and wireless
trading applications for Bear Stearns's trade clearing clients. After we
complete the Mobeo acquisition, we will also provide Mobeo's wireless
foreign exchange information services, which are primarily used by
financial market professionals. As of August 1999, Mobeo had more than
3,110 subscribers for its services. Mobeo markets its products through
four direct sales executives in New York and Chicago and through
occasional advertising in financial trade publications.
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- AIM software platform licensees. We are accelerating our efforts to
market the AIM software platform to new industries. To date, we have
licensed the AIM software platform to Riverbed Technologies, a leading
developer of software tools for wireless handheld devices. We have also
established relationships with Microsoft, Oracle Corporation, Sybase Inc.
and Lotus Development Corporation to integrate the AIM software platform
with their software products and will work to develop similar
relationships with other software developers. We are targeting our direct
sales effort at large corporations with a significant mobile workforce
who wish to develop their own wireless applications.
- Engineering services clients. As part of our business development
effort, we seek out engineering assignments that might allow us to expand
into new geographical markets or industry sectors or to provide new
services, in particular by introducing us to new technologies.
Product Fulfillment, Customer Service and Billing
We provide product fulfillment, customer service and billing at our
customer service center, located at our headquarters. We maintain a modest
inventory of mobile devices and wireless modems, which we buy in bulk from
manufacturers and resellers. Our customer service representatives first verify
that a potential subscriber will have wireless network coverage where they plan
to use the service. For qualified subscribers, we load and configure custom
software on mobile devices, activate wireless modems and perform quality
assurance checks. We then pack, ship and track the product until the subscriber
receives it. For end users who already own a device, we provide only the modem
and software application. We handle all repair and warranty issues for devices
we provide to our subscribers.
We employ nine permanent and three temporary customer service
representatives, most of whom are college educated. We train our customer
service representatives to handle inquiries about our services, device features
and wireless communications. Our customer service personnel are available from
8:30 a.m. until 8:00 p.m. Eastern time. We plan to expand our customer service
center during the fourth quarter of 1999.
We handle customer billing for all subscription fees, devices and modems,
securities exchange and market charges and other fees. We bill monthly for
subscriber services, which subscribers must pay by credit card. As a result, our
billing system can support increases in our subscriber base. We intend to
enhance our billing capabilities as our needs grow.
STRATEGIC RELATIONSHIPS
A key to our ability to provide complete wireless data services to our
customers is our relationships with wireless network carriers and manufacturers
of mobile devices. These relationships take time to develop, and we therefore
believe they provide us with an advantage getting our services to market before
our competitors. We maintain the strategic relationships described below.
Wireless Network Carriers
We believe our relationships with wireless network carriers are mutually
beneficial. We believe we are among the largest buyers of wireless data network
capacity for many of the carriers we use. As a result, we are able to negotiate
favorable rates. Typically, we have one-year contracts to buy data network
capacity either for an agreed amount of kilobytes at a flat fee or on a
cents-per-kilobyte basis. We have contracts with AT&T Wireless Services, Bell
Atlantic Mobile, BellSouth Wireless Data and Ameritech. As a result, we can give
our customers a wide variety of wireless carrier choices.
Mobile Device Manufacturers
Our services increase the usefulness of wireless handheld devices, and we
believe our services will increase sales of these devices. Mobile device
manufacturers have therefore assisted us in various projects we have undertaken.
We have worked closely with 3Com, an Aether investor, on the development of our
wireless applications for the Palm personal organizer. In late 1998, 3Com's
investment helped us fund construction of our customer service and network
operations center. In August 1999, a subsidiary of Ericsson, one of the largest
manufacturers of wireless phones, agreed to assist us in marketing MarketClip
and in developing and marketing other financial information services.
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Ericsson is also assisting us in developing services using WAP phones and
next-generation high-speed GPRS data networks. We participate in industry
development groups dedicated to bringing new applications to wireless data, such
as the Palm developers group, the WAP Forum and the Windows CE developers forum.
Financial Content Providers
Financial content providers supply Aether with real-time financial
information, which we provide to our wireless data subscribers. Reuters which is
an Aether investor, is our primary provider of financial information and market
data for MarketClip and TradeRunner. We have a license to use information from
Reuters with an initial term extending through August 2001, and the term
automatically extends each year after that unless we or Reuters decide to end
the license. After we complete the Mobeo acquisition, we expect to continue
Mobeo's relationship with Bridge Information Systems America, Inc., another
financial content provider, and its subsidiary Telerate, Inc. We have agreements
with the New York Stock Exchange, the Nasdaq Stock Market, Inc., the Chicago
Board of Trade and the Options Price Reporting Authority that authorize us to
provide real-time price quotes.
OPENSKY
In August 1999, we formed a new company called OpenSky with 3Com. We formed
OpenSky to pursue opportunities in the emerging consumer and business mass
markets for wireless Internet access, e-mail and Internet and other electronic
transaction applications. OpenSky's main business objectives and strategies
include those set forth below.
- OpenSky will seek to develop a package of applications and services that
includes a selection of Web sites that have been customized for access
via wireless handheld devices, general Web browsing, access to a user's
existing e-mail account and selected Internet and electronic transaction
services.
- OpenSky intends to co-market this package with wireless network carriers
and Internet content providers in order to benefit from their brand
recognition and marketing channels. OpenSky may also seek to bundle its
service package with devices that are distributed by major national
computer retailers.
- OpenSky will seek to develop services that can access all platforms and
devices, rather than committing to a single device or network protocol.
We have a 26% equity interest in OpenSky on a fully diluted basis in the
form of 7,000,000 shares of preferred stock. We also have a warrant to buy up to
an additional 3,000,000 shares of preferred stock for an aggregate exercise
price of $2.5 million, which would give us up to a 33% interest in OpenSky on a
fully diluted basis. We can exercise the warrant until 15 days after we complete
this offering unless the offering is not completed by January 31, 2000 or
OpenSky conducts a public offering or is bought by a third party before our
offering is completed. We have a letter agreement with OpenSky to provide
engineering services through June 2000 for the design and development of
OpenSky's proposed system and services, and OpenSky has a perpetual royalty-free
license to use our AIM software platform. Additionally, we have a two-year right
of first refusal to design and develop custom systems and applications for all
services relating to investment banking and brokerage activities. We also have
the right to bundle OpenSky services for a period of five years as an added
feature to the other services we offer. We describe the details of our interest
in OpenSky in "Transactions Between Aether and Its Officers, Directors and
Significant Shareholders-OpenSky" on page 54.
Our chairman, chief executive officer and president, David S. Oros, is a
member of the OpenSky board of directors. Patrick McVeigh, former vice president
of worldwide sales for the Palm Computing division of 3Com, serves as president
and chief executive officer of OpenSky and also serves on the OpenSky board of
directors. OpenSky is based in Palo Alto, California.
MOBEO ACQUISITION
On September 28, 1999, we acquired all of the common stock of Mobeo, Inc.
for a purchase price of $11.7 million in cash, plus Aether options to acquire
18,442 units (equivalent to 46,105 shares) in exchange for existing Mobeo
options. The purchase price includes Mobeo's broker's fees and commissions, but
did not include our transaction costs of approximately $150,000. All options to
acquire shares of Mobeo's common stock were cancelled prior to closing. We
issued Aether options in lieu of cash to three of the four holders of Mobeo
options in
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consideration for those three holders cancelling their Mobeo options. The
exercise price for these options is $12.00 per unit (equivalent to $4.80 per
share) and they are exercisable immediately and until September 2009. We paid
the other holder of Mobeo options cash in consideration for cancelling his Mobeo
options.
As a result of the Mobeo acquisition, we have gained 21 additional
employees. All three of the selling stockholders have entered into non-compete
agreements as a condition to closing. Additionally, two of the selling
stockholders have entered into advisory services agreements under which they
received options for an aggregate of 125,000 units (equivalent to 312,500
shares), and one of the selling stockholders has entered into an employment
agreement under which he received an option for 26,000 units (equivalent to
65,000 shares). The exercise price of options for 125,000 units (equivalent to
312,000 shares) is $15.00 per unit (equivalent to $6.00 per share) and the
options are exercisable immediately and until 18 months after this offering is
completed. The exercise price of options for 14,000 of the remaining units
(equivalent to 35,000 shares) is $12.00 per unit (equivalent to $4.80 per share)
and the exercise price of options for the remaining 12,000 units (equivalent to
30,000 shares) is $6.00 per unit (equivalent to $2.40 per share). The options
for these 26,000 units (equivalent to 65,000 shares) are exercisable from
September 2001 until September 2009. All three of the selling stockholders have
agreed to indemnify and hold Aether (including without limitation its officers,
directors, stockholders and affiliates) harmless for all liabilities, losses and
claims (including third party claims) resulting from a breach of the
representations, warranties and covenants contained in the definitive agreement.
Additionally, the three selling stockholders have agreed to waive any right of
contribution or indemnification against Mobeo. Finally, we granted options to
acquire 26,000 units (equivalent to 65,000 shares) to existing Mobeo employees.
The exercise price of options for 14,000 units (equivalent to 35,000 shares) is
$12.00 per unit (equivalent to $4.80 per share) and the exercise price for
12,000 units (equivalent to 30,000 shares) is $6.00 per share (equivalent to
$2.40 per share). Each of these options is exercisable from September 2001 until
September 2009.
COMPETITION
The market for our services is becoming increasingly competitive. We
believe we offer the broadest range of services to businesses necessary to
enable the development, offering and ongoing support of wireless data
communication systems for their employees or customers. The widespread adoption
of industry standards may make it easier for new market entrants to offer some
or all of the services we offer and may make it easier for existing competitors
to introduce some or all of the services they do not now provide, or improve the
quality of their services. We expect that we will compete primarily on the basis
of the functionality, breadth, quality and price of our services. Our current
and potential competitors include:
- Wireless financial services providers, including W-Trade and EmailPager,
Inc.;
- Wireless data services providers, such as Wireless Knowledge, a joint
venture of Microsoft and Qualcomm Incorporated, Research In Motion, Go
America and Saraide.com;
- Wireless communications software companies, including Phone.com, Nettech
Systems Inc., Dynamic Mobile Data and 724 Solutions Inc.;
- Wireless systems integrators, such as IBM, ApiON Ltd., and GTE
Corporation; and
- Wireless network carriers, such as AT&T Wireless Services, Bell Atlantic
Mobile, Sprint PCS, Nextel Communications, Inc. and Metricom, Inc.
Many of our existing and potential competitors have substantially greater
financial, technical, marketing and distribution resources than we do.
Additionally, many of these companies have greater name recognition and more
established relationships with our target customers. Furthermore, these
competitors may be able to adopt more aggressive pricing policies and offer
customers more attractive terms than we can.
Notwithstanding the increasing competitiveness of our market, we believe
that our potential competitors face substantial barriers to market entry.
Development of wireless data systems comparable to those we have already
developed is time consuming and costly. Moreover, the engineering talent
necessary to develop such systems is scarce.
INTELLECTUAL PROPERTY RIGHTS
We own applications for federal registration or common law rights in the
following trademarks: AirBroker(R), Aether Technologies(TM), Aether(TM) and our
logo. Reuters and Reuters MarketClip(TM) are the property of Reuters Group plc.
Discover Brokerage TradeRunner(TM) is the property of Discover Brokerage. This
prospectus also includes trade
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dress, trade names and trademarks of other companies. All other brand names or
trademarks appearing in this prospectus are the property of their respective
holders.
We rely on a combination of copyright, trademark, service mark, trade
secret laws and contractual restrictions to establish and protect certain
proprietary rights in our services. Mobeo has applied for two patents for its
technology. Specifically, one patent application covers the method and system
for providing formatted information via a two-way communication system. The
other patent application covers the method and system for providing localized
information.
We do not have any federal trademark registrations in the name "Aether" or
"AIM" and we may not be able to obtain such registrations due to conflicting
marks or otherwise. The steps taken by us to protect our intellectual property
may not prove sufficient to prevent misappropriation of our technology or to
deter independent third-party development of similar technologies. The laws of
certain foreign countries may not protect our services or intellectual property
rights to the same extent, as do the laws of the United States. We also rely on
certain technologies that we and Mobeo license from third parties including data
feeds and related software from Reuters Select Feed Plus and Bridge Information
Services, synchronization technology from Riverbed Technologies and encoding
technology from Certicom. These third-party technology licenses may not continue
to be available to us on commercially attractive terms. The loss of the ability
to use such technology could require us to obtain the rights to use substitute
technology, which could be more expensive or offer lower quality or performance,
and therefore have a material adverse effect on our business, financial
condition or results of operations.
Third parties could claim infringement by us with respect to current or
future services. We expect that participants in our markets will be increasingly
subject to infringement claims as the number of services and competitors in our
industry segment grows. Any such claim, whether meritorious or not, could be
time-consuming, result in costly litigation, cause service installation delays
or require us to enter into royalty or licensing agreements. Such royalty or
licensing agreements might not be available on terms acceptable to us or at all.
As a result, any such claim could have a material adverse effect upon our
business, financial condition or results of operations.
GOVERNMENT REGULATION
We are not currently subject to direct federal, state or local government
regulation, other than regulations that apply to businesses generally. The
wireless network carriers we contract with to provide airtime are subject to
regulation by the Federal Communications Commission. Changes in FCC regulations
could affect the availability of wireless coverage these carriers are willing or
able to sell to us. We or OpenSky could also be adversely affected by
developments in regulations that govern or may in the future govern the
Internet, the allocation of radio frequencies or the placement of cellular
towers. Regulations of the SEC governing online trading could reduce the level
of online trading or the demand for wireless financial information. Also,
changes in these regulations could create uncertainty in the marketplace that
could reduce demand for our services or increase the cost of doing business as a
result of costs of litigation or increased service delivery cost or could in
some other manner have a material adverse effect on our business, financial
condition or results of operations.
We currently do not collect sales or other taxes with respect to the sale
of services or products in states and countries where we believe we are not
required to do so. We do collect sales and other taxes in the states we have
offices and are required by law to do so. One or more jurisdictions have sought
to impose sales or other tax obligations on companies that engage in online
commerce within their jurisdictions. A successful assertion by one or more
jurisdictions that we should collect sales or other taxes on our products and
services, or remit payment of sales or other taxes for prior periods, could have
a material adverse effect on our business, financial condition or results of
operations.
Any new legislation or regulation, or the application of laws or
regulations from jurisdictions whose laws do not currently apply to our
business, could have an adverse effect on our business.
FACILITIES
Our principal offices are located in Owings Mills, Maryland in a 15,436
square foot facility under a lease expiring in February 2004, with no renewal
option. We also lease space for our offices in Boca Raton, Florida and New York,
New York.
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As a result of the Mobeo acquisition, we have an additional 6,000 square
feet of office space in Bethesda, Maryland, New York, New York and Chevy Chase,
Maryland. These leases expire at different times ranging from November 30, 1999
to December 31, 2004. We will also have month-to-month leases for executive
apartments in Chicago, Illinois and in Bethesda, Maryland.
EMPLOYEES
As of October 1, 1999, we had a total of 83 employees, 62 from Aether and
21 from Mobeo, and 27 of these employees were engineers. None of our employees
is covered by a collective bargaining agreement. We believe that our relations
with our employees are good.
LEGAL PROCEEDINGS
We are not currently subject to any material legal proceedings. However, we
may from time to time become a party to various legal proceedings arising in the
ordinary course of our business.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
At the time the offering is completed, our executive officers, directors
and nominees for director, and key employees and their ages and position with us
will be as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS:
David S. Oros........................ 40 Chairman, Chief Executive Officer and President
George M. Davis...................... 43 Chief Operating Officer
David C. Reymann..................... 41 Chief Financial Officer
Brian W. Keane....................... 41 Senior Vice President, Strategic Development
Dale R. Shelton...................... 38 Senior Vice President, Engineering
J. Carter Beese, Jr. ................ 43 Director
Frank A. Bonsal, Jr. ................ 62 Director
Mark D. Ein.......................... 34 Director
Rahul C. Prakash..................... 38 Director
Janice M. Roberts.................... 43 Director
Dr. Rajendra Singh................... 43 Director
George P. Stamas..................... 48 Director
Devin N. Wenig....................... 32 Director
Thomas E. Wheeler.................... 53 Director
KEY EMPLOYEES:
David J. Bressler.................... 31 Vice President, AIM Sales and Marketing
Calvin A. Cassidy.................... 42 Vice President, Enterprise Systems and Solutions
John Clarke.......................... 36 Vice President, Operations
William F. Davidson.................. 34 Senior Vice President, Sales
Andrew S. Meister.................... 36 Vice President, Technical Sales
Gregory S. Milbank................... 40 Vice President, Business Development
Michael B. Mills..................... 38 Vice President, Business Development
</TABLE>
Messrs. Beese, Bonsal, Ein, Prakash, Wenig and Wheeler, Dr. Singh and Ms.
Roberts are currently managers of Aether Systems LLC, and they and Mr. Stamas
are expected to be elected directors of Aether Systems, Inc. immediately prior
to the offering.
David S. Oros founded Aether in 1996 and has been our chairman, chief
executive officer and president since Aether's inception. Mr. Oros also serves
on the board of directors of OpenSky. From 1994 until 1996, Mr. Oros was
president of NexGen Technologies, L.L.C., a wireless software development
company that contributed all of its assets to Aether. From 1992 until 1994, he
was president of the Wireless Data Group at Westinghouse Electric. Prior to
that, Mr. Oros spent from 1982 until 1992 at Westinghouse Electric directing
internal research and managing large programs in advanced airborne radar design
and development. Mr. Oros received a B.S. in mathematics and physics from the
University of Maryland and holds a U.S. patent for a multi-function radar
system.
George M. Davis has served as our chief operating officer since September
1997. He joined us in September 1996 as vice president, business development to
lead initiatives required to launch, maintain and develop business opportunities
for our services. From September 1994 until September 1996, Mr. Davis was
director, enterprise management systems at Northrop Grumman Corp. Prior to that
time, Mr. Davis spent more than 14 years at Westinghouse Electric where he
managed advanced military electronic development and production projects. He
received a B.S. in business and economics from Bethany College.
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David C. Reymann has served as our chief financial officer since joining us
in June 1998. Mr. Reymann is also responsible for our treasury management
services and human resources. Before joining us, Mr. Reymann was director of
finance and accounting for The Sweetheart Cup Company from June 1996 until May
1998, where he managed the financial analysis department and the accounting
operations for 11 North American manufacturing plants. Prior to that, Mr.
Reymann spent 12 years with Procter & Gamble serving in several key finance,
accounting and operations positions. Prior to that, Mr. Reymann spent five years
at Ernst & Young where he most recently specialized in emerging growth
companies. Mr. Reymann received a B.S. in accounting from the University of
Baltimore and is a certified public accountant.
Brian W. Keane has served as senior vice president, strategic development
since joining us in August 1999. Mr. Keane is responsible for our mergers and
acquisitions activities as well as the development of strategic relationships
and partnerships. From February 1998 until August 1999, Mr. Keane was chief
financial officer for Management Information Consulting, Inc., a technology
consulting company. Prior to that, Mr. Keane spent ten years as an investment
banker with Smith Barney Inc. Mr. Keane received an A.B. in history and
mathematics from Cornell University and an M.B.A. from Harvard Business School.
Dale R. Shelton has served as our senior vice president, engineering since
he joined us in June 1996 to direct the development of AIM and our wireless data
services. From January 1994 until June 1996, Mr. Shelton served as the systems
development leader for flash-flood prediction systems at the National Weather
Service. From June 1992 until January 1994, Mr. Shelton was principal engineer
for ARINC, Inc., where he led the development of aviation tracking and
maintenance systems. He received a B.S. in computer science from the University
of Maryland.
J. Carter Beese, Jr., has been a manager of our limited liability company
since June 1997 and is expected to be elected a director of Aether prior to
closing the offering. Since July 1998, Mr. Beese has served as president of
Riggs Capital Partners, a division of Riggs National Corp., where he oversees a
$100 million venture capital fund. From September 1997 until July 1998, he
served as vice chairman of the Global Banking Group of BT Alex. Brown. Prior to
the merger of Bankers Trust and Alex. Brown, Mr. Beese was chairman of Alex.
Brown International from November 1994 until September 1997. From February 1992
until November 1994, Mr. Beese served as a commissioner of the U.S. Securities
and Exchange Commission. Mr. Beese serves as a senior advisor to the Center for
Strategic and International Studies, a non-partisan public policy think tank and
is involved in the World Economic Forum. He serves as a director on the boards
of China.com; Internet Securities, Inc., a company majority owned by Euromoney
Institutional Investor, Inc.; and Natural Solutions, Inc. Mr. Beese received a
B.S. in economics and political science from Rollins College.
Frank A. Bonsal, Jr., has been a manager of our limited liability company
since May 1999 and is expected to be elected a director of Aether prior to
closing the offering. Since 1978, Mr. Bonsal has been a founding partner of New
Enterprise Associates, one of the largest venture capital firms in the United
States. Mr. Bonsal has focused on the development of early stage companies. He
currently serves as a director on the boards of CARS, Inc., CORVIS Corp., Entevo
Corp., Explore, Inc., GeneScreen, Inc. and Healthy Pet Inc. In addition, he is a
special limited partner of Amadeus Capital Partners, Boulder Venture, Novak
Biddle, Trellis Ventures and Windward Ventures. Mr. Bonsal received a B.A. in
economics from Princeton University.
Mark D. Ein is a co-founder of Aether, has been a manager of our limited
liability company since October 1996 and is expected to be elected a director of
Aether prior to closing the offering. Mr. Ein is the founder and chief executive
officer of Rollingwood Capital Partners, a holding company that was established
in September 1999 to create, invest in and acquire technology and
telecommunications companies. From 1992 until September 1999, Mr. Ein was a
principal with The Carlyle Group, where he was responsible for many of its
telecommunications investment activities. Prior to joining Carlyle, Mr. Ein was
an associate with Brentwood Associates, where he worked on leveraged buyout and
venture capital investments. Prior to joining Brentwood Associates, he was an
analyst in the real estate department of Goldman, Sachs and Company. Mr. Ein
currently serves as a director on the boards of LCC International, Inc. and
several private companies. Mr. Ein received a B.S. in economics from the
University of Pennsylvania and an M.B.A. from Harvard Business School.
Rahul C. Prakash has been a manager of our limited liability company since
February 1997 and is expected to be elected a director of Aether prior to
closing the offering. Since January 1997, Mr. Prakash has served as president of
Telcom Ventures, L.L.C., a wireless communications investment company. From
January 1994 until December
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<PAGE> 46
1996, Mr. Prakash served as vice president, business development of Telcom
Ventures. Prior to that time, he served as a director of business development at
LCC International, Inc. From 1993 until 1994, Mr. Prakash was the director of
business development for Telemate, a joint venture he helped establish between
LCC and France Telecom. Mr. Prakash is also a director of several private
telecommunications companies controlled by Telcom Ventures. He received an
M.B.A. in international finance from American University and an M.B.A. from the
University of New Delhi, Faculty of Management Studies.
Janice M. Roberts has been a manager of our limited liability company since
June 1999 and is expected to be elected a director of Aether prior to closing
the offering. Since September 1992, Ms. Roberts has served as senior vice
president of global marketing and business development for 3Com. She is also
president of 3Com Ventures, a corporate investment fund, and a director of
OpenSky. From January 1992 until September 1992, Ms. Roberts served as vice
president and general manager for 3Com's enterprise networking division. From
1989 until January 1992, Ms. Roberts was with BICC Communications where she held
several positions, including most recently, president and managing director of
its worldwide data networking business. Previously, she held a number of senior
international marketing, sales and business development positions in
engineering, electronics and communications-based companies. She holds an Honors
degree in economics and business from the University of Birmingham in the United
Kingdom and is a member of the Chartered Institute of Marketing.
Dr. Rajendra Singh has been a manager of our limited liability company
since December 1997 and is expected to be elected a director of Aether prior to
closing the offering. Since December 1993, Dr. Singh has served as chairman of
the board of directors and chief executive officer of Telcom Ventures, L.L.C.
From 1983 until June 1996, Dr. Singh served as chairman of the board of
directors of LCC International, Inc., a worldwide provider of wireless
engineering and design services, which he co-founded with his wife in 1983. Dr.
Singh has played an instrumental role in the cellular industry by developing key
standards used today in wireless system design and methodology. Dr. Singh is a
member of the board of directors of Teligent, Inc. and XM Satellite Radio
Holdings, Inc. He received a Ph.D. in electrical engineering from Southern
Methodist University.
George P. Stamas is expected to be elected a director of Aether prior to
closing the offering. Since April 1996, Mr. Stamas has been a partner with the
law firm of Wilmer, Cutler & Pickering and since June 1996 he has been co-
chairman of that firm's corporate department. From 1983 until April 1996, Mr.
Stamas was a partner at Piper & Marbury L.L.P. Mr. Stamas is counsel to, and a
limited partner of, the Baltimore Orioles baseball team. Mr. Stamas also serves
on the board of directors of FTI Consulting, Inc., a provider of litigation
support services and Luminant Worldwide Corporation, a provider of Internet
consulting services. He received a B.S. in economics from the Wharton School of
the University of Pennsylvania and a J.D. from University of Maryland Law
School.
Devin N. Wenig has been a manager of our limited liability company since
August 1998 and is expected to be elected a director of Aether prior to closing
the offering. In April 1994, Mr. Wenig joined Reuters America, Inc. and was
promoted to executive vice president of marketing in August 1998, where he is
responsible for marketing and business development for Reuters's information
businesses in the Americas. Mr. Wenig serves as a director on the boards of Loan
Pricing Corp., Intralinks, Inc., FreeEdgar.com and Nastech Pharmaceutical
Company, Inc. He received a B.S. from Union College and a J.D. from Columbia
University.
Thomas E. Wheeler has been a manager of our limited liability company since
May 1999 and is expected to be elected a director of Aether prior to closing the
offering. Since 1992, Mr. Wheeler has served as president and chief executive
officer of the Cellular Telecommunications Industry Association. In 1994, Mr.
Wheeler was appointed by President Clinton to a six-year term as a member of the
board of trustees of the John F. Kennedy Center for the Performing Arts. Mr.
Wheeler is a director on the boards of the Public Broadcasting System and the
U.S. Capitol Historical Society. He received a B.S. in business administration
from Ohio State University.
David J. Bressler joined us in June 1999 as vice president, AIM sales and
marketing. From June 1995 until April 1999, Mr. Bressler worked at TIBCO
Software, Inc., where he was director of enterprise network solutions. From
April 1994 until May 1995, he was a network design engineer for the network
integration unit of Bell Atlantic Corporation. Mr. Bressler received a B.A. in
mathematics from the City University of New York and an M.B.A. in international
business and information technology from New York University.
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<PAGE> 47
Calvin A. Cassidy joined us in November 1998 as vice president, enterprise
systems and solutions to oversee project development and implementation. From
October 1997 until November 1998, Mr. Cassidy handled project development for
transportation management systems at Lockheed Martin Corp. From January 1995
until October 1997, Mr. Cassidy managed business development for transportation
systems at Tenera, Inc. From July 1980 until January 1995, Mr. Cassidy also
developed and delivered advanced defense and commercial systems at Westinghouse
Electric. Mr. Cassidy received a B.S. in computer science from Virginia Tech, an
M.S. from George Washington University and an M.B.A. from Loyola College in
Baltimore.
John Clarke joined us in January 1996 as vice president, operations and
oversees our customer service and network operations center. From June 1986
until January 1996, Mr. Clarke developed advanced microwave systems at
Westinghouse Corp. He received a B.S. in engineering from Clarkson University
and an M.B.A. from Loyola College in Baltimore.
William F. Davidson, Jr. joined us in October 1999 as senior vice president
of sales. Prior to joining us, Mr. Davidson worked for 12 years as vice
president of wireless data sales and marketing for Bell Atlantic Mobile. Mr.
Davidson also worked briefly in 1997-1998 as vice president of sales for GE
Capital. Mr. Davidson attended the University of Richmond and Farleigh Dickinson
University in Madison, New York.
Andrew S. Meister is a co-founder of Aether and serves as vice president,
technical sales. Prior to joining us, he was a vice president, engineering at
NexGen from August 1995 until January 1996. From August 1993 until August 1995,
Mr. Meister was the engineering manager at Mobile Solutions Inc. From January
1987 until August 1993, Mr. Meister was a senior software engineer at United
Parcel Service. Mr. Meister received a B.S. in computer science from
Northeastern University and an M.S. in computer science from Johns Hopkins
University.
Gregory S. Milbank joined us in June 1998 and serves as vice president,
business development. From 1997 until June 1998, Mr. Milbank was with Reuters
America, Inc. where he held a position in new business development. His duties
at Reuters included development of The Open Systems Group, created to support
trading room system and data feed sales and support, and he was also a member of
the management team that oversaw the acquisition of Quotron from Citibank. Mr.
Milbank began his career in financial information technology in 1983 with Market
Information, Inc., a subsidiary of U.S. Sprint, where he was western regional
manager.
Michael B. Mills joined us in April 1999 as vice president, business
development. His primary role is to lead initiatives required to launch,
maintain and develop business opportunities and to guide corporate strategy and
alliances. Prior to joining us, Mr. Mills worked for 10 years as a
telecommunications and technology writer. From April 1994 until April 1999, Mr.
Mills wrote for the Washington Post, and from 1987 until April 1994 he wrote for
Congressional Quarterly and other publications. Mr. Mills received a B.A. from
Michigan State University and an M.A. in public affairs journalism from American
University.
At the time of closing of this offering, our board will have ten directors.
The agreement governing our limited liability company requires the seats on the
board of managers of the limited liability company to be allocated to specific
members identified in the agreement. This agreement will end when we convert to
a corporation before completion of the offering. We expect that four of the
members who will become stockholders of the corporation will enter into a
stockholder agreement that will govern voting for our directors. We expect that
NexGen, Telcom-ATI Investors, L.L.C., Reuters and 3Com-who will together hold
66% of the shares of common stock outstanding after the offering-will be parties
to this agreement. We expect the agreement to require each party to vote all its
shares for two directors named by NexGen, two directors named by Telcom-ATI
Investors, two directors named jointly by NexGen and Telcom-ATI Investors and
one director named by each of Reuters and 3Com. We expect that Messrs. Oros and
Ein will be named by NexGen, Dr. Singh and Mr. Prakash will be named by
Telcom-ATI Investors, Mr. Wenig will be named by Reuters and Ms. Roberts will be
named by 3Com as directors under the stockholder agreement. The right of NexGen
and Telcom-ATI Investors to jointly name two additional directors will not arise
until our first annual meeting. The terms of the limited liability company
agreement and the expected terms of the stockholder agreement are further
described in "Transactions Between Aether and its Officers, Directors and
Significant Stockholders."
Directors will be elected for a term of one year.
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<PAGE> 48
Our executive officers will be appointed by, and serve at the discretion
of, our board of directors. We expect that each of our officers will devote
substantially full time to our affairs. We expect that our non-employee
directors will devote such time to our affairs as is necessary to discharge
their duties. There are no family relationships among any of our executive
officers, directors or key employees.
COMMITTEES OF THE BOARD OF DIRECTORS
Immediately after the offering, the compensation committee will consist of
Messrs. Beese, Prakash and Wheeler. The compensation committee:
- determines the compensation of senior executive officers (chief executive
officer and president, chief operating officer, and chief financial
officer), subject, if the board so directs, to the board's further
ratification of the compensation;
- determines the compensation for other officers or to delegate such
determinations to the chief executive officer;
- grants options, stock, or other equity interests under our stock option
or other equity-based incentive plans; and
- administers those plans and, where such plans specify, our other employee
benefit plans.
Immediately after the offering, the audit committee will consist of Messrs.
Beese and Bonsal. The audit committee:
- makes recommendations to the board concerning the engagement of
independent accountants;
- reviews with the independent accountants the plans and results of the
audit engagement;
- approves professional services provided by the independent accountants;
- considers the range of audit and non-audit fees;
- verifies that auditors, internal and external, are independent of
management and are objective in their findings;
- reviews annual CPA audit and recommendations of internal controls and
related management response;
- reviews the audit reports with management and the auditor;
- oversees the internal audit function; and
- monitors management's efforts to correct deficiencies described in any
audit examination.
DIRECTOR COMPENSATION
Except for reimbursement for reasonable travel expenses relating to
attendance at board meetings and discretionary grants of stock options,
directors will not be compensated for their services as directors. Directors who
are employees will be eligible to participate in our equity incentive plan. We
expect to issue each director options at the price of shares in the offering
concurrent with the offering. We expect to issue each director an option for
15,000 shares plus an option for 5,000 shares for each committee the director
sits on.
We granted options to acquire units in our limited liability company to
managers of the limited liability company from time to time, and we intend to
convert these options into options for shares of common stock in connection with
our conversion to a corporation. The following table identifies options that we
have granted to non-employee director nominees since January 1, 1996 on the
basis of the number of shares of common stock into which we expect then to
convert.
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<TABLE>
<CAPTION>
NUMBER OF
SHARES UNDERLYING EXERCISE
NON-EMPLOYEE DIRECTOR OPTIONS(#) PRICE($)
- -------------------------------------- ----------------- --------
<S> <C> <C>
J. Carter Beese, Jr. ................. 75,000 $ .40
Frank A. Bonsal, Jr. ................. 37,500 1.77
Mark D. Ein........................... 100,000 .40
Thomas E. Wheeler..................... 37,500 1.77
George P. Stamas...................... 11,250 .01
</TABLE>
Messrs. Beese and Ein have exercised all of their options shown above.
EXECUTIVE COMPENSATION
Summary Compensation. The following table sets forth compensation awarded
to, earned by or paid to our chief executive officer and the other executive
officers whose total cash compensation exceeded $100,000 during the year ended
December 31, 1998. We refer to these three officers as the "named executive
officers." Information regarding options shows the number of shares for which
the options will be exercisable upon conversion of our limited liability company
into a corporation.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------------------------- --------------------------
SHARES
OTHER ANNUAL UNDERLYING ALL OTHER
COMPENSATION OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($) ($) (#) ($)
--------------------------- ---------- --------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
David S. Oros................................ $200,000 $150,000 -- -- $--
Chairman, Chief Executive Officer and
President
George M. Davis.............................. 133,333 52,895 $2,420 75,000 --
Chief Operating Officer
Dale R. Shelton.............................. 109,200 4,000 -- 50,000 --
Senior Vice President, Engineering
</TABLE>
In addition to the named executive officers, Mr. Reymann, our chief
financial officer, joined us in June 1998 and Mr. Keane, our senior vice
president, strategic development, joined us in August 1999. Mr. Reymann's
employment contract, which is described under "Employment Agreements with
Executive Officers" below, provides for an annual salary of $127,500 and an
award, granted at the time Mr. Reymann joined us, of options to receive 62,500
shares with an exercise price of $1.49 per share. Mr. Keane receives an annual
salary of $150,000 and was awarded options to receive 125,000 shares with an
exercise price of $4.80 per share granted at the time he joined us.
Option Grants. The following table shows information regarding stock
options granted to the named executive officers during the year ended December
31, 1998. Each of the options was for units in the limited liability company and
the table shows the number of shares for which the options will be exercisable
upon the conversion of our limited liability company into a corporation before
the offering. No stock appreciation rights were granted to these individuals
during the year.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
PERCENTAGE VALUE AT ASSUMED
OF TOTAL ANNUAL RATES OF STOCK
OPTIONS PRICE APPRECIATION FOR
NUMBER OF SHARES GRANTED EXERCISE OPTION TERM($)(2)(3)
UNDERLYING OPTIONS TO PRICE PER EXPIRATION ----------------------
NAME GRANTED(#)(1) EMPLOYEES SHARE($) DATE 5% 10%
---- ------------------ ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
David S. Oros.................................. -- -- -- -- -- --
George M. Davis................................ 75,000 12.4% $1.49 July 2008 $70,373 $178,340
Dale R. Shelton................................ 50,000 8.3% $1.49 July 2008 $46,916 $118,893
</TABLE>
- ---------------
(1) The options will become exercisable in their entirety on July 21, 2001 and
none of them will become exercisable prior to that date unless there is a
change of control of Aether, which includes a sale of all our assets or the
sale of at least 80% of the equity of our company. Stock options issued
before July 21, 1998 expire on the fifth anniversary of the date of grant,
regardless of whether the option holder's employment with us has been
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<PAGE> 50
terminated. Options to purchase shares issued on or after July 21, 1998
expire 90 days after the termination of employment of the option holder.
(2) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by the SEC and are based on the assumption that the exercise
price was the fair market value of the shares on the date of grant. The fair
market value on the date of grant was determined by Aether's board of
directors and is equal to the stock price paid by Reuters Market Clip
Holdings Sarl in August 1998 which was negotiated at approximately the same
time as the issuance of the options. There is no assurance provided to any
executive officer or any other holder of our securities that the actual
price appreciation over the 10-year option term will be at the assumed 5%
and 10% levels or at any other defined level.
(3) The potential realizable value of the options assuming no price appreciation
from the assumed offering price in this offering of $14.00 per share was
$938,250 for Mr. Davis and $625,500 for Mr. Shelton.
Aggregate Option Exercises and Holdings. No options were exercised by the
named executive officers during the year ended December 31, 1998. The following
table provides information concerning the shares represented by outstanding
options held by each of the named executive officers as of December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT DEC. 31, 1998(#) DEC. 31, 1998($)(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
David S. Oros............................................... -- -- $ -- $ --
George M. Davis............................................. 121,250 78,750 $242,500 $ 75,600
Dale R. Shelton............................................. 93,750 81,250 $187,500 $107,900
</TABLE>
- ---------------
(1) The amount set forth represents the difference between the fair market value
of the underlying units on December 31, 1998 ($2.40 per share) and the
exercise price of the option. The fair market value was determined by
Aether's board of directors and is equal to the stock price paid by 3Com in
October 1998 which was the most recent stock price paid prior to December
31, 1998. If the assumed offering price of $14.00 per share was used to
calculate the value of options, the value of exercisable and unexercisable
options would increase by $1.4 million and $913,500, respectively, for Mr.
Davis and by $1.1 million and $942,500, respectively for Mr. Shelton.
EMPLOYMENT AGREEMENTS WITH EXECUTIVE OFFICERS
We have entered into employment contracts with Messrs. Oros and Reymann.
Mr. Oros' contract became effective June 22, 1999 and provides for a salary of
$200,000 per year, a performance bonus of up to $100,000 per year and additional
bonuses based on annual revenue targets and proceeds raised from private
placements of our equity securities in 1999. The contract has an initial term
expiring in June 2002 and automatically extends for additional one month
increments until terminated by Aether or Mr. Oros on 15 days notice. Pursuant to
the contract, we granted Mr. Oros a warrant to acquire 875,000 shares of our
common stock. The warrant currently has an exercise price of $1.60 per share of
common stock. We also gave Mr. Oros the right to allocate to key employees of
his choosing warrants to acquire 125,000 shares of common stock having the same
terms and conditions. Mr. Oros has awarded warrants for 50,000 shares of our
common stock to Mr. Davis, 37,500 shares of our common stock to Mr. Shelton and
18,750 shares of our common stock to Mr. Reymann. Mr. Oros subsequently received
our permission to assign part of his warrant, leaving him with a warrant to
acquire 775,000 shares. In September 1999, Mr. Oros received a warrant to
acquire 175,000 shares of our common stock at an exercise price of $4 per share.
From this grant, Mr. Oros subsequently assigned a warrant exercisable for 17,500
shares of our common stock. If we terminate Mr. Oros without cause, he is
entitled to receive from us an amount equal to the salary he would have received
during the balance of the term of the employment contract, and his warrants will
fully vest immediately. Under the contract, "cause" means committing an act of
gross negligence or other willful act that materially adversely affects Aether,
refusing to comply in any respect with specific directions of the managers of
our limited liability company, or being convicted or pleading no contest to any
felony or any misdemeanor involving fraud, breach of trust or misappropriation.
Each of these warrants become exercisable upon completion of this offering if
the offering price is greater than $6 per share.
Mr. Reymann's contract was entered into June 1, 1999 and provides for a
minimum salary of $127,500 per year. The contract has an initial term expiring
on June 1, 2001. We and Mr. Reymann have agreed that if we terminate
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<PAGE> 51
him without cause, he is entitled to receive from us an amount equal to the
salary he would have received during the balance of the term of the employment
contract.
1999 EQUITY INCENTIVE PLAN
We have adopted and our sole stockholder prior to the offering has approved
an equity incentive plan to promote our long-term growth and profitability,
improve stockholder value, and attract, retain and reward highly motivated and
qualified employees and directors. The compensation committee of our Board of
Directors will administer the equity incentive plan unless the Board of
Directors specifies another committee of the Board of Directors or chooses to
act itself as administrator.
Under the equity incentive plan, we can grant options for approximately 5.2
million shares of common stock, which number will adjust automatically to be 20%
of our outstanding common stock from time to time. We can grant options to
employees in the form of incentive stock options for up to 3,000,000 shares, but
may choose not to do so. Any options we grant that are not incentive stock
options will be nonqualified stock options.
All of our employees, directors and certain service providers are eligible
to receive options under the equity incentive plan. For tax reasons, the equity
incentive plan limits the number of shares covered by the options that an
individual can receive in a calendar year to 50% of the total initial pool. The
administrator will determine the prices, exercise schedules, expiration dates
and other material conditions under which optionees may exercise their options.
Except with respect to replacement options, which we grant to replace options
from Aether Systems LLC or companies we acquire, the exercise price of these
options after the initial public offering may not be less than the fair market
value of the common stock on the date of grant. We intend to replace the options
Aether Systems LLC granted with options under this plan when we convert to a
corporation before completion of the offering.
All options will become exercisable if we have a change of control, except
as option agreements provide otherwise or as necessary to allow pooling of
interest accounting. The plan's administrator may provide that an optionee must
cooperate with us in connection with the change of control to receive this
acceleration. In general, we will have a change of control if, after our initial
public offering:
- anyone acquires or holds at least 80% of our voting securities, excluding
holdings by our benefit plans and some other related parties;
- we complete a merger or consolidation, unless, in general, our pre-merger
shareholders own more than 20% of the voting securities of the merged
companies;
- our board changes in specified ways in connection with proxy contests or
as a result of adding new directors who are not approved by existing
directors; or
- if we complete a liquidation or dissolution or sell or otherwise dispose
of all or substantially all of our assets.
In addition, unless we provide otherwise, or as necessary to allow pooling of
interest accounting, the equity incentive plan and all options will terminate in
defined circumstances if:
- we are not the surviving company in a merger, consolidation or
reorganization;
- we complete a liquidation or dissolution or sell substantially all our
assets; or
- our board approves and we complete a transaction that results in a person
or entity's owning all of our stock, unless the person or entity is
related to us in specified ways.
However, before the equity incentive plan would terminate for one of those
reasons, we would either agree that our successor would assume the options
and/or the equity incentive plan, allow optionees to exercise the options if
these options were in-the-money, or cancel the options by paying the amount, if
any, by which the value determined with respect to that transaction exceeds the
exercise price of the options.
The equity incentive plan limits the time during which an optionee can
exercise an option to no more than ten years. In addition, an optionee who
leaves employment will generally have no more than 90 days to exercise an
option, reduced to no days after employment in terminations for cause, and
additional rules apply to death and
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disability. The compensation committee may, however, override the plan's rules,
other than the ten year limit. We cannot grant additional options under the
equity incentive plan after the tenth anniversary of its adoption.
SENIOR BONUS PLAN
We have adopted a senior bonus plan. A special tax rule in Section 162(m)
of the Internal Revenue Code of 1986, as amended, limits the compensation that
we can deduct for payments to our chief executive officer and the four other
most highly compensated executive officers to $1 million per officer per year.
We intend the senior bonus plan to provide incentive compensation that does not
count against each executive's deduction limit. We may choose to use the senior
bonus plan, or we may pay bonuses under some other future plan to which the tax
deduction limits will apply, as long as we do not use the other payments to make
up bonuses a participant loses under the senior bonus plan.
Unless our Board of Directors selects another committee, the compensation
committee will administer the senior bonus plan and select participants from our
key employees and those of any subsidiaries, although we expect that most
participants will be executive officers. When we refer to the "compensation
committee" in discussing the senior bonus plan, we also mean any other committee
that administers this plan. Only "outside directors" under the tax rules can
determine the participants, set the performance goals, and certify that we or
the participants have met those goals. The compensation committee will either
consist solely of two or more outside directors or those members who do not
satisfy the definition of an outside director will either abstain from voting or
refrain from serving on a subcommittee that then administers this plan. The
compensation committee has broad administrative authority to, among other
things, designate participants, establish performance goals and performance
periods, determine the effect of participant termination of employment and
"change in control" transactions before paying an award, and generally interpret
and administer the senior bonus plan. Neither we nor the Board has designated
any participants or established any performance goals under the senior bonus
plan.
The compensation committee will select participants for any given time
period based primarily on its judgement as to which executive officers are
likely to be named in our proxy statement as the chief executive officer or one
of our other four most highly compensated executive officers as of the end of
the performance period and that the compensation committee reasonably expects to
have compensation in excess of $1 million. We do not expect any of our employees
to exceed that limit in 1999.
In setting performance goals, the compensation committee will specify the
applicable performance criteria and targets it will use for such performance
period, which may vary from participant to participant. The performance criteria
and targets will measure one or more of the following company, subsidiary,
operating unit, or division financial performance measures:
- pre-tax or after-tax net income or earnings;
- earnings before interest expense, taxes, depreciation and amortization;
- operating income or gross revenue;
- profit or operating margin;
- earnings per share;
- stock price;
- cash flows;
- total stockholder return;
- total stockholder return as compared to total return, on a comparable
basis, of a publicly available index such as the Standard & Poor's 500
Stock Index;
- return on equity, on capital or on investment;
- ratio of debt to stockholders' equity;
- subscriber growth;
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<PAGE> 53
- working capital; or
- strategic business criteria consisting of one or more objectives based
upon meeting specified revenue, market penetration, geographic business
expansion goals, cost targets and goals relating to acquisitions or
divestitures.
The compensation committee may set these goals (1) on an absolute
stand-alone basis, or on a relative basis in comparison to others, (2) based on
internal targets, (3) based on comparison with prior performance, (4) based on
comparison to capital, shareholders' equity, shares outstanding, assets or net
assets, and/or (5) based on comparison to the performance of other companies.
For example, the compensation committee could express an income-based
performance measure in a number of ways, such as net earnings per share, or
return on equity or with reference to meeting or exceeding a specific target, or
with reference to growth above a specified level, such as prior year's
performance or peer group performance. The compensation committee can also
ignore unusual or nonrecurring accounting effects. The senior bonus plan
provides that achieving these goals must be substantially uncertain at the time
the goals are established and are subject to the committee's right to reduce the
amount of any award payable as a result of the performance as discussed below.
The compensation committee may set a participant's target bonus, that is,
the amount the participant will receive if the targets are met, as a dollar
amount or in a formula, for example as a percentage share of a bonus pool,
provided that, if the committee uses a pool approach, the total bonus
opportunity for all participants who are part of the pool may not total more
than 100% of the pool. The committee has the sole discretion to reduce, but not
increase, the actual bonus awarded under the plan. The committee must determine
the extent to which the performance goals are met and the participant becomes
entitled to a bonus.
The maximum bonus payable under the senior bonus plan to any one individual
in any one calendar year is $3 million, although we have no plans or
expectations at this time to pay bonuses of that size.
Our board or the committee may at any time amend the senior bonus plan, and
our board may terminate the plan. However, without a participant's written
consent, no amendment or termination may materially adversely affect the annual
bonus rights, if any, of any already designated participant for a given
performance period after the participants and targets are set. Our board may
make any amendments necessary to comply with applicable regulatory requirements,
including the tax deduction limit for senior executives. If necessary to
preserve the intended tax treatment, the board may submit future amendments of
the senior bonus plan to our shareholders for approval.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of our compensation committee is an officer or employee
of Aether. Other than Mr. Oros, who is an executive officer of Aether and
OpenSky and who serves on the boards of directors of Aether and OpenSky, none of
our executive officers serves as a member of the board of directors or
compensation committee of any entity that has one or more executive officers
serving on our board of directors or compensation committee.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our certificate of incorporation will limit the liability of directors to
the maximum extent permitted by Delaware law. Delaware law provides that a
director of a corporation will not be personally liable for monetary damages for
breach of an individual's fiduciary duties as a director except for liability:
- for any breach of a director's duty of loyalty to Aether or to its
stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General
Corporation Law; or
- for any transaction from which a director derives an improper personal
benefit.
Our bylaws will provide that Aether will indemnify its directors and
executive officers and may indemnify its officers, employees and other agents to
the full extent permitted by law. We believe that indemnification under our
bylaws will cover at least negligence and gross negligence on the part of an
indemnified party. Our bylaws also will permit us to advance expenses incurred
by an indemnified party in connection with the defense of any action or
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<PAGE> 54
proceeding arising out of a party's status or service as a director, officer,
employee or other agent of Aether upon an undertaking by the party to repay the
advances if it is ultimately determined that he or she is not entitled to
indemnification.
We will enter into separate indemnification agreements with each of our
directors and officers. These agreements will require us to, among other things,
indemnify the director or officer against expenses (including attorney's fees),
judgments, fines and settlements paid by the individual in connection with any
action, suit or proceeding arising out of the individual's status or service as
a director or officer of Aether (other than liabilities arising from willful
misconduct or conduct that is knowingly fraudulent or deliberately dishonest)
and to advance expenses incurred by the individual in connection with any
proceeding against the individual with respect to which he or she may be
entitled to indemnification by us.
We believe that our proposed certificate of incorporation and bylaw
provisions and indemnification agreements are necessary to attract and retain
qualified persons as directors and officers. Following completion of this
offering, we also will maintain directors' and officers' liability insurance.
At present we are not aware of any pending litigation or proceeding
involving any director, officer, employee or agent of Aether where
indemnification will be required or permitted. Furthermore, we are not aware of
any threatened litigation or proceeding that might result in a claim for
indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling our company
pursuant to the foregoing provisions, we have been informed that, in the opinion
of the SEC, such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
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TRANSACTIONS BETWEEN AETHER AND ITS
OFFICERS, DIRECTORS OR SIGNIFICANT STOCKHOLDERS
Since our inception, we have engaged in the following transactions with
executive officers, directors and owners of 5% or more of our equity, or
entities related to them.
EQUITY INVESTMENTS
The following discussion describes the issuance of units of our limited
liability company in connection with its initial capitalization and subsequent
financings. Immediately before we complete this offering, our limited liability
company will be converted into a corporation and each unit in the limited
liability company will be converted into two and one-half shares of our common
stock and each option or warrant for one unit will be converted into an option
or warrant for two and one-half shares of our common stock.
Aeros L.L.C., our predecessor, was formed in January 1996 by NexGen
Technologies, L.L.C. and a predecessor to Transettlements, Inc. At the time
Aeros was formed, NexGen contributed assets in the wireless data field in
exchange for 3,000,000 units (equivalent to 7,500,000 shares) and
Transettlements contributed $1,000,000 in cash in exchange for 1,000,000 units
(equivalent to 2,500,000 shares). In May 1996, Transettlements contributed an
additional $500,000 in exchange for an additional 500,000 units (equivalent to
1,250,000 shares). In August 1996, we changed our name to Aether Technologies
International, L.L.C. Then, in September 1999, we changed our name to Aether
Systems LLC.
In February 1997, a subsidiary of Telcom Ventures, L.L.C. acquired 290,000
units (equivalent to 725,000 shares) from Transettlements and 43,000 units
(equivalent to 107,500 shares) from NexGen and contributed $1,000,000 to Aether
in exchange for 625,000 units (equivalent to 1,562,500 shares). Additionally,
Telcom Ventures was granted an option to purchase 710,000 units (equivalent to
1,775,000 shares) from Transettlements and two options to purchase a total of
907,000 units (equivalent to 2,267,500 shares) from NexGen. In December 1997,
Telcom Ventures and its subsidiary contributed an additional $690,369 to Aether
in exchange for an additional 230,123 units (equivalent to 575,308 shares). In
June 1999, Telcom Ventures exercised its option with Transettlements and one of
its options with NexGen to purchase 710,000 and 157,000 units, respectively
(equivalent to 1,775,000 and 392,500 shares, respectively). Aether did not
receive any proceeds from the exercise of these options.
In October 1997, we borrowed $100,000 from Reuters Group Overseas Holdings
(UK) Limited pursuant to a demand note that accrued interest at 7% per year. In
January 1998, we borrowed an additional $100,000 from Reuters at an accrued
interest rate of 7% per year pursuant to a second demand note. In March 1998, as
part of the consideration paid by Reuters for Aether's development of
MarketClip, Reuters cancelled both of these notes.
In January 1998, Pyramid Ventures, Inc., a subsidiary of Bankers Trust
Corporation, acquired 333,333 units (equivalent to 833,333 shares) at $3.00 per
unit and 401,961 units (equivalent to 1,004,903 shares) at $3.73 per unit for
total proceeds to Aether of approximately $2.5 million. At that time, Aether
redeemed 83,333 units (equivalent to 208,333 shares) held by NexGen for $249,999
and 250,000 units (equivalent to 625,000 shares) held by Transettlements for
$750,000. As part of the financing arrangement, Pyramid agreed to use reasonable
efforts (1) to cause BT Alex. Brown to purchase 100 subscriptions to MarketClip
for a 12-month period or (2) to refer affiliates of BT Alex. Brown or third
parties to Aether for the purpose of entering into development contracts with an
aggregate price of $300,000 over a two-year period.
In June 1998, Telcom Ventures and Pyramid each loaned us $250,000. The
notes accrued interest at 8% per year and were due on demand with a stated
maturity date of the earlier of December 31, 1998 or the closing of an
anticipated private placement of units. The notes were convertible into units at
the option of the holder at the rate of $250,000 divided by the per unit price
to be paid in the anticipated private placements. In connection with the
issuance of these notes, we also issued 5,656 warrants (equivalent to 14,140
shares) with an exercise price of $0.01 per unit to each of Telcom Ventures and
Pyramid. Pyramid converted its $250,000 loan plus accrued interest in August
1998 into 57,180 units (equivalent to 142,950 shares) at a per unit price of
$4.42 and exercised its warrant and acquired 5,656 units (equivalent to 14,140
shares). In August 1998, we repaid the amount owed Telcom Ventures, including
$2,520 in interest. In August 1999, Telcom Ventures exercised its warrant and
acquired 5,656 units (equivalent to 14,140 shares) at a per unit price of $0.01.
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In August 1998, Reuters received 1,131,222 units (equivalent to 2,828,055
shares) in exchange for $4,735,020 in cash and forgiveness of $530,980 we owed
Reuters for hardware and other inventory, offset by $266,000 Reuters owed us
under a license agreement we previously entered into with Reuters relating to
sales of MarketClip and related fees.
In October 1998, 3Com Corp. contributed $6,000,000, in exchange for
1,000,000 units (equivalent to 2,500,000 shares). At the same time we issued
3Com a conditional warrant to purchase 357,466 units (equivalent to 893,665
shares) exercisable at $0.01 per unit if the milestones described below are
achieved before October 29, 2001. 3Com achieved the first milestone entitling it
to exercise 57,466 units (equivalent to 143,665 shares) as a result of having
completed a joint sales and marketing plan. 3Com may exercise an additional
150,000 units (equivalent to 375,000 shares) when we receive $6 million in
engineering services revenue from business opportunities introduced by 3Com.
3Com may exercise an additional 150,000 units (equivalent to 375,000 shares) if
we attain 6,000 wireless service subscribers as a result of business
opportunities introduced to us by 3Com. 3Com has not attained either of these
last two milestones and has not exercised any of its warrants.
Effective June 1999, we issued to Mr. Oros a warrant to acquire 350,000
units (equivalent to 875,000 shares) at an exercise price of $.01 per unit. We
subsequently agreed with Mr. Oros to amend the exercise price to $4 per unit. We
also gave Mr. Oros the right to allocate to key employees of his choosing
warrants to acquire 50,000 units (equivalent to 125,000 shares) having the same
terms and conditions. Mr. Oros has awarded warrants to acquire 20,000 units
(equivalent to 50,000 shares) to Mr. Davis, 15,000 units (equivalent to 37,500
shares) to Mr. Shelton and 7,500 units (equivalent to 18,750 shares) to Mr.
Reymann. Mr. Oros subsequently received our permission to subdivide his warrant
to give Mark Ein a warrant to acquire 40,000 units (equivalent to 100,000
shares), leaving Mr. Oros with a warrant to acquire 310,000 units (equivalent to
775,000 shares). In September 1999, when we increased the exercise price on the
warrants issued to Mr. Oros in June 1999, we granted Mr. Oros a warrant to
acquire an additional 70,000 units (equivalent to 175,000 shares) at an exercise
price of $10 per unit to compensate him for the increase in the exercise price
on the earlier warrants. From this grant, Mr. Oros subsequently assigned a
warrant exercisable for 7,000 units (equivalent to 17,500 shares) to Mr. Ein.
In August 1999, we issued to Mr. Ein 40,000 units (equivalent to 100,000
shares) upon exercise of his options at an exercise price of $1.00 per unit. In
September 1999, Mr. Beese exercised an option for 30,000 units (equivalent to
75,000 shares) at an exercise price of $1.00 per unit.
LIMITED LIABILITY COMPANY AGREEMENT, STOCKHOLDERS AGREEMENT AND REGISTRATION
RIGHTS AGREEMENT
NexGen, Transettlements, Telcom Ventures, Pyramid, Reuters, 3Com and
Messrs. Beese and Ein are members in our limited liability company and parties
to a limited liability company agreement. All members own units of the same
class. The members have the right to participate in any additional equity
financings in order to maintain their current percentage ownership interest. We
expect that these rights will be extinguished in connection with our conversion
into a corporation. The members authorized a group of nine managers to manage
and direct our business and affairs. Under the agreement, NexGen appoints four
managers, Telcom Ventures appoints two managers and each of the other members,
other than Transettlements, Mr. Beese and Mr. Ein, appoints one manager. The
agreement allows members to conduct business with us so long as the terms are
fair and reasonable to us and have been approved by the managers. Extraordinary
transactions such as the issuance of additional securities, a sale or merger,
the acquisition of substantial assets or the removal of Mr. Oros require the
vote of 60% of all units held by the members other than Mr. Ein. Each member
must approve any change to the agreement if the change would have a materially
adverse effect on the member's rights and obligations. The members have granted
each other rights of first refusal, rights to join with another member selling
its units to a third party and rights to require other members to sell their
units to a third party.
The limited liability company agreement gives members the right to have
sales of some of their interests registered under the Securities Act in
connection with this offering, but all members have agreed to waive this right.
The limited liability company agreement will terminate upon conversion of
the limited liability company into a corporation immediately prior to the
completion of this offering. We expect that NexGen, Telcom-ATI Investors,
Reuters and 3Com will enter into a stockholder agreement before completion of
the offering. Under the stockholder agreement, these parties will vote for two
directors named by each of NexGen and Telcom-ATI Investors and for one director
named by each of Reuters and 3Com. In addition, commencing on the date of the
first annual meeting of
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stockholders, if the board of directors consists of up to nine members, these
parties will vote to elect to the board of directors one additional person named
jointly by NexGen and Telcom-ATI Investors Ventures; and if the board of
directors consists of 10 or 11 members, the parties will vote to elect two
members named jointly by NexGen and Telcom-ATI Investors. We expect the right to
name directors will end when these stockholders reduce their share ownership
below levels set forth in the agreement.
We will enter into a registration rights agreement with NexGen, Telcom-ATI
Investors, Reuters, 3Com and Transettlements, which will entitle these parties
to an aggregate of three demand registrations at any time after the first
anniversary of this offering, and at the request of these parties, include in
any registration statement for our own account or the account of any other
stockholder, the shares of common stock held by those parties, subject to
limitations set forth in the agreement. We also expect the agreement will
require us to file a shelf registration statement covering the sale of all
shares held by parties to the stockholder agreement from time to time. We expect
the agreement will require us to file the shelf registration statement only when
we are eligible to use the short form registration statement on Form S-3, which
would be at least one year from the closing of this offering.
LOAN TO NEXGEN
In September 1998, we loaned NexGen $155,000 at an interest rate of 7.5%
per year pursuant to two notes. One note for $95,000 was due in December 1998
and one note for $60,000 was due in October 1998. In August 1999, both notes
were amended to be due upon 30 days notice. On December 24, 1998, NexGen made a
payment of $19,346 with respect to these notes.
REUTERS LICENSE AGREEMENT
In August 1998, we entered into an amended license, marketing and
distribution agreement with Reuters, which continues through August 11, 2001 and
renews automatically for successive one-year terms unless either party provides
180 days prior written notice. Reuters granted us a non-exclusive license to use
the information supplied by Reuters Selectfeed Plus for distribution to
subscribers of MarketClip, AirBroker and for development purposes. In August
1999, Reuters granted us permission to use Selectfeed Plus information for the
TradeRunner service developed for Discover Brokerage and the services we are
developing with Charles Schwab and Bear Stearns. Pursuant to the agreement,
Aether granted Reuters an exclusive license to use the systems developed by
Aether to transmit Reuters information to wireless handheld devices and a
license to use the MarketClip software for purposes of supplying subscribers
with MarketClip. The geographic scope of all of the licenses under the agreement
is limited to the United States. Under the agreement, Reuters has a right of
first refusal to purchase units of Aether if Aether or any unit holder sells
units and, as a result, a competitor of Reuters holds 50% or more of our units,
or if we sell all or substantially all of our assets to a competitor of Reuters.
Under the terms of the license, we pay Reuters a monthly fee for each subscriber
to our services that use information provided by Reuters. During 1998 we paid
Reuters $40,300 under this contract and the average monthly fee per subscriber
was $4.89; during the first six months of 1999 we paid Reuters $58,606 under
this contract and the average monthly fee per subscriber was $4.97.
OPENSKY
On August 9, 1999, we formed a new company with 3Com in which we acquired
an interest in AirWeb Corporation, which is doing business as OpenSky. We
contributed a perpetual, non-exclusive, non-assignable, royalty-free worldwide
license to our AIM software platform in exchange for 7,000,000 shares of Series
A Preferred Stock-which represents a 26% equity interest in OpenSky on a fully
diluted basis and an option to buy up to an additional 3,000,000 shares of
Series A Preferred Stock for an aggregate exercise price of $2.5 million. If we
exercise our option, we will own up to approximately 33% of the equity of
OpenSky on a fully diluted basis. Our option to acquire these additional shares
expires at the earlier of January 31, 2000 or 15 days after we close our initial
public offering. We intend to exercise this option in full upon completion of
this offering. In connection with the formation of the joint venture, 3Com paid
$7.0 million in cash and agreed to contribute to OpenSky a perpetual,
non-exclusive, non-assignable license to 3Com's Web Clipping technology
(including rights to derivative works) and Palm OS software in exchange for
10,000,000 shares of Series A Preferred Stock, representing a 33% equity
interest in OpenSky on a fully diluted basis. The management team of OpenSky
will acquire in the aggregate 4.2 million shares of common
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stock and options to acquire an additional 5.8 million shares, which together
represent a 33% equity interest in OpenSky on a fully diluted basis.
As part of our investment with 3Com in OpenSky, we each received
registration rights, including two demand registration rights that we can use
after the earlier of the completion of OpenSky's initial public offering and
August 9, 2004. We also entered into a right of first refusal and co-sale
agreement, which, among other things, requires the management team to first
offer any OpenSky securities to OpenSky and then to us and 3Com before selling
the securities to a third party. This agreement also allows us and 3Com to sell
a pro rata portion of our stock to a third party along with the management team
if the right of first refusal is not exercised. We and 3Com have also agreed
that before either of us sells any shares of Series A Preferred Stock to an
unrelated third party, we would first offer the other (or any other holders of
Series A Preferred Stock) those shares on a pro rata basis and then to OpenSky.
Aether, 3Com and OpenSky's management are each entitled to appoint one
director to OpenSky's board of directors. OpenSky's board of directors currently
consists of three members: David S. Oros, our chairman, chief executive officer
and president; Janice M. Roberts, who is expected to be one of our directors, is
the senior vice president, marketing and business development of 3Com; and
Patrick McVeigh, OpenSky's president and chief executive officer (and former
president of the Palm Computing division of 3Com). We have entered into a voting
agreement with 3Com and OpenSky's management in which each of the parties has
agreed to vote in favor of each of the directors named by Aether, 3Com and
OpenSky's management until the earliest of (1) OpenSky's completion of an
initial public offering of at least $15 million, (2) OpenSky's completion of a
sale of substantially all of the assets of OpenSky or the transfer of more than
50% of the voting power of OpenSky or (3) the parties' termination of the
agreement. OpenSky cannot take certain major corporate actions, such as selling
the company or issuing securities with rights and preferences senior to the
Series A Preferred Stock, without the approval of holders of two-thirds of the
Series A Preferred Stock.
On August 9, 1999, we entered into a letter agreement with OpenSky under
which we have agreed to provide OpenSky, for a period of ten months from the
date of the letter agreement, engineering services for the design and
development of its proposed systems and services. The letter agreement provides
that OpenSky will pay us $250,000 per month for these services, in addition to
$500,000 they paid us for work performed prior to the date of the letter
agreement. Additionally, for a period of five years from the date of the letter
agreement, OpenSky has agreed to provide us the right to resell OpenSky's basic
package of services. We also have a right of first refusal for development of
all investment banking and brokerage applications for OpenSky for a period of
two years from the date of the letter agreement, subject to approval of the
company for whom the service is developed.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of our common stock as of October 15, 1999, and as adjusted
to reflect the sale of 6,000,000 shares of common stock offered in this
offering, as to:
- each person (or group of affiliated persons) known by us to own
beneficially more than 5% of our outstanding common stock;
- each of our directors;
- each of the executive officers named in the summary compensation table;
and
- all our directors and executive officers as a group.
The table reflects the expected conversion of Aether from a limited
liability company to a corporation and the exchange of units in the limited
liability company into shares of common stock.
Except as indicated in the footnotes to this table and under applicable
community property laws, to our knowledge, the persons named in the table have
sole voting and investment power with respect to all shares of common stock.
Options exercisable on or before November 30, 1999, are included as shares
beneficially owned. For the purposes of calculating percent ownership as of
October 15, 1999, 20,066,995 shares were issued and outstanding, and, for any
individual who beneficially owns shares represented by options exercisable on or
before November 30, 1999, these shares are treated as if outstanding for that
person, but not for any other person. Unless otherwise indicated, the address of
each of the individuals and entities named below is: c/o Aether Systems, Inc.,
11460 Cronridge Drive, Owings Mills, Maryland 21117.
<TABLE>
<CAPTION>
PERCENT
BENEFICIALLY OWNED
-------------------
NUMBER BEFORE AFTER
NAME AND ADDRESS OF SHARES OFFERING OFFERING
---------------- ---------- -------- --------
<S> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS:
David S. Oros (1)........................................... 7,724,168 37.1% 28.8%
George M. Davis (2)......................................... 173,750 * *
Dale R. Shelton (3)......................................... 150,000 * *
Frank A. Bonsal, Jr. (4).................................... 37,500 * *
1119 St. Paul Street
Baltimore, MD 21202
J. Carter Beese (5)......................................... 75,000 * *
Mark D. Ein (6)............................................. 217,500 1.1% *
Rahul C. Prakash (7)........................................ 0 *
c/o Telcom Ventures, L.L.C.
211 N. Union St., Suite 300
Alexandria, VA 22314
Janice M. Roberts (8)....................................... 0 * *
c/o 3Com Corporation
5400 Bayfront Plaza
Santa Clara, CA 95952
Dr. Rajendra Singh (9)...................................... 5,151,948 25.7% 19.8%
c/o Telcom Ventures, L.L.C.
211 N. Union St., Suite 300
Alexandria, VA 22314
George P. Stamas (10)....................................... 11,250 * *
c/o Wilmer, Cutler & Pickering
100 Light Street
Baltimore, MD 21202
Devin N. Wenig.............................................. 0 * *
c/o Reuters America, Inc.
1700 Broadway, 2nd Floor
New York, NY 10019
</TABLE>
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<PAGE> 60
<TABLE>
<CAPTION>
PERCENT
BENEFICIALLY OWNED
-------------------
NUMBER BEFORE AFTER
NAME AND ADDRESS OF SHARES OFFERING OFFERING
---------------- ---------- -------- --------
<S> <C> <C> <C>
Thomas E. Wheeler (11)...................................... 37,500 * *
All directors and executive officers as a group (14 persons) 13,659,864 63.2% 49.5%
(12)......................................................
5% STOCKHOLDERS:
3Com Corporation (13)....................................... 2,643,665 13.1% 10.1%
5400 Bayfront Plaza
Santa Clara, CA 95052
NexGen Technologies, L.L.C.................................. 6,791,668 33.8% 26.1%
Pyramid Ventures, Inc. (14)................................. 1,995,325 9.9% 7.7%
One Bankers Trust Plaza
130 Liberty Street
New York, NY 10006
Reuters MarketClip Holdings Sarl (15)....................... 2,828,055 14.1% 10.9%
c/o Reuters America, Inc.
1700 Broadway, 2nd Floor
New York, NY 10019
Telcom-ATI Investors, L.L.C................................. 5,151,948 25.7% 19.8%
211 N. Union St., Suite 300
Alexandria, VA 22314
</TABLE>
- ---------------
* Less than 1%.
(1) Includes 6,791,668 shares owned by NexGen Technologies, L.L.C. over which
Mr. Oros exercises voting and investment control by virtue of his position
as Managing Member of NexGen. Also includes warrants to purchase 932,500
shares of common stock that will be immediately exercisable when this
offering closes, assuming that the offering price is $6 per share or
greater.
(2) Includes vested options to purchase 123,750 shares of common stock and
warrants to purchase 50,000 shares of common stock when this offering
closes, assuming that the offering price is $6 per share or greater.
(3) Includes vested options to purchase 112,500 shares of common stock and
warrants to purchase 37,500 shares of common stock when this offering
closes, assuming that the offering price is $6 per share or greater.
(4) The amount shown excludes approximately 18,170 shares in which Mr. Bonsal
has an indirect interest as a result of his non-voting limited liability
company membership interest in Telecom-ATI Investors.
(5) Includes 75,000 shares owned by JCB Holdings, a legal entity for the
benefit of the Beese family, over which Mr. Beese exercises voting and
investment control. The amount shown excludes approximately 103,825 shares
in which Mr. Beese has an indirect interest as a result of his non-voting
limited liability company membership interest in Telecom-ATI Investors.
(6) Includes warrants to purchase 100,000 shares of common stock when this
offering closes, assuming that the offering price is $6 per share or
greater and warrants to purchase 17,500 shares of common stock at $4 per
share.
(7) Mr. Prakash, the president of Telcom-ATI Investors, (which is controlled by
Telcom Ventures, LLC), disclaims beneficial ownership of the 5,151,948
shares owned by Telcom-ATI Investors including approximately 52,000 shares
in which he has an indirect interest as a result of his option to acquire a
non-voting limited liability company membership interest in Telcom-ATI
Investors.
(8) Ms. Roberts is senior vice president global marketing and business
development of 3Com Corp. and president of 3Com Ventures. Ms. Roberts
disclaims beneficial ownership of shares held by 3Com Corp.
(9) Includes 5,151,948 shares owned by Telcom-ATI Investors and entities it
controls, over which Dr. Singh exercises voting and investment control by
virtue of his position as chairman and chief executive officer of
Telcom-ATI Investors.
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<PAGE> 61
(10) Includes vested options to purchase 11,250 shares of common stock. The
amount shown excludes approximately 15,572 shares in which Mr. Stamas has
an indirect interest as a result of his non-voting limited liability
company membership interest in Telecom-ATI Investors.
(11) Includes vested options to purchase 37,500 shares of common stock.
(12) Includes all the shares and options identified above and options for 20,833
shares that will be immediately exercisable when this offering closes,
assuming that the offering price is $6 per share or greater, and 62,500
shares issuable upon exercise of options exercisable by November 30, 1999.
(13) Includes vested options to purchase 143,665 shares of common stock.
(14) Pyramid Ventures, Inc. is an indirect wholly-owned subsidiary of
DeutscheBank AG.
(15) Reuters MarketClip Holdings Sarl is an indirect wholly-owned subsidiary of
Reuters Group plc.
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<PAGE> 62
DESCRIPTION OF CAPITAL STOCK
Following the closing of the sale of the shares offered hereby, our
authorized capital stock will consist of 75,000,000 shares of common stock, $.01
par value, and 1,000,000 shares of preferred stock, $.01 par value.
COMMON STOCK
As of October 15, 1999, there were 20,066,995 shares of common stock
outstanding that were held of record by approximately eight stockholders after
giving effect to the conversion of Aether from a limited liability company and
the exchange of each limited liability company unit into two and one-half shares
of common stock. As of the same date, there were options and warrants to
purchase a total of 4,771,520 shares of common stock after giving effect to the
conversion of Aether from a limited liability company and this offering. There
will be 26,066,995 shares of common stock outstanding (assuming no exercise of
the underwriters' over-allotment option) after giving effect to the sale of the
shares of common stock offered by this prospectus.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock, the holders of common stock are
entitled to receive ratably any dividends that may be declared from time to time
by the board of directors out of funds legally available therefor. In the event
of a liquidation, dissolution or winding up of Aether, the holders of common
stock are entitled to share ratably in all assets remaining after payment of
liabilities, subject to prior rights of holders of preferred stock, if any, then
outstanding. The common stock has no preemptive or conversion rights or other
subscription rights. There are no redemption or sinking fund provisions
available to the common stock. All outstanding shares of common stock are fully
paid and non-assessable.
PREFERRED STOCK
Effective upon the closing of this offering, Aether will be authorized to
issue 1,000,000 shares of undesignated preferred stock. The board of directors
will have the authority to issue the undesignated preferred stock in one or more
series and to determine the powers, preferences and rights and the
qualifications, limitations or restrictions granted to or imposed upon any
wholly unissued series of undesignated preferred stock and to fix the number of
shares constituting any series and the designation of a series, without any
further vote or action by the stockholders. The issuance of preferred stock may
have the effect of delaying, deferring or preventing a change in control of
Aether without further action by the stockholders and may adversely affect the
voting and other rights of the holders of common stock. Furthermore, this
preferred stock may have other rights, including economic rights senior to the
common stock, and, as a result, the issuance of preferred stock could have a
material adverse effect on the market value of the common stock. At present, we
have, no plans to issue any shares of preferred stock.
STOCKHOLDER'S AGREEMENT
We expect NexGen, Telcom-ATI Investors, Reuters and 3Com to enter into a
stockholders agreement, which will require these parties to vote to elect to the
board of directors two persons named by each of NexGen and Telcom-ATI Investors,
two persons named jointly by NexGen and Telcom-ATI Investors and one person
named by each of Reuters and 3Com. We describe the expected terms of this
agreement in further detail in "Transactions Between Aether and its Officers,
Directors or Significant Stockholders" at page 55.
REGISTRATION RIGHTS OF STOCKHOLDERS
Pursuant to the terms of the agreement governing our limited liability
company, the members of the limited liability company had registration rights
with respect to the units of the limited liability company or any common stock
received upon conversion of the limited liability company into a corporation,
but all members have agreed to waive this right. This agreement, and our
obligation to register shares, is terminating with conversion of the limited
liability company into a corporation. We and the members of the limited
liability company are entering into a registration rights agreement requiring us
to register their shares on demand beginning one year after the date of the
offering. We describe the expected terms of this agreement in further detail in
"Transactions Between Aether and its Officers, Directors or Significant
Stockholders" at page 58.
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ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW AND CHARTER PROVISIONS
Our certificate of incorporation and bylaws contain provisions that are
intended to enhance the likelihood of continuity and stability in the
composition of our board of directors and in the polices formulated by our board
of directors. In addition, provisions of Delaware law may hinder or delay an
attempted takeover of Aether other than through negotiation with our board of
directors. These provisions could have the effect of discouraging attempts to
acquire us or remove incumbent management even if some or a majority of our
stockholders believe this action to be in their best interest, including
attempts that might result in the stockholders' receiving a premium over the
market price for the shares of common stock held by stockholders.
Removal and replacement of directors. Under our certificate of
incorporation and bylaws, directors may only be removed with cause. In addition,
a majority of the directors then in office can fill board vacancies and
newly-created directorships resulting from any increase in the size of the board
of directors, even if those directors do not constitute a quorum or only one
director is left in office. These provisions could prevent stockholders,
including parties who want to take over or acquire us, from removing incumbent
directors without cause and filling the resulting vacancies with their own
nominees.
Advance notice provisions for stockholder proposals and stockholder
nominations of directors. The bylaws establish an advance notice procedure
regarding stockholder proposals and nominations for director. The advance notice
procedure will not apply to proposals by our board of directors or management.
Any stockholder that wishes to make a proposal or nominate a director for
election at an annual meeting must deliver us notice of the proposal or the
nomination not less than 45 days nor more than 90 days before the first
anniversary of the proxy statement for the preceding year's annual meeting. For
a special meeting, the notice must generally be delivered not less than 70 days
nor more than 90 days before a special meeting or ten days following the day on
which public announcement of the meeting is first made. This advance notice
proposal could prevent someone interested in acquiring us from proposing actions
that could facilitate the takeover.
Special meetings of stockholders and actions in lieu of a meeting. Our
certificate of incorporation and bylaws permit special meetings of the
stockholders to be called only by the board of directors, the chairman of the
board or the president or holders of at least 50% of our securities that are
outstanding and entitled to vote generally in an election of directors. The
stockholders may take action by written consent in lieu of a meeting only if
such consent is signed by all stockholders. These provisions may make it more
difficult for stockholders to take actions opposed by the board of directors.
Authorized but unissued shares. Without further stockholder approval, we
can issue shares of common stock and preferred stock up to the number of shares
authorized for issuance in our certificate of incorporation, except as limited
by Nasdaq rules. We could use these additional shares for a variety of corporate
purposes. These purposes include future public offerings to raise additional
capital, corporate acquisitions and employee benefit plans. Our ability to issue
these shares of common stock and preferred stock could make it more difficult,
or discourage an attempt, to obtain control of Aether by means of a proxy
contest, tender offer, merger or otherwise.
Amendment of bylaws. The Delaware General Corporation Law generally
provides that the affirmative vote of a majority of the shares entitled to vote
on any matter is required to amend a corporation's certificate of incorporation
or bylaws, unless the corporation's certificate of incorporation or bylaws, as
the case may be, requires a greater percentage. Our certificate of incorporation
and bylaws require the affirmative vote of the holders of at least 66- 2/3% of
our outstanding voting stock to amend or repeal our bylaws. Our bylaws may also
be amended or repealed by a simple majority vote of the board of directors.
Section 203 of Delaware Law. In addition to the foregoing provisions of
our certificate of incorporation and bylaws, we will be subject to the
provisions of Section 203 of the Delaware General Corporation Law. In general,
the statute prohibits a publicly-held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date that the person became an interested stockholder unless
(with exceptions) the business combination or the transaction in which the
person became an interested stockholder is approved in a prescribed manner.
Generally, a "business combination" includes a merger, asset or stock sale or
other transaction resulting in a financial benefit to the stockholder, and an
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years prior, did own) 15% or more of the
corporation's
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outstanding voting stock. This provision may have the effect of delaying,
deferring or preventing a change in control of Aether without further action by
the stockholders. Transactions with NexGen or Telcom-ATI Investors or their
affiliates are not covered by this provision.
Our stock option plan generally provides for assumption of our plan or
substitution of an equivalent option of a successor corporation or,
alternatively, at the discretion of the board of directors, exercise of some or
all of the options stock, including non-vested shares, or acceleration of
vesting of shares issued pursuant to stock grants, upon a change of control or
similar event. The ability to accelerate vesting may make a takeover more
expensive and thus discourage a takeover attempt.
WARRANTS
As of the date of this prospectus, warrants were outstanding for the
purchase of 2,068,665 shares of common stock. Of these warrants, warrants for
1,000,000 shares are exercisable at a price of $1.60 per share and 175,000
warrants are exercisable at a price of $4.00 per share. 3Com holds the remaining
warrants to purchase 893,665 shares at a price of $.01 per share. The warrants
exercisable for $1.60 per share and the warrants exercisable for $4.00 per share
become exercisable upon completion of this offering assuming the offering price
is at least $6.00 per share and remain exercisable until June 2002. The
remaining warrants become exercisable from time to time upon the satisfaction of
conditions described at page 58 of this prospectus. In addition to the warrants
described above, Merrill Lynch Capital Corporation has warrants, none of which
are currently exercisable, to acquire up to 2,419,690 shares of our common stock
for no consideration. These warrants become void upon the closing of this
offering. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" on page 27 for a detailed discussion.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is BankBoston, N.A.
LISTING
We expect our shares of common stock to be quoted on the Nasdaq National
Market, subject to official notice of issuance, under the trading symbol "AETH."
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SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has been no public market for our common stock.
A significant public market for the common stock may not develop or be sustained
after this offering. Future sales of substantial amounts of our common stock in
the public market, or the possibility of these sales occurring, could adversely
affect prevailing market prices for our common stock or our future ability to
raise capital through an offering of equity securities.
Upon completion of this offering, we will have outstanding 26,066,995
shares of common stock. Of these shares, the 6,000,000 shares to be sold in this
offering (6,900,000 shares if the underwriters' over-allotment option is
exercised in full) will be freely tradable in the public market without
restriction under the Securities Act, unless the shares are held by "affiliates"
of Aether, as that term is defined in Rule 144 under the Securities Act.
The remaining 20,066,995 shares outstanding upon completion of this
offering will be "restricted securities" as that term is defined under Rule 144.
We issued and sold these restricted securities in private transactions in
reliance on exemptions from registration under the Securities Act. Restricted
securities may be sold in the public market only if they are registered or if
they qualify for an exemption from registration under Rule 144 or Rule 701 under
the Securities Act, as summarized below.
Pursuant to "lock-up" agreements, all the executive officers, directors and
stockholders of Aether, who hold all of these restricted securities, have agreed
with the underwriters not to offer, sell, contract to sell, grant any option to
purchase or otherwise dispose of any of these shares for a period of 180 days
from the date of this prospectus. We also have entered into an agreement with
the underwriters that we will not offer, sell or otherwise dispose of common
stock for a period of 180 days from the date of this prospectus. However,
Merrill Lynch & Co. may in its sole discretion, at any time without notice,
consent to the release all or any portion of the shares subject to lock-up
agreements.
Taking into account the lock-up agreements, and assuming Merrill Lynch &
Co. does not release stockholders from these agreements, the following shares
will be eligible for sale in the public market at the following times:
- on the date of this prospectus, the 6,000,000 shares sold in the offering
will be immediately available for sale in the public market;
- 180 days after the date of the prospectus, approximately 19,499,495
shares will be eligible for sale, 19,441,995 of which will be subject to
volume, manner of sale and other limitations under Rule 144; and
- the remaining 567,500 shares will be eligible for sale under Rule 144
from time to time upon the expiration of various one-year holding periods
after the expiration of the lock-up period applicable to those shares.
Following the expiration of the lock-up period, shares issued upon exercise
of options we granted prior to the date of this prospectus will also be
available for sale in the public market pursuant to Rule 701 under the
Securities Act. Rule 701 permits resales of these shares beginning 90 days after
the date of this prospectus by persons other than affiliates. In general, under
Rule 144, after the expiration of the lock-up period, a person who has
beneficially owned restricted securities for at least one year would be entitled
to sell, within any three-month period, a number of shares that does not exceed
the greater of:
- 1% of the then-outstanding shares of common stock; or
- the average weekly trading volume of the common stock during the four
calendar weeks preceding the sale.
Sales under Rule 144 are also subject to manner of sale and notice
requirements and to the availability of current public information about Aether.
Under Rule 144(k), a person who has not been our affiliate at any time during
the three months before a sale and who has beneficially owned the shares
proposed to be sold for at least two years can sell these shares without
complying with the manner of sale, public information, volume limitation or
notice provisions of Rule 144.
Through October 15, 1999, we have granted options to purchase 2,702,855
shares of common stock to specified persons pursuant to the option plan of our
limited liability company. We intend to file, after the effective date of this
offering, a registration statement on Form S-8 to register approximately
5,200,000 shares of common stock reserved
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for issuance under the stock option plan we intend to adopt before completion of
the offering. See "Management -- Executive Compensation" at page 51. The
registration statement will become effective automatically upon filing. Shares
issued under the foregoing plan, after the filing of a registration statement on
Form S-8 may be sold in the open market, subject, in the case of some holders,
to the Rule 144 limitations applicable to affiliates, the lock-up agreements and
vesting restrictions imposed by us.
In addition, following this offering, the holders of 19,891,995 shares of
outstanding common stock will, under some circumstances, have rights to require
us to register their shares for future sale. See "Description of Capital
Stock-Registration Rights of Stockholders" at page 61.
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<PAGE> 67
UNDERWRITING
GENERAL
We intend to offer our common stock in the United States through a number
of underwriters. Merrill Lynch, Pierce, Fenner & Smith Incorporated, BancBoston
Robertson Stephens Inc., Donaldson, Lufkin & Jenrette Securities Corporation and
U.S. Bancorp Piper Jaffray Inc. are acting as representatives of each of the
underwriters named below. Subject to the terms and conditions set forth in a
purchase agreement among our company and the underwriters, we have agreed to
sell to the underwriters, and each of the underwriters severally and not jointly
has agreed to purchase from our company, the number of shares of common stock
set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER
U.S. UNDERWRITER OF SHARES
---------------- ---------
<S> <C> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................................
BancBoston Robertson Stephens Inc..........................................
Donaldson, Lufkin & Jenrette Securities Corporation........................
U.S. Bancorp Piper Jaffray Inc.............................................
---------
Total....................................................... 6,000,000
=========
</TABLE>
In the purchase agreement, the several underwriters have agreed, subject to
the terms and conditions set forth in the agreement, to purchase all of the
shares of common stock being sold under the terms of the purchase agreement if
any of the shares of common stock being sold under the terms of the purchase
agreement are purchased. In the event of a default by an underwriter, the
purchase agreement provides that, in certain circumstances, the purchase
commitments of the nondefaulting underwriters may be increased or the purchase
agreement may be terminated.
We have agreed to indemnify the underwriters against some liabilities,
including some liabilities under the Securities Act, or to contribute to
payments the underwriters may be required to make in respect of those
liabilities.
The shares of common stock are being offered by the several underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of certain legal matters by counsel for the underwriters and certain
other conditions. The underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part.
COMMISSIONS AND DISCOUNTS
The representatives have advised us that the underwriters propose initially
to offer the shares of common stock to the public at the initial public offering
price set forth on the cover page of this prospectus, and to certain dealers at
such price less a concession not in excess of $ per share of common stock.
The underwriters may allow, and such dealers may reallow, a discount not in
excess of $ per share of common stock to certain other dealers. After the
initial public offering, the public offering price, concession and discount may
change.
The following table shows the per share and the total public offering
price, the underwriting discount to be paid by us to the underwriters and the
proceeds before expenses to us. This information is presented assuming either no
exercise or full exercise by the underwriters of their over-allotment options.
<TABLE>
<CAPTION>
PER SHARE WITHOUT OPTION WITH OPTION
--------- -------------- -----------
<S> <C> <C> <C>
Public Offering Price....................................... $ $ $
Underwriting Discount....................................... $ $ $
Proceeds, before expenses, to Aether Systems................ $ $ $
</TABLE>
The expenses of the offering, exclusive of the underwriting discount, are
estimated at $1.3 million and are payable by us.
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OVER-ALLOTMENT OPTION
We have granted an option to the underwriters, exercisable for 30 days
after the date of this prospectus, to purchase up to an aggregate of 900,000
additional shares of our common stock at the public offering price set forth on
the cover page of this prospectus, less the underwriting discount. The
underwriters may exercise this option solely to cover over-allotments, if any,
made on the sale of our common stock offered hereby. To the extent that the
underwriters exercise this option, each underwriter will be obligated, subject
to certain conditions, to purchase a number of additional shares of our common
stock proportionate to such underwriter's initial amount reflected in the
foregoing table.
RESERVED SHARES
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 390,000 of the shares offered by this prospectus to
be sold to some of our employees, officers, directors and their immediate family
members. The number of shares of our common stock available for sale to the
general public will be reduced to the extent that those persons purchase the
reserved shares. Any reserved shares which are not orally confirmed for purchase
within one day of the pricing of the offering will be offered by the
underwriters to the general public on the same terms as the other shares offered
by this prospectus.
NO SALES OF SIMILAR SECURITIES
We and our executive officers and directors and all of our existing
stockholders have agreed, with certain exceptions, without the prior written
consent of Merrill Lynch on behalf of the underwriters for a period of 180 days
after the date of this prospectus, not to directly or indirectly
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant for the sale of, lend or otherwise dispose of or
transfer any shares of our common stock or securities convertible into or
exchangeable or exercisable for or repayable with our common stock,
whether now owned or later acquired by the person executing the agreement
or with respect to which the person executing the agreement later
acquires the power of disposition, or file a registration statement under
the Securities Act relating to any shares of our common stock; or
- enter into any swap or other agreement that transfers, in whole or in
part, directly or indirectly, the economic consequence of ownership of
our common stock whether any such swap or transaction is to be settled by
delivery of our common stock or other securities, in cash or otherwise.
QUOTATION ON THE NASDAQ NATIONAL MARKET
We expect our common stock to be approved for quotation on the Nasdaq
National Market, subject to official notice of issuance, under the symbol
"AETH."
Before this offering, there has been no public market for our common stock.
The initial public offering price will be determined through negotiations
between us and the representatives. Among the factors to be considered in
determining the initial public offering price, in addition to prevailing market
conditions, are the valuation multiples of publicly traded companies that the
representatives believe to be comparable to us, certain of our financial
information, the history of, and the prospects for, our company and the industry
in which we compete, and an assessment of our management, our past and present
operations, the prospects for, and timing of, future revenue of our company, the
present state of our development, and the above factors in relation to market
values and various valuation measures of other companies engaged in activities
similar to ours. There can be no assurance that an active trading market will
develop for our common stock or that our common stock will trade in the public
market subsequent to the offering at or above the initial public offering price.
The underwriters have advised us that they do not expect sales of the
common stock to any accounts over which they exercise discretionary authority to
exceed 5% of the number of shares being offered in this offering.
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NASD REGULATIONS
We are required, under the terms of our senior secured interim credit
facility with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, one of the underwriters of this offering, and Merrill Lynch
Capital Corporation to apply approximately $14.8 million from the net proceeds
of the offering to repay all amounts outstanding under this facility. Because
more than ten percent of the net proceeds of the offering may be paid to members
or affiliates of members of the National Association of Securities Dealers, Inc.
participating in the offering, the offering will be conducted in accordance with
NASD Conduct Rule 2710(c)(8), which requires that the public offering price of
an equity security be no higher than the price recommended by a qualified
independent underwriter which has participated in the preparation of the
registration statement and performed its usual standard of due diligence with
respect to that registration statement. BancBoston Robertson Stephens Inc. has
agreed to act as qualified independent underwriter with respect to the offering,
and the price of the common stock will be no higher than that recommended by
BancBoston Robertson Stephens Inc.
The underwriters will not confirm sales of the common stock to any account
over which they exercise discretionary authority without the prior written
specific approval of the customer.
PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS
Until the distribution of our common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters and
certain selling group members to bid for and purchase our common stock. As an
exception to these rules, the representatives are permitted to engage in
transactions that stabilize the price of our common stock. Such transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of our common stock.
If the underwriters create a short position in our common stock in
connection with the offering, i.e., if they sell more shares of our common stock
than are set forth on the cover page of this prospectus, the representatives may
reduce that short position by purchasing our common stock in the open market.
The representatives may also elect to reduce any short position by exercising
all or part of the over-allotment option described above.
The representatives may also impose a penalty bid on underwriters and
selling group members. This means that if the representatives purchase shares of
our common stock in the open market to reduce the underwriters' short position
or to stabilize the price of our common stock, they may reclaim the amount of
the selling concession from the underwriters and selling group members who sold
those shares as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of our common stock to the extent that it
discourages resales of our common stock.
Neither our company nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of our common stock. In addition, neither
our company nor any of the underwriters makes any representation that the
representatives will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
OTHER RELATIONSHIPS
On September 28, 1999, we entered into a senior secured interim credit
facility with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Merrill Lynch Capital Corporation, one of the underwriters of
this offering, under which we borrowed $14.8 million to fund the purchase price
for our acquisition of Mobeo and pay fees and expenses related to the
acquisition and credit facility and for general corporate purposes. Under the
terms of this senior secured interim credit facility, we will use a portion of
the net proceeds of the offering to repay all amounts outstanding under this
facility. In connection with the closing of the credit facility, we also issued
warrants to Merrill Lynch Capital Corporation. If we repay the loan out of the
proceeds of this offering, the warrants shall become void and no shares will be
issued. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" on page 27. Merrill Lynch received customary compensation
for providing the credit facility. The loan transaction was independent of, and
not contingent upon, the completion of the offering.
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<PAGE> 70
Some of the underwriters and their affiliates may engage in other
transactions with, and perform services for, our company in the ordinary course
of business and have engaged, and may in the future engage, in commercial
banking and investment banking transactions with our company, for which they may
receive customary compensation.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
Aether by Wilmer, Cutler & Pickering, Washington, D.C. George P. Stamas, a
partner at Wilmer, Cutler & Pickering, is expected to be elected a director of
Aether. Mr. Stamas owns options to purchase 11,250 shares of common stock, and
he holds a non-voting interest in Telcom-ATI Investors. Certain legal matters in
connection with this offering will be passed upon for the underwriters by Hogan
& Hartson L.L.P., Washington, D.C.
EXPERTS
The financial statements and schedule of Aether Technologies International,
L.L.C. as of December 31, 1997 and 1998, and for each of the years in three-year
period ended December 31, 1998 have been included herein and in the registration
statement in reliance upon the reports of KPMG LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
The financial statements of Mobeo, Inc. as of December 31, 1997 and 1998
and for each of the three years in the period ended December 31, 1998, included
in this prospectus, have been included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to the common stock offered by this prospectus. This
prospectus does not contain all of the information contained in the registration
statement, and the exhibits and schedules to the registration statement portions
of which are omitted as permitted by the rules and regulations of the SEC. For
further information with respect to us and our common stock, we refer you to the
registration statement, and the exhibits and schedules filed as part of the
registration statement. Statements in this prospectus concerning the contents of
any contract or any other document are not necessarily complete. If a contract
or document has been filed as an exhibit to the registration statement, we refer
you to that exhibit. Each statement in this prospectus relating to a contract or
document filed as an exhibit to the registration statement is qualified by the
filed exhibits.
In addition, after the offering, we will file reports, proxy statements and
other information with the SEC. You may read and copy any document we file,
including the registration statement, at the SEC's public reference rooms in
Washington, D.C., New York, New York and Chicago, Illinois. Please call the SEC
at 1-800-SEC-0330 for further information on the public reference rooms. Our SEC
filings are also available to the public on the SEC's website at
http://www.sec.gov.
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. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate only as of the date on
the front cover of this prospectus. Our business, financial condition, results
of operations and prospects may have changed since that date.
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<PAGE> 71
INDEX TO FINANCIAL STATEMENTS
AETHER TECHNOLOGIES INTERNATIONAL, L.L.C.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Balance Sheets as of December 31, 1997 and 1998 and June 30,
1999 (unaudited).......................................... F-3
Statements of Operations and Other Comprehensive Loss for
the years ended December 31, 1996, 1997 and 1998, and for
the six months ended June 30, 1998 and 1999 (unaudited)... F-4
Statements of Members' Capital for the years ended December
31, 1996, 1997 and 1998, and for the six months ended June
30, 1999 (unaudited)...................................... F-5
Statements of Cash Flows for the years ended December 31,
1996, 1997 and 1998 and for the six months ended June 30,
1998 and 1999 (unaudited)................................. F-6
Notes to Financial Statements............................... F-7
</TABLE>
MOBEO, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-17
Balance Sheets as of December 31, 1997 and 1998 and June 30,
1999 (unaudited).......................................... F-18
Statements of Operations for the years ended December 31,
1996, 1997 and 1998 and for the six months ended June 30,
1998 and June 30, 1999 (unaudited)........................ F-19
Statements of Changes in Stockholders' Equity (Deficit) for
the years ended December 31, 1996, 1997 and 1998 and for
the six months ended June 30, 1999 (unaudited)............ F-20
Statements of Cash Flows for the years ended December 31,
1996, 1997 and 1998 and for the six months ended June 30,
1998 and June 30, 1999 (unaudited)........................ F-21
Notes to Financial Statements............................... F-22
</TABLE>
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Description of Unaudited Pro Forma Condensed Consolidated
Financial Information..................................... F-29
Unaudited Pro Forma Condensed Consolidated Balance Sheet as
of June 30, 1999.......................................... F-30
Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the six months ended
June 30, 1999............................................. F-32
Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the year ended
December 31, 1998......................................... F-33
</TABLE>
- ---------------
* Aether Systems, Inc. was formed on September 17, 1999 and has not been
capitalized. Financial statements of Aether Systems, Inc. have not been
presented herein because Aether Systems, Inc. has no significant assets,
liabilities (actual or contingent), or operations and such financial
statements are, therefore, not material to this Registration Statement or
investors' understanding of the Offering.
F-1
<PAGE> 72
INDEPENDENT AUDITORS' REPORT
The Members' Committee
Aether Technologies International, L.L.C.:
We have audited the accompanying balance sheets of Aether Technologies
International, L.L.C. as of December 31, 1997 and 1998, and the related
statements of operations and other comprehensive loss, members' capital and cash
flows for each of the years in the three-year period ended December 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Aether Technologies
International, L.L.C. as of December 31, 1997 and 1998, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Washington, D.C.
February 25, 1999
F-2
<PAGE> 73
AETHER TECHNOLOGIES INTERNATIONAL, L.L.C.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1997 1998 1999
-------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................ $132,262 $1,755,350 $ 457,305
Short-term investments................................... 5,852 6,191,287 3,957,602
Trade accounts receivable, net of allowance for doubtful
accounts of $0, $157,061 and $72,006 at December 31,
1997 and 1998 and June 30, 1999 (unaudited),
respectively.......................................... 122,133 118,489 124,873
Inventory, net of allowance for obsolescence of $0,
$169,630 and $85,846 at December 31, 1997 and 1998 and
June 30, 1999 (unaudited), respectively............... -- 143,617 88,368
Prepaid expenses and other current assets................ 15,117 45,646 71,816
-------- ---------- ----------
Total current assets............................. 275,364 8,254,389 4,699,964
Furniture, computers, and equipment, net................... 546,848 510,437 1,166,849
-------- ---------- ----------
$822,212 $8,764,826 $5,866,813
======== ========== ==========
LIABILITIES AND MEMBERS' CAPITAL
Current liabilities:
Accounts payable......................................... $112,509 $ 195,930 $ 347,919
Accrued expenses......................................... 260,590 288,350 525,973
Accrued employee compensation and benefits............... 62,278 250,975 127,039
Deferred revenue......................................... 162,500 -- 25,000
-------- ---------- ----------
Total current liabilities........................ 597,877 735,255 1,025,931
Note payable to member..................................... 150,000 -- --
Members' capital........................................... 74,335 8,029,571 4,840,882
-------- ---------- ----------
Commitments and contingencies (notes 1, 7 and 9)
$822,212 $8,764,826 $5,866,813
======== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 74
AETHER TECHNOLOGIES INTERNATIONAL, L.L.C.
STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Subscriber revenue............ $ -- $ 161,400 $ 549,057 $ 124,576 $ 598,810
Engineering services
revenue..................... 1,355,011 1,624,733 963,165 436,090 188,274
----------- ----------- ----------- ----------- -----------
Total revenue....... 1,355,011 1,786,133 1,512,222 560,666 787,084
Cost of subscriber revenue.... -- 447,480 797,165 199,559 530,823
Cost of engineering services
revenue..................... 1,006,944 846,140 304,137 170,812 119,829
----------- ----------- ----------- ----------- -----------
Total cost of
revenue........... 1,006,944 1,293,620 1,101,302 370,371 650,652
----------- ----------- ----------- ----------- -----------
Gross profit........ 348,067 492,513 410,920 190,295 136,432
----------- ----------- ----------- ----------- -----------
Operating expenses:
Research and development.... 160,597 733,630 1,267,320 589,148 1,002,107
General and
administrative........... 395,209 1,504,250 2,773,332 1,273,189 1,582,600
Selling and marketing....... -- 333,191 840,455 313,775 555,428
Depreciation and
amortization............. 45,245 189,160 264,685 123,820 193,523
Unit option and warrant
expense.................. -- 40,277 32,580 16,290 1,263,150
----------- ----------- ----------- ----------- -----------
601,051 2,800,508 5,178,372 2,316,222 4,596,808
----------- ----------- ----------- ----------- -----------
Operating loss...... (252,984) (2,307,995) (4,767,452) (2,125,927) (4,460,376)
Other income (expense):
Interest income (expense),
net...................... 8,491 7,788 74,180 7,035 140,753
Equity in losses of
investments.............. (172,487) (144,825) -- -- --
Realized loss on sale of
investment............... -- (302,145) -- -- --
----------- ----------- ----------- ----------- -----------
Net loss............ $ (416,980) $(2,747,177) $(4,693,272) $(2,118,892) $(4,319,623)
----------- ----------- ----------- ----------- -----------
Other comprehensive loss-
unrealized holding loss on
investments available for
sale........................ -- -- (58,030) -- (132,216)
----------- ----------- ----------- ----------- -----------
Comprehensive loss............ $ (416,980) $(2,747,177) $(4,751,302) $(2,118,892) $(4,451,839)
=========== =========== =========== =========== ===========
Pro forma statement of
operations data (unaudited):
Loss before income taxes, as
reported................. $ (416,980) $(2,747,177) $(4,693,272) $(2,118,892) $(4,319,623)
Pro forma income tax
provision (benefit)...... -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Pro forma net loss.......... $ (416,980) $(2,747,177) $(4,693,272) $(2,118,892) $(4,319,623)
=========== =========== =========== =========== ===========
Pro forma net loss per
share-basic and
diluted.................. $ (0.04) $ (0.22) $ (0.29) $ (0.15) $ (0.22)
=========== =========== =========== =========== ===========
Pro forma weighted average
shares outstanding-basic
and diluted.............. 10,554,795 12,655,901 15,916,383 14,270,568 19,877,855
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 75
AETHER TECHNOLOGIES INTERNATIONAL, L.L.C.
STATEMENTS OF MEMBERS' CAPITAL
<TABLE>
<CAPTION>
UNREALIZED
MEMBER MEMBERS' LOSS ON
UNITS CAPITAL INVESTMENTS TOTAL
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at January 1, 1996.................... -- $ -- $ -- $ --
Issuance of member units in January 1996.... 3,000,000 17,846 -- 17,846
Issuance of member units in January 1996.... 1,000,000 1,000,000 -- 1,000,000
Issuance of member units in May 1996........ 500,000 500,000 -- 500,000
Net loss.................................... -- (416,980) -- (416,980)
--------- ----------- --------- -----------
Balance at December 31, 1996.................. 4,500,000 1,100,866 -- 1,100,866
Issuance of member units in February 1997... 625,000 1,000,000 -- 1,000,000
Issuance of member units in December 1997... 230,123 690,369 -- 690,369
Unit option and warrant expense............. -- 40,277 -- 40,277
Note receivable from member................. -- (10,000) -- (10,000)
Net loss.................................... -- (2,747,177) -- (2,747,177)
--------- ----------- --------- -----------
Balance at December 31, 1997.................. 5,355,123 74,335 -- 74,335
Issuance of member units in January 1998.... 401,961 1,499,314 -- 1,499,314
Issuance of warrants in June 1998........... -- 50,000 -- 50,000
Exercise of warrants in August 1998......... 5,656 56 -- 56
Conversion of note payable and issuance of
member units in August 1998.............. 57,180 252,467 -- 252,467
Issuance of member units in August 1998..... 1,131,222 5,000,000 -- 5,000,000
Issuance of member units in October 1998.... 1,000,000 6,000,000 -- 6,000,000
Unit option and warrant expense............. -- 32,580 -- 32,580
Unrealized loss on investment available for
sale..................................... -- -- (58,030) (58,030)
Note receivable from member................. -- (127,879) -- (127,879)
Net loss.................................... -- (4,693,272) -- (4,693,272)
--------- ----------- --------- -----------
Balance at December 31, 1998.................. 7,951,142 8,087,601 (58,030) 8,029,571
Unrealized loss on investment available for
sale (unaudited)......................... -- -- (132,216) (132,216)
Unit option and warrant expense
(unaudited).............................. -- 1,263,150 -- 1,263,150
Net loss (unaudited)........................ -- (4,319,623) -- (4,319,623)
--------- ----------- --------- -----------
Balance at June 30, 1999 (unaudited).......... 7,951,142 $ 5,031,128 $(190,246) $ 4,840,882
========= =========== ========= ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 76
AETHER TECHNOLOGIES INTERNATIONAL, L.L.C.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................ $ (416,980) $(2,747,177) $(4,693,272) $(2,118,892) $(4,319,623)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization................. 45,245 189,160 264,685 123,820 193,523
Provision (recovery) for doubtful accounts.... -- -- 157,061 25,394 (85,055)
Provision for inventory obsolescence.......... -- -- 169,630 -- --
Realized (gain) loss on sale of short-term
investments................................. -- -- (3,872) -- 11,882
Equity in losses of investments............... 172,487 144,825 -- -- --
Realized loss on sale of investment........... -- 302,145 -- -- --
Issuance of warrants.......................... -- -- 50,000 8,693 --
Unit option and warrant expense............... -- 40,277 32,580 16,290 1,263,150
Changes in assets and liabilities:
(Increase) decrease in trade accounts
receivable............................... (223,402) 74,812 (153,417) (48,953) 78,671
(Increase) decrease in inventory............ -- -- (313,247) -- 55,249
(Increase) decrease in prepaid expenses and
other current assets..................... (18,945) 3,828 (30,529) (8,694) (26,170)
Increase in accounts payable................ 45,149 67,360 83,421 160,854 151,989
Increase in accrued expenses and employee
compensation and benefits................ 50,246 272,622 216,457 137,349 113,687
Increase (decrease) in deferred revenue..... -- 162,500 (162,500) (162,500) 25,000
----------- ----------- ----------- ----------- -----------
Net cash used by operating activities.... (346,200) (1,489,648) (4,383,003) (1,866,639) (2,537,697)
----------- ----------- ----------- ----------- -----------
Cash flows (used) by investing activities:
Sales of short-term investments................. -- 49,977 1,295,525 (99) 7,028,317
Purchases of short-term investments............. (55,829) -- (7,535,118) -- (4,938,730)
Purchases of property and equipment............. (321,707) (441,700) (228,274) (63,444) (849,935)
Long-term investments........................... (775,000) (23,000) -- -- --
Proceeds from sale of investment in joint
venture....................................... -- 205,000 -- -- --
----------- ----------- ----------- ----------- -----------
Net cash (used) provided in investing
activities............................. (1,152,536) (209,723) (6,467,867) (63,543) 1,239,652
----------- ----------- ----------- ----------- -----------
Cash flows provided by financing activities:
Issuance of member units........................ 1,500,000 1,690,369 12,501,781 1,499,315 --
Advances (repayments) from member............... 50,000 (50,000) -- -- --
Proceeds from note payable...................... -- 150,000 500,000 500,000 --
Due to related parties.......................... -- -- -- 224,371 --
Repayments on notes payable..................... -- -- (400,000) -- --
Issuance of notes receivable to member.......... -- (10,000) (127,879) -- --
Exercise of warrants............................ -- -- 56 -- --
----------- ----------- ----------- ----------- -----------
Net cash provided by financing
activities............................. 1,550,000 1,780,369 12,473,958 2,223,686 --
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents............................ 51,264 80,998 1,623,088 293,504 (1,298,045)
Cash and cash equivalents, at beginning of
period.......................................... -- 51,264 132,262 132,262 1,755,350
=========== =========== =========== =========== ===========
Cash and cash equivalents, at end of period....... $ 51,264 $ 132,262 $ 1,755,350 $ 425,766 $ 457,305
=========== =========== =========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest.......... $ -- $ 3,894 $ 20,171 $ -- $ --
=========== =========== =========== =========== ===========
</TABLE>
- ---------------
Supplemental disclosure of noncash investing and financing activities:
In 1996, a member contributed equipment with an historical cost basis of
$17,846 to the Company.
In 1996, the Company made a $48,000 investment in Navox, Inc. of which
$23,000 was not paid until January 1997.
In 1997, the Company made an additional $26,457 investment in Navox, Inc. by
forgiving a trade account receivable of an equal amount.
In 1998, a member converted a $250,000 promissory note payable into
membership units.
At December 31, 1998 and June 30, 1999 (unaudited), the Company incurred an
unrealized holding loss associated with its investment available for sale
totaling $58,030 and $132,216. These amounts have been reported as a
reduction in members' capital.
See accompanying notes to financial statements.
F-6
<PAGE> 77
AETHER TECHNOLOGIES INTERNATIONAL, L.L.C.
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION AND DESCRIPTION OF BUSINESS
Aether Technologies International, L.L.C. (the Company), a Delaware limited
liability company, was originally formed as Aeros, L.L.C. pursuant to the terms
of the Limited Liability Company Agreement of Aeros, L.L.C. (the Agreement) in
January 1996. The Company changed its name to Aether Technologies International,
L.L.C. in August 1996.
Pursuant to the terms of the Agreement, no member shall be personally
liable for any debt, obligation, or liability of the Company, whether that
liability or obligation arises in contract, tort, or otherwise. Additionally,
the Agreement shall terminate on December 31, 2035 unless extended or sooner
terminated.
The Company designs, develops, sells and supports wireless data services
and systems enabling people to use wireless handheld devices for data
communications and transactions. The Company operates in a highly competitive
environment subject to rapid technological change and emergence of new
technology. Although management believes its services are transferable to
emerging technologies, rapid changes in technology could have an adverse
financial impact on the Company.
The Company expects to expand its operations through continued capital
investment in new systems and services. The Company is not currently generating
sufficient cash flows from operations to support its current operating and
capital requirements. The Company has and will continue to be dependent upon its
members and other financing sources to fund these requirements.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Revenue Recognition
The Company derives subscriber revenue from the provision of real-time
access to information from selected financial markets integrated into existing
wireless communication platforms. Subscriber revenue consists of monthly fixed
charges for usage and equipment and is recognized as the service is provided on
a monthly basis and a one time non-refundable activation fee which is recognized
upon service activation. Direct activation costs are expensed as incurred. Also
included in subscriber revenue are market exchange fees for access to financial
information from the securities exchanges and markets, which are recognized as
the service is provided. Engineering services revenue is derived from the
provision of wireless integration consulting under time-and-materials and
fixed-fee contracts. Revenue on time-and-materials contracts is recognized as
services are performed. Revenue on fixed-fee contracts is recognized on the
percentage-of-completion method based on costs incurred in relation to total
estimated costs. Anticipated contract losses are recognized as soon as they
become known and estimable.
(b) Cost of Revenues
Cost of subscriber revenue consists primarily of airtime costs, financial
data costs, wireless handheld device costs, and securities and market exchange
fees. Cost of engineering services revenue consists of cash compensation and
related costs for engineering personnel and materials.
(c) Cash and Cash Equivalents
Cash equivalents include all highly liquid investments purchased with
original maturities of three months or less. Cash equivalents consist of
approximately $132,000, $193,000 and $299,000 in overnight repurchase agreements
and $0, $1,562,000 and $139,000 in money market accounts, at December 31, 1997
and 1998, and June 30, 1999 (unaudited) respectively.
F-7
<PAGE> 78
AETHER TECHNOLOGIES INTERNATIONAL, L.L.C.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
(d) Short-term Investments
Short-term investments consist of highly liquid investments with original
maturities greater than three months and less than one year and those
longer-term investments that the Company expects to liquidate within twelve
months. The Company has classified its short-term investments as "available for
sale" and carries such investments at fair value. Unrealized gains (losses) are
excluded from earnings and are reported as a separate component of other
comprehensive income until realized. Realized gains and losses from the sale of
these investments are determined on a specific identification basis.
(e) Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments, which include
cash equivalents, accounts receivable, accounts payable and accrued expenses
approximate their fair values.
(f) Concentration of Credit Risk
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of accounts receivable. The Company extends
credit to its customers on an unsecured basis in the normal course of business.
(g) Inventory
Inventory, net of allowance for obsolete and slow-moving inventory,
consists primarily of handheld and laptop computers, wireless modems, and
accessories and is stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method. The inventory of the Company is
subject to rapid technological changes which could have an adverse impact on its
realization in future periods. In addition, there are a limited number of
suppliers of the Company's inventory.
(h) Furniture, Computers and Equipment
Furniture, computers, and equipment are stated at cost. Depreciation is
calculated using the straight-line method over the estimated useful lives of the
assets, which range from three to seven years. The costs of leasehold
improvements are capitalized and amortized using the straight-line method over
the lesser of the lease term or the estimated useful life of the asset.
(i) Investments
The Company uses the equity method of accounting for advances to and
earnings and losses of its investments.
(j) Recovery of Long-Lived Assets
The Company's policy is to review its long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. The Company recognizes an impairment loss when the sum
of the expected future cash flows is less than the carrying amount of the asset.
The measurement of the impairment losses to be recognized is based upon the
difference between the fair value and the carrying amount of the assets.
(k) Unit Options and Warrants
The Company accounts for equity-based compensation arrangements in
accordance with the provisions of Accounting Principle Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees," and related interpretations, and
complies with the disclosure provisions of Statement of
F-8
<PAGE> 79
AETHER TECHNOLOGIES INTERNATIONAL, L.L.C.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation." Under APB No. 25, compensation expense is based upon the
difference, if any, on the date of grant, between the fair value of the
Company's stock and the exercise price. All equity-based awards to non-employees
are accounted for at their fair value in accordance with SFAS No. 123.
(l) Pro Forma Statements of Operations Data and Net Loss Per Share (Unaudited)
Prior to the closing of the Company's proposed initial public offering,
each member of the Company will contribute its membership units in the Company
to Aether Systems, Inc. in exchange for 2.5 shares of common stock of Aether
Systems, Inc. Following such contribution, the Company will merge with and into
Aether Systems, Inc., as a result of which all assets and liabilities of the
Company will be transferred to Aether Systems, Inc. Aether Systems, Inc. will be
subject to Federal and state taxes at prevailing corporate rates. Accordingly,
pro forma statements of operations data is based on the assumption that the
Company's merger with and into Aether Systems, Inc., had occurred at the
beginning of each period. The Company has provided no income taxes on a pro
forma basis due to the losses incurred in all periods.
The Company computes net income (loss) per share in accordance with SFAS
No. 128, "Earnings Per Share," and SEC Staff Accounting Bulletin No. 98 ("SAB
98"). Under the provisions of SFAS No. 128 and SAB 98, basic net income (loss)
per share is computed by the dividing the net income (loss) available to common
stockholders for the period by the weighted average number of common shares
outstanding during the period. Diluted net income (loss) per share is computed
by dividing the net income (loss) for the period by the weighted average number
of common and dilutive common equivalent shares outstanding during the period.
Pro forma basic and diluted net loss per share has been calculated assuming that
the capital structure established at the date of the proposed initial public
offering was in effect during the periods presented. As the Company had a net
loss in each of the periods presented, pro forma basic and diluted net loss per
share are the same.
(m) Research and Development
Research and development costs are expensed as incurred.
(n) Advertising Expense
Advertising costs are expensed as incurred. Advertising expense was
approximately $0, $248,000, and $504,000 for the years ended December 31, 1996,
1997 and 1998, respectively.
(o) Income Taxes
The Company has elected limited liability company status and, as such, is
not directly subject to federal and state income taxes. Instead, the members are
responsible for income taxes on their proportionate share of taxable income.
Members are also entitled to a proportionate share of tax deductions and
credits.
(p) 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 dates of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
F-9
<PAGE> 80
AETHER TECHNOLOGIES INTERNATIONAL, L.L.C.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
(q) Other Comprehensive Loss
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income", which established standards for reporting and displaying
comprehensive income and its components in financial statements. Comprehensive
income, as defined, includes changes in equity of a business enterprise during a
period from transactions and other events and circumstances from non-owner
sources. Other comprehensive income refers to revenue, expenses, gains and
losses that under generally accepted accounting principles are included in
comprehensive income, but excluded from net income.
During 1998 and for the six months ended June 30, 1999 (unaudited), other
comprehensive income (loss) consists of unrealized losses on investments
available for sale.
(r) Unaudited Interim Financial Information
The unaudited interim financial information as of June 30, 1999 and for the
six months ended June 30, 1998 and June 30, 1999, have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with instructions to Article 10 of Regulation S-X. In the
opinion of management, such information contains all adjustments, consisting of
only normal recurring adjustments, considered necessary for a fair presentation
of such periods. The operating results for any interim period are not
necessarily indicative of results for any future periods.
(s) Recent Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities. The new standard establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. This
statement, as amended, is effective for all fiscal quarters beginning after June
15, 2000. The Company does not expect SFAS No. 133 to have a material affect on
its financial position or results of operations.
(3) SHORT-TERM INVESTMENTS
As of December 31, 1998, short-term available-for-sale investments
consisted of:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST HOLDING GAINS HOLDING LOSSES VALUE
---------- ---------------- ---------------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities......... $1,929,810 $ -- $(21,677) $1,908,133
Corporate debt securities........ 4,319,507 11,881 (48,234) 4,283,154
---------- ------- -------- ----------
$6,249,317 $11,881 $(69,911) $6,191,287
========== ======= ======== ==========
</TABLE>
Maturities of debt securities classified as available-for-sale were as
follows at December 31, 1998:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
---------- ----------
<S> <C> <C>
Due within one year......................................... $2,124,838 $2,129,084
Due after one year through five years....................... 1,184,890 1,157,964
Due after five years through ten years...................... 1,435,695 1,412,043
Due after ten years......................................... 1,503,894 1,492,196
---------- ----------
$6,249,317 $6,191,287
========== ==========
</TABLE>
F-10
<PAGE> 81
AETHER TECHNOLOGIES INTERNATIONAL, L.L.C.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
As of June 30, 1999 (unaudited), short-term available-for-sale investments
consisted of:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST HOLDING GAINS HOLDING LOSSES VALUE
---------- ---------------- ---------------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities......... $1,770,135 $ -- $ (87,100) $1,683,035
Corporate debt securities........ 2,377,713 3,969 (107,115) 2,274,567
---------- ------ --------- ----------
$4,147,848 $3,969 $(194,215) $3,957,602
========== ====== ========= ==========
</TABLE>
Maturities of debt securities classified as available-for-sale were as
follows at June 30, 1999 (unaudited):
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
---------- ----------
<S> <C> <C>
Due within one year......................................... $ 725,593 $ 700,563
Due after one year through five years....................... 1,904,049 1,816,065
Due after five years through ten years...................... 909,142 836,928
Due after ten years......................................... 609,064 604,046
---------- ----------
$4,147,848 $3,957,602
========== ==========
</TABLE>
(4) FURNITURE, COMPUTERS AND EQUIPMENT
Furniture, computers and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
ESTIMATED --------------------- JUNE 30, 1999
USEFUL LIVES 1997 1998 (UNAUDITED)
------------ --------- --------- -------------
<S> <C> <C> <C> <C>
Furniture and fixtures.................. 7 Years $ 88,670 $ 102,345 $ 258,361
Computer and equipment.................. 3 Years 477,306 684,328 919,632
Software................................ 3 Years 175,000 175,000 175,000
Leasehold improvements.................. 5 Years 40,277 47,854 506,469
--------- --------- ----------
781,253 1,009,527 1,859,462
Less depreciation and amortization...... (234,405) (499,090) (692,613)
--------- --------- ----------
$ 546,848 $ 510,437 $1,166,849
========= ========= ==========
</TABLE>
(5) NOTES PAYABLE TO MEMBER
The Company had an unsecured note payable of $150,000 as of December 31,
1997 due to one of its members, Telcom Ventures LLC (Telcom Ventures). The note
carried interest at a rate of 7.5 percent and all principal and accrued interest
was due in January 1999, or earlier upon the occurrence of specified criteria.
The note payable, plus accrued interest, was repaid in 1998.
In June 1998, the Company borrowed $250,000 from one of its members,
Pyramid Ventures, Inc. (Pyramid) under a convertible promissory note. The note
was unsecured, bore interest at 8 percent per annum, and was convertible into
membership units at the option of the member. In August 1998, the member elected
to convert the note and accrued interest of $2,467 into 57,180 membership units
in accordance with its terms.
F-11
<PAGE> 82
AETHER TECHNOLOGIES INTERNATIONAL, L.L.C.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
In June 1998, the Company borrowed $250,000 from another one of its
members, Telcom Ventures, under a similar convertible promissory note. All
principal and accrued interest was paid by the Company in August 1998.
In connection with the convertible promissory notes, the Company granted
warrants to purchase 5,656 member units at an exercise price of $0.01 per unit
to Pyramid and Telcom Ventures (note 9). The estimated value of the warrants on
the grant date of $50,000 has been recognized in interest expense in 1998.
Pyramid exercised its warrants to purchase 5,656 member units in August 1998.
(6) MEMBERS' CAPITAL
Pursuant to the Agreement, the Company was formed with an initial
capitalization of 4,000,000 units. As of December 31, 1998, the Agreement was
modified to increase the capitalization of the Company to 10,000,000 units (note
12).
In January 1996, NexGen Technologies, L.L.C. (NexGen) contributed assets in
the wireless data field with a historical cost basis of $17,846 to the Company
in exchange for 3,000,000 units and Transettlements, Inc. (Transettlements)
contributed $1,000,000 in exchange for 1,000,000 units. In May 1996,
Transettlements contributed an additional $500,000 in exchange for an additional
500,000 units.
In February 1997, Telcom Ventures contributed $1,000,000 to the Company in
exchange for 625,000 units. In December 1997, Telcom Ventures contributed an
additional $690,369 to the Company in exchange for 230,123 units.
In January 1998, Pyramid acquired 401,961 units from the Company for total
proceeds to the Company of $1,499,314.
In August 1998, Reuters Market Clip Holdings SARL (Reuters) contributed
$5,000,000 to the Company in exchange for 1,131,222 units.
In November 1998, 3Com Corporation (3Com) contributed $6,000,000 in
exchange for 1,000,000 units.
There were, 5,355,123, 7,951,142 and 7,951,142 (unaudited) units issued and
outstanding as of December 31, 1997, 1998, and June 30, 1999 (unaudited),
respectively. An additional 685,000 units were reserved for issuance under the
Company's unit option plan as of December 31, 1998 (note 9).
(7) LEASES
The Company is obligated under three noncancelable operating leases for
office space, that expire at various dates through 2003. Future minimum lease
payments under noncancelable operating leases are approximately as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1999........................................................ $163,000
2000........................................................ 154,000
2001........................................................ 164,000
2002........................................................ 163,000
2003........................................................ 167,000
--------
Total minimum lease payments................................ $811,000
========
</TABLE>
Rent expense under operating leases was approximately $49,000, $84,000, and
$91,000 for the years ended December 31, 1996, 1997 and 1998, respectively.
F-12
<PAGE> 83
AETHER TECHNOLOGIES INTERNATIONAL, L.L.C.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
(8) PENSION PLAN
The Company has a defined contribution plan under Section 401(k) of the
Internal Revenue Code that provides for voluntary employee contributions of 1 to
15 percent of compensation for substantially all employees. The Company does not
contribute to the plan.
(9) UNIT OPTIONS AND WARRANTS
(a) Unit Options
In 1996, the Company adopted a Unit Option Plan (the Plan). As of December
31, 1998, the Plan provides for the issuance of a maximum of 685,000 units by
the Company to its employees (note 12). Options under the Plan generally expire
after ten years and normally vest over a period of up to three years. Options
are generally granted at an exercise price equal to the fair value on the grant
date, as determined by the members.
The Company recorded unit option and warrant expense of $0, $40,277, and
$32,580 in 1996, 1997, and 1998, respectively, to reflect the difference between
the exercise price and the fair market value of the units at the date of grant
(note 12).
The Company applies APB 25 and related interpretations in accounting for
its unit option plan. Had compensation cost been recognized consistent with SFAS
123, the Company's net loss would have increased by $21,000, $24,000, and
$41,000 for 1996, 1997, and 1998, respectively.
The per share weighted-average value of unit options issued by the Company
during 1996, 1997, and 1998 was $0.17, $0.16, and $0.55, respectively, on the
date of grant using the Black-Scholes option-pricing model. These amounts were
calculated using an expected option life of 3 years and volatility of zero. In
addition, the calculations assumed a risk-free interest rate of 6.22 percent in
1996, 5.77 percent to 6.25 percent in 1997, and 4.55 percent to 5.51 percent in
1998.
A summary of the unit option activity is as follows:
<TABLE>
<CAPTION>
JUNE 30, 1999
1996 1997 1998 (UNAUDITED)
--------------------- --------------------- --------------------- ---------------------
WEIGHTED- WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
NUMBER PRICE NUMBER PRICE NUMBER PRICE NUMBER PRICE
OF UNITS (PER UNIT) OF UNITS (PER UNIT) OF UNITS (PER UNIT) OF UNITS (PER UNIT)
-------- ---------- -------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year.. -- -- 277,375 $1.00 400,000 $1.00 618,000 $2.12
Options granted...... 277,375 $1.00 122,625 $1.00 241,875 $3.86 158,500 $4.44
Options exercised.... -- -- -- -- -- --
----
Options canceled..... -- -- -- -- (23,875) $1.00 (4,000) $3.73
------- ----- ------- ----- ------- ----- ------- -----
Outstanding at end of
year............... 277,375 $1.00 400,000 $1.00 618,000 $2.12 772,500 $2.59
======= ===== ======= ===== ======= ===== ======= =====
Options exercisable
at year-end........ 105,000 $1.00 238,688 $1.00 396,437 $1.25 471,937 $2.34
======= ===== ======= ===== ======= ===== ======= =====
Units available for
future grant....... 67,000 12,500
======= =======
</TABLE>
At December 31, 1998, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $1.00-$4.42, and 7.2
years, respectively.
F-13
<PAGE> 84
AETHER TECHNOLOGIES INTERNATIONAL, L.L.C.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
(b) Warrants
The Company granted warrants to purchase an aggregate 11,312 member units
at an exercise price of $0.01 per unit to Telcom Ventures and Pyramid, as
consideration for obtaining short-term loans. As of December 31, 1998, warrants
to purchase 5,656 member units had not been exercised (note 5).
In connection with the sale of membership units to 3Com, the Company
granted a conditional warrant to 3Com to purchase 357,466 member units at an
exercise price of $0.01 per unit. 3Com vests in 57,466 units upon completion of
a joint sales and marketing plan (note 12). 3Com vests in the remaining 300,000
warrants as follows: 150,000 warrants upon the occurrence of the Company
obtaining $6 million in engineering services revenue and 150,000 warrants upon
the Company obtaining 6,000 wireless service subscribers, all from opportunities
introduced by 3Com. If and when it becomes probable that 3Com will attain the
specified milestones necessary for the warrants to vest, the Company will begin
to record an expense reflecting the fair value of the warrant, which will be
determined in part based on the then market price of the common stock. The
Company would begin to recognize this expense based on the determination of
probability that the milestones would be achieved, continuing through the actual
vesting date. The Company would initially estimate the amount of the expense at
the time of the determination that achievement is probable, based in part on the
market price of the common stock at that time. At the time of the actual
vesting, the fair value of the warrant would be remeasured and, if different
from the value used in initially estimating the expense, the difference would be
reflected as an additional charge or credit at that time. As of December 31,
1998, the Company believes it is not yet probable that the member will attain
the specified milestones and, accordingly, no such expense has been recorded
(note 12).
(10) RELATED-PARTY TRANSACTIONS
(a) Notes Receivable from Member
As of December 31, 1997 and 1998, the Company had amounts due from a member
under short-term promissory notes of $10,000 and $137,879, respectively. The
Company classified the notes as a reduction of members' capital in the
accompanying statements of members' capital. The notes are callable by the
Company at any time and bear interest at a rate of 7.5 percent per annum.
(b) Consulting Agreements
The Company derived approximately 83 percent, 34 percent, and 39 percent of
its revenue for 1996, 1997, and 1998, respectively, from consulting arrangements
with one, one and two of its members, respectively. The Company had no trade
accounts receivable due from these members as of December 31, 1997 and 1998.
As of December 31, 1997, the Company had received an advance of $162,500
from two of its members under consulting arrangements. This amount was recorded
as deferred revenue in the accompanying 1997 balance sheet, and was subsequently
recognized as revenue in 1998, when the related consulting services were
performed.
(c) Purchases from Member
In 1998, the Company purchased approximately $560,000 of equipment and
inventory from a member.
F-14
<PAGE> 85
AETHER TECHNOLOGIES INTERNATIONAL, L.L.C.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
(11) INVESTMENTS
In February 1996, the Company made an investment of $750,000 to acquire a
20 percent interest in Real World Solutions, Inc. (RWS), a California company,
which was in the business of developing wireless middleware. The Company
accounted for its investment in RWS under the equity method and recorded its
proportionate share of losses generated by RWS. In July 1997, the Company sold
its interest in RWS to Puma Technology, Inc. (Puma), a Delaware company for
$205,000. The Company's carrying value of the investment in RWS as of the date
of sale was approximately $507,000 resulting in a realized loss on the sale of
the investment of approximately $302,000.
Concurrently with the sale of the Company's investment in RWS to Puma, the
Company entered into an agreement with Puma for $175,000 to obtain perpetual
license rights for certain wireless middleware software. This amount has been
capitalized and is being amortized over a three-year period.
In December 1996, the Company made an investment of $48,000 in Navox, Inc.,
(Navox) a privately-held Delaware company which provides wireless communication,
location and security system development services. In June 1997, the Company
made an additional investment of $26,457 in Navox. The Company's investment
represents an approximate 5.5 percent interest in Navox, and includes
representation on Navox's board of directors. The Company accounts for its
investment in Navox under the equity method of accounting and records its
proportionate share of losses generated by Navox. The Company derived
approximately 8 percent, 50 percent and 2 percent of its revenue for 1996, 1997
and 1998, respectively, under consulting arrangements with Navox. The Company
had trade accounts receivables of approximately $82,000 and $0 due from Navox as
of December 31, 1997 and 1998, respectively. The Company does not anticipate
significant revenue from Navox in the future.
(12) SUBSEQUENT EVENTS (UNAUDITED)
(a) Unit Options and Capitalization
On May 27, 1999, the Board increased the number of units for issuance under
the Plan to 785,000 and the capitalization of the Company was increased to
11,000,000 units. On July 29, 1999, the Board further increased the number of
units for issuance under the Plan to 1,050,000. The Company recorded unit option
and warrant expense of approximately $401,000 for the six month period ended
June 30, 1999, to reflect the difference between the exercise price and the fair
market value of the units at the date of grant over the vesting period.
(b) Warrants
In June 1999, 3Com completed the joint sales and marketing plan and was
vested in 57,466 warrants (note 9). As a result, the Company recorded unit
option and warrant expense of approximately $862,000. The Company believes that
it is not yet probable that the member will attain the specified milestones
relating to the remaining 300,000 warrants and, accordingly, no expense relating
to these warrants has been recorded.
(c) Employment Agreement with Chief Executive Officer
In June 1999, the Company entered into an employment agreement with its
Chief Executive Officer ("Executive"). As part of this agreement, the Executive
was granted 350,000 unit options at an exercise price of $4.00 per unit and the
right to grant an additional 50,000 unit options at an exercise price of $4.00
per unit to other key executives. These options vest only upon completion of an
initial public offering of the Company or sale of the Company at a price greater
than $15.00 per membership unit and expire in June 2009. Upon vesting of the
options, the Company will record unit option and warrant expense equal to the
difference between the fair value of the unit and the exercise price measured at
the date of the initial public offering or sale of Company times the number of
unit options. The Company expects to record unit
F-15
<PAGE> 86
AETHER TECHNOLOGIES INTERNATIONAL, L.L.C.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
option and warrant expense of between $11.4 million and $13.4 million at the
date of the proposed initial public offering.
(d) OpenSky Venture
On August 9, 1999, the Company entered into a new venture with a member,
forming a new Company called OpenSky. OpenSky was formed to develop wireless
Internet access, e-mail and electronic commerce services that address
opportunities in the emerging consumer and business mass markets. The Company
contributed a perpetual, non-exclusive, non-assignable, worldwide license to
certain proprietary software in exchange for a 26% equity interest in OpenSky in
the form of 7,000,000 shares of Series A Preferred Stock and an option to
purchase an additional 3,000,000 shares of Series A Preferred Stock for an
additional $2.5 million. Upon exercising the option, the Company would increase
their ownership in OpenSky to 33%. The option to acquire these additional shares
expires at the earlier of January 31, 2000 or 15 days after the close of an
initial public offering by the Company. Additionally, the Chief Executive
Officer of Company serves as Chairman of the OpenSky board of directors. The
Company will provide engineering services to OpenSky.
(e) Acquisition of Mobeo, Inc.
On August 19, 1999, the Company entered into a purchase agreement to
acquire all the outstanding common stock of Mobeo, Inc. ("Mobeo") for an
aggregate purchase price consisting of cash of $11,857,000 which includes
estimated acquisition costs of $150,000, and 18,442 unit options with an
exercise price of $12.00 per unit valued at approximately $374,000. The
acquisition was closed on September 29, 1999. Mobeo provides employees and
customers at major banks and financial institutions with continuous pricing
information and news headlines for foreign exchange, government securities, and
commodity markets on wireless handheld devices. Additionally, the Company
entered into two-year advisory service agreements with two former owners of
Mobeo which provide for the grant of an aggregate 125,000 unit options with an
exercise price of $15.00 per unit in the Company. The Company expects to record
approximately $2,201,000 as unit option and warrant expense over the two-year
term of the agreements. The Company also issued 22,000 options at an exercise
price of $6.00 per unit and 30,000 options at an exercise price of $12.00 per
unit to employees of Mobeo. The Company expects to record approximately
$1,068,000 as unit option and warrant expense over the vesting period of the
options of two years.
(f) Interim Credit Facilities
In September 1999, the Company entered into a $17,000,000 senior secured
credit facility with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated. The credit facility is for a one year term, with the possibility
of extension for an additional one year term and accrues interest at a variable
rate. The credit facility is collateralized by substantially all of the assets
of the Company and contains certain financial covenants. In connection with the
credit facility, the Company granted warrants to Merrill Lynch Capital
Corporation to purchase up to 967,876 of the member units in the Company which
become exercisable for no consideration if the Company does not repay the credit
facility in a timely manner.
On September 28, 1999, the Company borrowed approximately $14,830,000 under
the credit facility. The Company used approximately $11,700,000 of the proceeds
to purchase Mobeo, approximately $830,000 to pay fees and expenses related to
the credit facility, and approximately $2,300,000 for general corporate
purposes.
(g) Incentive Plans
In September 1999, the Company adopted the 1999 Equity Incentive Plan and a
Senior Bonus Plan.
F-16
<PAGE> 87
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Mobeo, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, changes in stockholders' equity (deficit) and cash flows, present
fairly, in all material respects, the financial position of Mobeo, Inc. at
December 31, 1997 and 1998, and the results of its operations and its cash flows
for the three years in the period ended December 31, 1998, 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 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
McLean, Virginia
March 10, 1999
F-17
<PAGE> 88
MOBEO, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1997 1998 1999
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.............................. $ 125,446 $ 193,913 $ 558,732
Accounts receivable, net............................... 278,620 293,895 276,263
Prepaid expenses and other............................. 37,032 28,724 23,464
Income tax refund receivable........................... 20,756 20,756 --
Deferred income tax.................................... 142,365 186,549 465,417
---------- ---------- ----------
Total current assets........................... 604,219 723,837 1,323,876
Property and equipment, net.............................. 321,876 405,148 335,703
Patents, net............................................. -- 30,307 29,411
Deposits................................................. 24,475 23,609 27,609
Deferred income tax...................................... 71,476 14,542 17,938
---------- ---------- ----------
Total assets................................... $1,022,046 $1,197,443 $1,734,537
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable....................................... $ 989,316 $1,130,184 $ 406,550
Accrued expenses....................................... 275,541 390,172 811,431
Income tax payable..................................... -- -- 54,154
Capital lease obligations.............................. 12,159 -- --
Deferred revenue....................................... 71,220 104,170 826,788
---------- ---------- ----------
Total current liabilities...................... 1,348,236 1,624,526 2,098,923
---------- ---------- ----------
Commitments and contingencies
Stockholders' equity (deficit):
Common stock; no par value, 10,000 shares authorized,
1,171 shares issued and outstanding................. -- -- --
Additional paid-in capital............................. 172,625 172,625 172,625
Accumulated deficit.................................... (455,795) (556,688) (537,011)
Notes receivable-related parties....................... (43,020) (43,020) --
---------- ---------- ----------
Total stockholders' deficit.................... (326,190) (427,083) (364,386)
---------- ---------- ----------
Total liabilities and stockholders' deficit.... $1,022,046 $1,197,443 $1,734,537
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-18
<PAGE> 89
MOBEO, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------ -------------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Service revenue.................... $6,484,864 $7,088,993 $8,580,786 $4,462,584 $5,047,195
Cost of services................... 2,947,185 3,148,051 3,040,743 1,518,457 1,757,188
---------- ---------- ---------- ---------- ----------
Gross profit....................... 3,537,679 3,940,942 5,540,043 2,944,127 3,290,007
---------- ---------- ---------- ---------- ----------
Selling, general and administrative
expenses:
Sales and marketing.............. 1,641,502 1,812,696 2,302,360 1,037,897 1,250,230
General and administrative....... 1,149,218 1,937,829 2,706,544 1,208,391 1,451,285
Research and development......... 94,609 174,867 496,570 168,355 427,210
Depreciation and amortization.... 355,276 464,419 112,903 48,237 60,405
---------- ---------- ---------- ---------- ----------
3,240,605 4,389,811 5,618,377 2,462,880 3,189,130
---------- ---------- ---------- ---------- ----------
Other expense (income):
Interest expense (income)........ -- 2,628 (4,969) (2,489) (15,559)
Loss on disposal of assets....... -- 148,000 14,778 1,187 50,569
---------- ---------- ---------- ---------- ----------
Total other expenses
(income)............... -- 150,628 9,809 (1,302) 35,010
---------- ---------- ---------- ---------- ----------
Income (loss) before income
taxes............................ 297,074 (599,497) (88,143) 482,549 65,867
Provision for (benefit from) income
taxes............................ 120,150 (211,841) 12,750 203,679 46,190
---------- ---------- ---------- ---------- ----------
Net income (loss).................. $ 176,924 $ (387,656) $ (100,893) $ 278,870 $ 19,677
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-19
<PAGE> 90
MOBEO, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
NOTES
ADDITIONAL RECEIVABLE
PAID-IN ACCUMULATED RELATED
SHARES AMOUNT CAPITAL DEFICIT PARTIES TOTAL
------ ------ ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995............... 1,171 $-- $172,625 $(245,063) $ -- $ (72,438)
Issuance of notes receivable-related
parties................................ -- -- -- -- (171,250) (171,250)
Net income............................... -- -- -- 176,924 -- 176,924
----- --- -------- --------- --------- ---------
Balance at December 31, 1996............... 1,171 $-- $172,625 $ (68,139) $(171,250) $ (66,764)
Issuance of notes receivable-related
parties................................ -- -- -- -- (65,603) (65,603)
Collections on notes receivable-related
parties................................ -- -- -- -- 71,250 71,250
Allowance for notes receivable-related
parties................................ -- -- -- -- 122,583 122,583
Net loss................................. -- -- -- (387,656) -- (387,656)
----- --- -------- --------- --------- ---------
Balance at December 31, 1997............... 1,171 -- 172,625 (455,795) (43,020) (326,190)
Net loss................................. -- -- -- (100,893) -- (100,893)
----- --- -------- --------- --------- ---------
Balance at December 31, 1998............... 1,171 $-- $172,625 $(556,688) $ (43,020) $(427,083)
----- --- -------- --------- --------- ---------
Allowance for notes receivable-related
parties................................ -- -- -- -- 43,020 43,020
Net income............................... -- -- -- 19,677 -- 19,677
----- --- -------- --------- --------- ---------
Balance at June 30, 1999 (unaudited)....... 1,171 $-- $172,625 $(537,011) $ -- $(364,386)
===== === ======== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-20
<PAGE> 91
MOBEO, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FOR THE YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------- ---------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................... $ 176,924 $(387,656) $(100,893) $ 278,870 $ 19,677
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Bad debt expense..................... 23,976 62,956 51,620 -- 23,697
Deferred income taxes................ 62,200 (211,841) 12,750 -- (282,264)
Depreciation and amortization........ 355,276 464,419 112,903 48,237 60,405
Loss on disposal of assets........... 57,472 148,009 14,778 -- 50,569
Allowance for notes
receivable-related parties........ -- 122,583 -- -- 43,020
Changes in assets and liabilities:
Accounts receivable............... 74,989 (181,580) (66,895) (125,801) (6,065)
Income tax refund receivable...... 6,414 (16,259) -- (33,770) 20,756
Restricted cash................... 15,000 -- -- -- --
Deposits, prepaid expenses and
other........................... 24,353 (30,990) 9,174 (16,822) 1,260
Accounts payable and accrued
expenses........................ (66,407) 179,434 255,499 (346,545) (302,375)
Income tax payable................ (60,940) (49,560) -- -- 54,154
Deferred revenue.................. (127,115) 4,114 32,950 315,986 722,618
--------- --------- --------- --------- ---------
Net cash provided by operating
activities.................... 542,142 103,629 321,886 120,155 405,452
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Purchase of property and equipment..... (347,526) (68,558) (210,804) (106,020) (40,633)
Payments to acquire patent............. -- -- (30,456) -- --
Advances of notes receivable-related
parties.............................. (171,250) (78,103) -- -- --
Collections on notes receivable-related
parties.............................. -- 83,750 -- -- --
--------- --------- --------- --------- ---------
Net cash used in investing
activities.................... (518,776) (62,911) (241,260) (106,020) (40,633)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Principal payments on capital leases... (42,268) (48,414) (12,159) (12,159) --
--------- --------- --------- --------- ---------
Net cash used in financing
activities.................... (42,268) (48,414) (12,159) (12,159) --
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and cash
equivalents............................ (18,902) (7,696) 68,467 1,976 364,819
Cash and cash equivalents at beginning of
the year............................... 152,044 133,142 125,446 125,446 193,913
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of the
year................................... $ 133,142 $ 125,446 $ 193,913 $ 127,422 $ 558,732
========= ========= ========= ========= =========
Supplemental disclosure of cash flow
information:
Cash paid for interest................. $ 20,360 $ 13,428 $ 1,378 $ 1,378 $ 152
========= ========= ========= ========= =========
Cash paid for income taxes............. $ 112,476 $ 65,819 $ -- $ -- $ --
========= ========= ========= ========= =========
Supplemental disclosure of non-cash
investing and financing activities:
Allowance for notes
receivable-related parties........ $ -- $ 122,583 $ -- $ -- $ 43,020
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-21
<PAGE> 92
MOBEO, INC.
NOTES TO FINANCIAL STATEMENTS
INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1999 AND 1998 IS UNAUDITED
1. ORGANIZATION
DocuPro, Inc. was incorporated in the District of Columbia and commenced
operations in January 1989. In June 1998, DocuPro reincorporated in the state of
Delaware and in September 1998 changed its name to Mobeo, Inc. (the Company).
The Company is an electronic publisher specializing in providing financial
information over wireless networks. The Company's F/X Alert(R) service provides
major banks and financial institutions with continuous pricing and news
headlines of foreign exchange, government securities, and commodity markets on a
palm sized data terminal. The Company's PocketFutures(R) product provides the
individual futures trader with continuous pricing and news headlines of future
markets. Subsequent to December 31, 1998, the Company launched the Mobeo1.0(R)
product, designed for the individual equities trader.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unaudited interim financial statements
The unaudited balance sheet as of June 30, 1999, the unaudited statements
of operations and cash flows for the six months ended June 30, 1998 and 1999 and
the statement of changes in stockholders equity (deficit) for the six months
ended June 30, 1999, have been prepared in accordance with generally accepted
accounting principles for interim financial information and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles. In the opinion
of management, all adjustments (consisting of only normal remaining accruals)
considered necessary for a fair presentation have been included. Operating
results for the six months ended June 30, 1999 are not necessarily indicative of
results that may be expected for the year ending December 31, 1999.
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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Cash and cash equivalents
All highly liquid instruments with original maturities of three months or
less are considered to be cash equivalents. The Company invests its cash
balances in repurchase accounts with a large financial institution.
Revenue recognition
The Company enters into one year service contracts for providing financial
information over wireless networks. For substantially all its customers, the
Company bills on a monthly cycle and recognizes revenue monthly. Certain of the
Company's customers are billed in advance annually with revenue deferred and
recognized on a monthly basis over the life of the agreement. Non-refundable
activation fees are billed and recognized at the time of initial subscription.
F-22
<PAGE> 93
MOBEO, INC.
NOTES TO FINANCIAL STATEMENTS
INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1999 AND 1998 IS UNAUDITED-CONTINUED
Concentration of credit risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and cash equivalents
and accounts receivable. The Company maintains its cash and cash equivalents in
bank accounts which, at times, may exceed federally insured limits. The Company
has not experienced any losses in such bank accounts. The Company believes it is
not exposed to any significant credit risk on cash and cash equivalents. The
Company regularly monitors all outstanding accounts receivable balances to
assess collectibility. Accounts receivable as of December 31, 1997 and 1998 and
June 30, 1999, are net of an allowance for doubtful accounts of $30,000, $32,700
and $32,700 (unaudited), respectively. The accounts receivable, which are not
collateralized, are due mainly from banks and financial institutions.
Although the Company has sales on a national basis, 75% of their revenue
were derived in the New York City area. No individual accounts receivable were
greater than 10% of total accounts receivable as of December 31, 1997 and 1998,
and June 30, 1999 (unaudited).
Property and equipment
Property and equipment are recorded at cost. Property and equipment under
capital leases are recorded at the lower of their fair market value or the
present value of future minimum lease payments determined at the inception of
the lease.
Amortization of leasehold improvements is recorded on a straight-line basis
over the shorter of the estimated useful life of the improvement or the term of
the lease. Amortization of property and equipment under capital leases is
recorded on a straight-line basis over the lease term. Property and equipment
under capital leases for which title passes to the Company at the conclusion of
the lease term is amortized on a straight line basis over the estimated useful
life of the related asset. Depreciation of other property and equipment is
recorded on a straight-line basis over expected useful lives of 3 to 10 years.
When property and equipment is retired or otherwise disposed, the related
cost and accumulated depreciation are removed from the accounts and any
resulting gain or loss is reflected in income. Costs associated with repairs and
maintenance are expensed as incurred.
Patents
The cost of acquiring patents was approximately $30,000 as of December 31,
1998. Upon approval, the patents are to be amortized on a straight-line basis
over their estimated economic life, which is less than the statutory life of the
patents.
Income taxes
The Company accounts for income taxes in accordance with the liability
method. Deferred tax assets and liabilities are recognized for tax consequences
in future years for differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse. The
provision for income taxes includes the current tax provision and the change
during the year in the net deferred tax liability or asset. A valuation
allowance is provided to reduce the deferred tax asset to a level which, more
likely than not, will be realized.
F-23
<PAGE> 94
MOBEO, INC.
NOTES TO FINANCIAL STATEMENTS
INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1999 AND 1998 IS UNAUDITED-CONTINUED
Recent accounting pronouncements
In June 1999, the FASB issued SFAS No. 137, Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of FASB No.
133 an amendment of FASB Statement No. 133, which defers the effective date of
SFAS No. 133 to all fiscal quarters of all fiscal years beginning after June 15,
2000. The Company will adopt SFAS No. 133 for the year ending December 31, 2000.
SFAS No. 133 requires that all derivative instruments be recorded on the balance
sheet at their fair value. Changes in the fair value of derivatives are recorded
each period in current earnings or other comprehensive income, depending on
whether a derivative is designated as part of a hedge transaction and, if it is,
the type of hedge transaction. Currently, the Company does not utilize
derivative instruments, therefore the adoption of SFAS No. 133 is not expected
to have a significant effect on the Company's results of operations or its
financial position.
Reclassifications
Certain amounts in the 1997 financial statements have been reclassified to
conform with the 1998 presentation.
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1997 1998 1999
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
System hardware and software....................... $ 278,202 $ 196,038 $ 205,195
Office furniture and equipment..................... 216,158 454,817 381,889
Leasehold improvements............................. 44,106 44,106 44,106
--------- --------- ---------
538,466 694,961 631,190
Less accumulated depreciation and amortization..... (216,590) (289,813) (295,487)
--------- --------- ---------
$ 321,876 $ 405,148 $ 335,703
========= ========= =========
</TABLE>
During 1997, the Company leased certain office equipment under capital
leases. As of December 31, 1997, the cost of the office equipment related to
these capital leases was $44,035, and the accumulated amortization was $27,684.
These leases were fully amortized in 1998. The Company did not enter into any
new capital leases in 1998 or as of June 30, 1999.
During 1997, the Company reassessed the useful life of their pagers, which
are provided to customers upon activation of services at no fee. Since the
Company's service agreements are for a one-year period and subject to
cancellation, non-payment and non-return risk, management changed the estimated
useful life from three years to immediate expense recognition when the pagers
are acquired. As a result, the remaining net book value of pagers acquired prior
to 1997 of $228,000 was charged to depreciation expense for the year ended
December 31, 1997, while pagers purchased for the years ended December 31, 1997
and 1998 totaled $138,000 and $281,000, respectively, and 114,000 (unaudited)
and $165,000 (unaudited) for the six months ended June 30, 1998 and 1999
respectively, were expensed as incurred.
During 1997 and 1998, the Company disposed of certain system hardware and
software equipment with an original cost of $435,000 and $54,310, respectively,
and accumulated amortization of $287,000 and
F-24
<PAGE> 95
MOBEO, INC.
NOTES TO FINANCIAL STATEMENTS
INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1999 AND 1998 IS UNAUDITED-CONTINUED
$35,675, respectively. The resulting losses on disposals are included as a
separate component on the statement of operations.
4. INCOME TAXES
The components of the provision for (benefit from) income taxes consisted
of the following:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------- -------------------
1997 1998 1998 1999
--------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current provision (benefit):
Federal..................................... $ -- $ -- $199,383 $263,090
State and local............................. -- -- 49,536 65,364
--------- ------- -------- --------
-- -- 248,919 328,454
--------- ------- -------- --------
Deferred provision (benefit):
Federal..................................... (169,073) 10,200 (39,388) (255,775)
State and local............................. (42,768) 2,550 (5,582) (26,489)
--------- ------- -------- --------
(211,841) 12,750 (45,240) (282,264)
--------- ------- -------- --------
Total provision for (benefit from) income
taxes..................................... $(211,841) $12,750 $203,679 $ 46,190
========= ======= ======== ========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Components of the
Company's net deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1997 1998 1999
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current deferred tax assets
Allowance for doubtful accounts...................... $ 64,848 $ 65,995 $ 79,718
Deferred revenue..................................... 30,264 36,611 325,122
Other................................................ 10,714 3,163 4,564
Net operating loss carryback......................... 36,539 80,780 56,013
-------- -------- --------
Total current deferred tax assets.................... $142,365 $186,549 $465,417
-------- -------- --------
Noncurrent deferred tax assets
Accumulated depreciation............................. 71,476 14,542 17,938
-------- -------- --------
Total noncurrent deferred tax assets................. 71,476 14,542 17,938
-------- -------- --------
Total deferred tax assets............................ $213,841 $201,091 $483,355
======== ======== ========
</TABLE>
The change in the deferred tax assets in 1998 primarily represents the
effect of changes in the amounts of temporary differences. The Company's 1998
provision for income taxes differs from the provision that would have resulted
from applying the federal statutory rates to net loss before taxes due to
permanent differences primarily attributable to deductible business meals and
entertainment and other permanent differences of 48%. The Company believes it is
more likely than not to realize the net deferred
F-25
<PAGE> 96
MOBEO, INC.
NOTES TO FINANCIAL STATEMENTS
INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1999 AND 1998 IS UNAUDITED-CONTINUED
tax asset and accordingly no valuation allowance has been provided as of
December 31, 1997 and 1998. This conclusion is based on, (i) the Company's
ability to carryback net operating losses to offset taxable income from previous
years and (ii) the Company's expected future profitability.
5. PROFIT SHARING AND 401(K) PLANS
The Company has a discretionary profit sharing plan and a self-directed
401(k) plan which cover all employees employed more than six months. Employees
become fully vested after three years of service. Employer contributions to the
profit sharing plan were $102,172 and $94,664 and contributions to the 401(k)
plan were $44,040 and $60,490 for the years ended December 31, 1997 and 1998,
respectively.
6. STOCK-BASED COMPENSATION
On April 30, 1998, the Company adopted the Omnibus Stock Option Plan (the
Plan), under which incentive stock options, non-qualified stock options, stock
appreciation rights, restricted or unrestricted stock awards, phantom stock,
performance awards or any combination thereof may be granted to the Company's
employees and certain other persons in accordance with the Plan. The Board of
Directors, which administers the Plan, determines the number of options granted,
the vesting period and the exercise price. The Board of Directors may terminate
the Plan at any time. Options granted under the Plan generally vest over a four
year period and expire ten years after the date of grant. Prior to the common
stock becoming publicly traded, the Company retains the right of first offer to
buy the employees' shares at the offer price. At December 31, 1998, 48 shares
were reserved for issuance under the Plan.
As of December 31, 1998 and June 30, 1999, a total of 35 and 45 incentive
stock options respectively, had been granted to employees, at an exercise price
of $3,250 per share. The exercise price was established by the Board of
Directors.
<TABLE>
<CAPTION>
WEIGHTED
INCENTIVE AVERAGE
STOCK EXERCISE
OPTIONS PRICE PRICE
--------- ------ --------
<S> <C> <C> <C>
Options outstanding at December 31, 1997.................. -- -- --
Options granted........................................... 35 $3,250 $3,250
Options exercised......................................... -- --
Options canceled.......................................... -- -- --
--- ------ ------
Options outstanding at December 31, 1998.................. 35 $3,250 $3,250
--- ------ ------
Options granted........................................... 10 $3,250 $3,250
Options exercised......................................... -- --
Options canceled.......................................... -- -- --
--- ------ ------
Options outstanding at June 30, 1999 (unaudited).......... 45 $3,250 $3,250
=== ====== ======
</TABLE>
At December 31, 1998 and June 30, 1999, no options were exercisable. The
weighted-average fair value of options granted during the year ended December
31, 1998 and the six months ended June 30, 1999 was $1,125 and $1,262
(unaudited) per share respectively, based on the Black-Scholes option pricing
model.
The Company measures compensation expense for its employee stock-based
compensation using the intrinsic value method and provides pro forma disclosures
of net loss as if the fair value method had been applied in measuring
compensation expense. Under the intrinsic value method of accounting for stock-
based compensation, when the exercise price of options granted to employees is
less than the fair value of
F-26
<PAGE> 97
MOBEO, INC.
NOTES TO FINANCIAL STATEMENTS
INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1999 AND 1998 IS UNAUDITED-CONTINUED
the underlying stock on the date of grant, compensation expense is to be
recognized over the applicable vesting period. No options granted through
December 31, 1998 and June 30, 1999, respectively, were less than fair value of
the underlying stock. Had the fair value method been applied, the Company's net
loss at December 31, 1998 would have been increased and the Company's net income
at June 30, 1999 would have been decreased to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1998
---------------------------
DECEMBER 31, JUNE 30,
1998 1999
------------ ------------
(UNAUDITED)
<S> <C> <C>
Net loss as reported........................................ $(100,893) $ 19,677
Pro forma net loss.......................................... $(103,313) $ 18,275
</TABLE>
The fair value of each option is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants during the year ended December 31, 1998 and the six
months ended June 30, 1999: dividend yield of 0%, expected volatility of 0%,
risk-free interest rate of 5.07% and 5.53%, respectively, and expected term of 9
years.
As of December 31, 1998 and June 30, 1999, the weighted average remaining
contractual life of the options is 9.7 years and 9.9 years, respectively.
7. COMMITMENTS AND CONTINGENCIES
Data services and royalty arrangement
In January 1995, the Company entered into a multi-year distribution
agreement with a provider of financial information for transmission to the
Company's customers. During 1998, the Company entered into two additional
multi-year agreements with new suppliers. Under these agreements, the Company
pays a monthly royalty to the data suppliers based on the number of wireless
units receiving data. Included in accounts payable at December 31, 1997 and 1998
and June 30, 1999, is $566,685, $200,000 and $68,923 (unaudited), respectively,
related to purchases of financial information for transmission to customers.
Paging services
In April 1994, the Company entered into a multi-year nonexclusive national
reseller agreement with a wireless messaging service provider. During 1998, the
Company entered into two additional multi-year nonexclusive national reseller
agreements with new suppliers. Under the terms of these agreements, the Company
is purchasing paging services from these providers for the purpose of marketing
and reselling such services to end users.
Vulnerabilities due to certain concentrations
The Company obtains all of its data from three sources and resells
primarily through one wireless messaging provider. Although there are a limited
number of data sources and messaging service providers, management believes that
they could obtain such services on terms comparable to the Company's existing
agreements. A change in suppliers, however, could cause delays in service, which
would adversely affect the Company's financial position, results of operations
and cash flows.
F-27
<PAGE> 98
MOBEO, INC.
NOTES TO FINANCIAL STATEMENTS
INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1999 AND 1998 IS UNAUDITED-CONTINUED
Leases
The Company leases office space in Bethesda, Maryland for its corporate
headquarters under an agreement which expires in December 1999. In addition, the
Company maintains facilities in New York, N.Y., under an agreement which expires
in 1999. The lease agreement for its corporate headquarters contains provisions
allowing free rent periods and periodic rate increases during the lease terms.
The Company recognizes rent expense under operating leases ratably over the
lease terms. As of December 31, 1997 and 1998 and June 30, 1999, the Company had
$13,000 and $7,000 and $3,000 (unaudited), respectively, recorded as deferred
rent included in accrued expenses. Total rent expense was $238,783 and $239,936
for the years ended December 31, 1997 and 1998, respectively and $112,312
(unaudited) and $142,894 (unaudited) for the six months ended June 30, 1998 and
1999, respectively.
In addition to office space, the Company leases an automobile under a 36
month operating lease, which expires in 1999.
Future minimum lease payments under non-cancelable operating leases are as
follows:
<TABLE>
<S> <C>
1999.............................................. $201,695
</TABLE>
8. RELATED PARTY TRANSACTIONS
In 1996, the Company advanced $171,250 to certain employees and
shareholders under notes receivable arrangements. During 1997, the Company
advanced an additional $78,103 under these arrangements, and received $83,750 in
collections on the notes receivables. There is no planned settlement of the
notes receivable balance in the foreseeable future, therefore the Company has
classified the amounts as a component of stockholders' equity (deficit). Under
these arrangements, the Company provided an allowance for doubtful accounts of
$122,583 to reflect the net realizable value of the notes at December 31, 1997
and 1998, respectively.
9. SUBSEQUENT EVENTS (UNAUDITED)
On July 14, 1999, the Company executed a Promissory Note with one of its
employees for $20,000. The Promissory Note bears interest at 7%. Principal and
interest payments are due beginning on September 1, 2002 with the final payment
due on August 1, 2006.
On June 30, 1999, the Company accrued $154,000 for a pending legal claim
filed against the Company. This accrual relates to a dispute between the Company
and its former data transmitter vendor. The vendor maintains that the Company is
liable for late fee charges, exchange fees and lost pager fees that the Company
previously deducted from a royalty payment made to the vendor. The Company is
investigating the charges and believes the charges are without merit. No
assurance can be given, however, that this matter will be resolved in the
Company's favor.
F-28
<PAGE> 99
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION
The unaudited pro forma condensed consolidated financial information has
been prepared by Aether's management and gives effect to the Mobeo acquisition.
The pro forma condensed consolidated statements of operations for the year ended
December 31, 1998 and for the six months ended June 30, 1999 have been prepared
to give effect to the Mobeo acquisition as if it had occurred on January 1,
1998. The pro forma net loss per share information gives effect to our
conversion from a limited liability company to a corporation. The pro forma
condensed consolidated balance sheet as of June 30, 1999 gives effect to the
Mobeo acquisition as if it had occurred on June 30, 1999. The pro forma
consolidated as adjusted balance sheet information gives effect to the Mobeo
acquisition and the conversion to a corporation plus the offering of shares
covered by this prospectus and the application of the net proceeds.
The pro forma adjustments, which are based upon available information and
certain assumptions that Aether believes are reasonable in the circumstances,
are applied to the historical financial statements of Aether and Mobeo. The
Mobeo acquisition is accounted for under the purchase method of accounting.
Aether's allocation of the purchase price is based upon the estimated fair value
of assets acquired and liabilities assumed in accordance with Accounting
Principles Board Opinion No. 16. The purchase price allocations reflected in the
accompanying unaudited pro forma condensed consolidated financial statements may
be different from the final allocation of the purchase price and any such
differences may be material.
The accompanying unaudited pro forma condensed consolidated financial
information should be read in conjunction with the historical financial
statements and the notes thereto for both Aether and Mobeo, which are included
elsewhere in this prospectus. The unaudited pro forma condensed consolidated
financial statements are provided for informational purposes only and do not
purport to represent what Aether's financial position or results of operations
would actually have been had the Mobeo acquisition occurred on such dates or to
project Aether's results of operations or financial position for any future
period.
F-29
<PAGE> 100
AETHER SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
-----------------------------------------------------------------------------------------------
PRO FORMA
ACQUISITION PRO FORMA PRO FORMA
HISTORICAL HISTORICAL AND FINANCING PRO FORMA OFFERING CONSOLIDATED
AETHER MOBEO ADJUSTMENTS CONSOLIDATED ADJUSTMENTS AS ADJUSTED
---------- ---------- ------------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..... $ 457,305 $ 558,732 $ 2,143,000(A) $ 3,159,037 $ 61,990,000(B) $65,149,037
Short-term investments........ 3,957,602 -- 3,957,602 3,957,602
Accounts receivable, net...... 124,873 276,263 401,136 401,136
Inventory, net................ 88,368 -- 88,368 88,368
Prepaid and other current
assets...................... 71,816 23,464 95,280 95,280
Deferred income tax........... -- 465,417 (465,417)(A) -- --
---------- ---------- ----------- ----------- ------------ -----------
Total current assets........ 4,699,964 1,323,876 1,677,583 7,701,423 61,990,000 69,691,423
Property and equipment, net of
accumulated depreciation...... 1,166,849 335,703 1,502,552 1,502,552
Other assets.................... -- 27,609 27,609 27,609
Deferred income taxes........... -- 17,938 (17,938)(A) --
Deferred financing fees......... -- -- 830,000(A) 830,000 (830,000)(B) --
Other intangibles............... -- -- 6,600,000(A) 6,600,000 6,600,000
Goodwill........................ -- 29,411 9,064,587(A) 9,093,998 9,093,998
---------- ---------- ----------- ----------- ------------ -----------
Total assets................ $5,866,813 $1,734,537 $18,154,232 $25,755,582 $ 61,160,000 $86,915,582
========== ========== =========== =========== ============ ===========
LIABILITIES, MEMBERS' CAPITAL AND STOCKHOLDERS' EQUITY
Current liabilities :
Accounts payable.............. $ 347,919 $ 406,550 $ 754,469 $ $ 754,469
Accrued expenses.............. 653,012 811,431 1,464,443 1,464,443
Income tax payable............ -- 54,154 (54,154)(A) -- --
Deferred revenue.............. 25,000 826,788 851,788 851,788
Note payable.................. -- -- 14,830,000(A) 14,830,000 (14,830,000)(B) --
---------- ---------- ----------- ----------- ------------ -----------
Total current liabilities... 1,025,931 2,098,923 14,775,846(A) 17,900,700 (14,830,000) 3,070,700
Deferred tax liability.......... -- -- 2,640,000(A) 2,640,000 2,640,000
Members' capital................ 4,840,882 -- 374,000(A) 5,214,882 (5,214,882)(B) --
Stockholders' equity (deficit):
Preferred stock, $0.01 par
value; 1,000,000 shares
authorized; 0 shares issued
and outstanding (pro forma
consolidated, as
adjusted)................... -- -- -- --
Common stock, $0.01 par value;
75,000,000 shares
authorized, 26,066,995
shares issued and
outstanding (pro forma
consolidated, as
adjusted)................... -- -- -- 260,670(B) 260,670
Additional paid-in-capital.... -- 172,625 (172,625)(A) -- 81,774,212(B) 81,774,212
Accumulated deficit........... -- (537,011) 537,011(A) -- (830,000)(B) (830,000)
---------- ---------- ----------- ----------- ------------ -----------
Total stockholders' equity
(deficit)................. -- (364,386) 364,386 -- 81,204,882 81,204,882
---------- ---------- ----------- ----------- ------------ -----------
Total liabilities, members'
capital and stockholders'
equity.................... $5,866,813 $1,734,537 $18,154,232 $25,755,582 $ 61,160,000 $86,915,582
========== ========== =========== =========== ============ ===========
</TABLE>
- ---------------
(A) The Mobeo acquisition is to be accounted for as a purchase pursuant to
Accounting Principles Board Opinion No. 16. Under such purchase accounting
principles, Mobeo's assets acquired and liabilities assumed are required to
be adjusted to their estimated fair values at the date of acquisition. The
difference between the purchase cost and the fair value of Mobeo's net
tangible and identifiable intangible assets is goodwill.
The purchase price for Mobeo is as follows:
<TABLE>
<S> <C>
Cash consideration................................ $11,707,000
Units options..................................... 374,000*
Estimated costs and expenses...................... 150,000
-----------
Total purchase price.......................... $12,231,000
===========
</TABLE>
- ---------------
* Represents the value of 18,442 fully vested unit options at an exercise price
of $12.00 per unit granted to three employees of Mobeo in exchange for their
fully vested options in Mobeo. The value of the unit options was calculated
using the Black-Scholes option pricing model with the following assumptions:
fair market value of $30.00 per unit, expected dividend yield 0 percent,
risk-free interest rate of 4.0 percent, expected life of two years and
volatility of 70 percent.
F-30
<PAGE> 101
The Company financed the acquisition of Mobeo with a short-term note
payable. The Company expects to repay this short-term note payable with the
proceeds from its initial public offering.
The allocation of the purchase price to the fair value of the assets
acquired and liabilities assumed is preliminary and will be finalized following
completion of a full valuation of acquired assets and liabilities of Mobeo. The
preliminary allocation of the purchase price is as follows:
<TABLE>
<S> <C>
Current assets.................................... $ 858,459
Fixed assets, net................................. 335,703
Other assets...................................... 27,609
Current liabilities............................... (2,044,769)
Deferred tax liability............................ (2,640,000)***
In-place workforce................................ 200,000**
Acquired subscribers.............................. 6,400,000**
Goodwill.......................................... 9,093,998
-----------
Total purchase cost........................... $12,231,000
===========
</TABLE>
** The Company plans to amortize identifiable intangible assets and goodwill as
follows:
In-place workforce 3
years
Acquired subscribers 5
years
Goodwill 7 years
*** The Company has recorded a deferred tax liability of $2,640,000 due to the
fact that the identifiable intangible assets, in-place workforce and
acquired subscribers have no basis for tax reporting purposes. The deferred
tax liability was determined using a tax rate of 40 percent.
Also reflects the borrowing of $14,830,000 under a short-term not payable
for: related payment of deferred financing fees of $830,000, payment of
acquisition costs of $11,857,000, and cash of $2,143,000 for general
corporate purposes.
(B) Reflects the sale of 6,000,000 shares of Common Stock in the Offering at an
assumed initial public offering price of $14.00 per share, after deducting
underwriting discounts and commissions and offering expenses, the repayment
of the short-term note payable, and the merger of the Company with and into
Aether Systems, Inc. at an assumed conversion of one unit to 2.5 shares of
Common Stock. Also includes recording of expense for deferred financing fees
of $830,000 associated with repayment of short-term note payable.
F-31
<PAGE> 102
AETHER SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999
-----------------------------------------------------------
PRO FORMA
HISTORICAL HISTORICAL ACQUISITION PRO FORMA
AETHER MOBEO ADJUSTMENTS CONSOLIDATED
----------- ---------- --------------- ------------
<S> <C> <C> <C> <C>
Revenues:
Subscriber revenue........................................ $ 598,810 $5,047,195 $ 5,646,005
Engineering service revenue............................... 188,274 -- 188,274
----------- ---------- -----------
Total revenue........................................... 787,084 5,047,195 5,834,279
----------- ---------- -----------
Cost of subscriber revenue.................................. 530,823 1,757,188 2,288,011
Cost of engineering service revenue......................... 119,829 -- 119,829
----------- ---------- -----------
Total cost of revenue................................... 650,652 1,757,188 2,407,840
----------- ---------- -----------
Gross profit....................................... 136,432 3,290,007 3,426,439
----------- ----------
Operating expenses:
Research and development.................................. 1,002,107 427,210 1,429,317
General and administrative................................ 1,582,600 1,451,285 $ (516,289)(B) 2,517,596
Selling and marketing..................................... 555,428 1,250,230 (446,405)(B) 1,359,253
Depreciation and amortization............................. 193,523 60,405 1,322,905(A) 1,576,833
Unit option and warrant expense........................... 1,263,150 -- 817,250(C) 2,080,400
----------- ---------- ----------- -----------
Total operating expenses................................ 4,596,808 3,189,130 1,177,461 8,963,399
----------- ---------- ----------- -----------
Operating (loss) income..................................... (4,460,376) 100,877 (1,177,461) (5,536,960)
Interest income, net(E)..................................... 140,753 15,559 156,312
Other income (loss)......................................... -- (50,569) (50,569)
----------- ---------- ----------- -----------
(Loss) income before income tax provision................... (4,319,623) 65,867 (1,177,461) (5,431,217)
46,190 (46,190)(D)
Income tax provision........................................ -- -- (269,933)(D) (269,933)
----------- ---------- ----------- -----------
Net (loss) income........................................... $(4,319,623) $ 19,677 $ (861,338) $(5,161,284)
=========== ========== =========== ===========
Pro forma net (loss) income per share-basic and
diluted(F)................................................ $ (0.20)
===========
Pro forma weighted average shares used in per share
computations: basic and diluted(F)........................ 25,877,855
===========
</TABLE>
- ---------------
(A) Reflects the amortization of intangible assets, including goodwill over
three to seven year periods. The estimated period of amortization of
identifiable intangible assets and goodwill is based on preliminary
allocations of values to identifiable intangible assets of Mobeo. The
Company does not believe that the final allocation of values to intangible
assets and goodwill of Mobeo will result in amortization expense materially
different from the adjustment above.
(B) Reflects the elimination of compensation expense associated with certain
management employees of Mobeo who will cease employment following the
acquisition and will not be replaced.
(C) Reflects the amortization of the estimated fair value of 125,000 unit
options with an exercise price of $15.00 per unit granted to two former
owners of Mobeo for consulting services over the two year lives of the
consulting agreements. The value of the unit options was calculated using
the Black-Scholes option pricing model with the following assumptions: fair
market value of $30.00 per unit, expected dividend yield of 0 percent,
risk-free interest rates of 4.0 percent, expected life of eighteen months
and volatility of 70 percent. Also reflects amortization of the fair value
of 30,000 unit options at an exercise price of $12.00 per unit and 22,000
unit options at an exercise price of $6.00 per unit granted to employees of
Mobeo. The value of the unit options was calculated using the difference
between the exercise price and the fair market value of $30.00 per unit.
(D) Reflects the elimination of the current income tax provision due to the
Company's net operating losses and the recording of a deferred tax benefit
related to the amortization of identifiable intangibles.
(E) The pro forma condensed consolidated statement of operations does not
reflect any interest expense associated with the short-term debt expected to
be used to finance the acquisition of Mobeo as the Company expects to repay
such short-term debt with the proceeds from its initial public offering.
(F) The pro forma loss per share information gives effect to the merger of the
Company with and into Aether Systems, Inc. in which each unit will be
exchanged for 2.5 shares of common stock in Aether Systems, Inc., and the
issuance of 6,000,000 shares of common stock at a price of $14.00 per share.
F-32
<PAGE> 103
AETHER SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
-----------------------------------------------------------
PRO FORMA
HISTORICAL HISTORICAL ACQUISITION PRO FORMA
AETHER MOBEO ADJUSTMENTS CONSOLIDATED
----------- ---------- --------------- ------------
<S> <C> <C> <C> <C>
Revenues:
Subscriber revenue..................................... $ 549,057 $8,580,786 $ 9,129,843
Engineering service revenue............................ 963,165 -- 963,165
----------- ---------- -----------
Total revenue........................................ 1,512,222 8,580,786 10,093,008
----------- ---------- -----------
Cost of subscriber revenue............................... 797,165 3,040,743 3,837,908
Cost of engineering service revenue...................... 304,137 -- 304,137
----------- ---------- -----------
Total cost of revenue................................ 1,101,302 3,040,743 4,142,045
----------- ---------- -----------
Gross profit.................................... 410,920 5,540,043 5,950,963
----------- ---------- -----------
Operating expenses:
Research and development............................... 1,267,320 496,570 1,763,890
General and administrative............................. 2,773,332 2,706,544 $ (889,761)(B) 4,590,115
Selling and marketing.................................. 840,455 2,302,360 (789,524)(B) 2,353,291
Depreciation and amortization.......................... 264,685 112,903 2,645,810(A) 3,023,398
Unit option and warrant expense........................ 32,580 -- 1,634,500(C) 1,667,080
----------- ---------- ----------- -----------
Total operating expenses............................. 5,178,372 5,618,377 2,601,025 13,397,774
----------- ---------- ----------- -----------
Operating loss........................................... (4,767,452) (78,334) (2,601,025) (7,446,811)
Interest income, net(E).................................. 74,180 4,969 79,149
Loss on disposal of assets............................... -- (14,778) (14,778)
----------- ---------- ----------- -----------
Loss before income tax provision......................... (4,693,272) (88,143) (2,601,025) (7,382,440)
Income tax provision..................................... -- 12,750 (12,750)(D) --
(539,866)(D) (539,866)(D)
----------- ---------- ----------- -----------
Net loss................................................. $(4,693,272) $ (100,893) $(2,048,409) $(6,842,574)
=========== ========== =========== ===========
Pro forma net loss per share basic and diluted (F)....... $ (0.31)
===========
Pro forma weighted average shares used in per share
computations: basic and diluted(F)..................... 21,916,383
===========
</TABLE>
- ---------------
(A) Reflects the amortization of intangible assets, including goodwill over
three to seven year periods. The estimated period of amortization of
identifiable intangible assets and goodwill is based on preliminary
allocations of values to identifiable intangible assets of Mobeo. The
Company does not believe that the final allocation of values to intangibles
and goodwill of Mobeo will result in amortization expense materially
different from the adjustment above.
(B) Reflects the elimination of compensation expense associated with certain
management employees of Mobeo who will cease employment following the
acquisition and will not be replaced.
(C) Reflects the amortization of the estimated fair value of 125,000 unit
options at an exercise price of $15.00 per unit granted to former owners of
Mobeo for consulting services over the two year lives of the consulting
agreements. The value of the unit options was calculated using the
Black-Scholes option pricing model with the following assumptions: fair
market value of $30.00 per unit, expected dividend yield of 0 percent,
risk-free interest rate of 4.0, expected life of eighteen months and
volatility of 70 percent. Also reflects amortization of the fair value of
30,000 unit options at an exercise price of $12.00 per unit and 22,000 unit
options at an exercise price of $6.00 per unit granted to employees of
Mobeo. The value of the unit options was calculated using the difference
between the exercise price and the fair market value of $30.00 per unit.
(D) Reflects the elimination of the current income tax provision due to the
Company's net operating losses and the recording of deferred tax benefit
related to the amortization of identifiable intangibles.
(E) The pro forma condensed consolidated statement of operations does not
reflect any interest expense associated with the short-term debt expected to
be used to finance the acquisition of Mobeo as the Company expects to repay
such short-term debt with the proceeds from its initial public offering.
(F) The pro forma loss per share information gives effect to the merger of the
Company with and into Aether Systems, Inc. in which each unit will be
exchanged for 2.5 shares of common stock in Aether Systems, Inc., and the
issuance of 6,000,000 shares of common stock at a price of $14.00 per share.
F-33
<PAGE> 104
[DESCRIPTION OF INSIDE BACK COVER:]
The inside back cover includes the Aether logo and the words "Bringing
wireless data to the enterprise."
<PAGE> 105
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Through and including , 1999 (the 25th day after the date of this
prospectus), all dealers effecting 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.
6,000,000 SHARES
[AETHER LOGO]
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
MERRILL LYNCH & CO.
ROBERTSON STEPHENS
DONALDSON, LUFKIN & JENRETTE
U.S. BANCORP PIPER JAFFRAY
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 106
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses to be paid by Aether Systems, Inc. ("Aether" or "Aether
Systems") in connection with the distribution of the securities being
registered, other than underwriting discounts and commission, are as follows:
<TABLE>
<CAPTION>
AMOUNT(1)
----------
<S> <C>
Securities and Exchange Commission Registration Fee......... $ 31,171
NASD Filing Fee............................................. 8,000
Nasdaq National Market Listing Fee.......................... 95,000
Accounting Fees and Expenses................................ 400,000
Blue Sky Fees and Expenses.................................. 10,000
Legal Fees and Expenses..................................... 500,000
Transfer Agent and Registrar Fees and Expenses.............. 25,000
Printing and Engraving Expenses............................. 250,000
Director and Officer Liability Insurance (2)................ 190,000
Miscellaneous Fees and Expenses............................. 30,829
----------
Total............................................. $1,540,000
==========
</TABLE>
- ---------------
(1) All amounts are estimates except the SEC filing fee, the NASD filing fee and
the Nasdaq National Market listing fee.
(2) Represents premiums paid by Aether on policies that insure Aether' directors
and officers against certain liabilities they may incur in connection with
the registration, offering and sale of the securities described herein.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the General Corporate law of the State of Delaware,
Aether Systems has broad powers to indemnify its directors and officers against
liabilities they may incur in such capacities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). Aether Systems'
bylaws (Exhibit 3.2 hereto) also provide for mandatory indemnification of its
directors and executive officers, and permissive indemnification of its
employees and agents, to the fullest extent permissible under Delaware law.
Aether's certificate of incorporation (Exhibit 3.1 hereto) provides that
the liability of its directors for monetary damages shall be eliminated to the
fullest extent permissible under Delaware law. Pursuant to Delaware law, this
includes elimination of liability for monetary damages for breach of the
directors' fiduciary duty of care to Aether and its stockholders. These
provisions do not eliminate the directors' duty of care and, in appropriate
circumstances, equitable remedies such as injunctive or other forms of non-
monetary relief will remain available under Delaware law. In addition, each
director will continue to be subject to liability for breach of the director's
duty of loyalty to Aether, for acts or omissions not in good faith or involving
intentional misconduct, for knowing violations of law, for any transaction from
which the director derived an improper personal benefit, and for payment of
dividends or approval of stock repurchases or redemptions that are unlawful
under Delaware law. The provision also does not affect a director's
responsibilities under any other laws, such as the federal securities laws or
state or federal environmental laws.
Prior to the effective date of the Registration Statement, Aether will have
entered into agreements with its directors and certain of its executive officers
that require Aether to indemnify such persons against
II-1
<PAGE> 107
expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred (including expenses of a derivative action) in connection
with any proceeding, whether actual or threatened, to which any such person may
be made a party by reason of the fact that such person is or was a director or
officer of Aether or any of its affiliated enterprises, provided such person
acted in good father and in a manner such person reasonably believed to be in or
not opposed to the best interests of Aether and, with respect to any criminal
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The indemnification agreements also set forth certain procedures that will apply
in the event of a claim for indemnification thereunder.
Aether intends to obtain in conjunction with the effectiveness of the
Registration Statement a policy of directors' and officers' liability insurance
that insures Aether's directors and officers against the cost of defense,
settlement or payment of a judgment under certain circumstances.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the underwriters of Aether and its
officers and directors for certain liabilities arising under the Securities Act
or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since its inception, the registrant's predecessor, Aether Technologies
International, L.L.C. ("Aether LLC") has issued and sold unregistered securities
in the transactions described below.
1) In January 1996, NexGen Technologies, L.L.C. contributed assets in the
wireless data field to Aether LLC in exchange for 3,000,000 units and
Transettlements, Inc. contributed $1,000,000 in cash in exchange for 1,000,000
units. On May 21, 1996, Transettlements contributed an additional $500,000 in
exchange for an additional 500,000 units.
2) In February 1997, a subsidiary of Telcom Ventures, L.L.C. acquired
290,000 units from Transettlements and contributed $1,000,000 to Aether LLC in
exchange for 625,000 units. In December 1997, Telcom Ventures and its subsidiary
contributed an additional $690,369 to Aether LLC in exchange for an additional
230,123 units.
3) In January 1998, Pyramid Ventures, Inc., a subsidiary of Bankers Trust
Corporation, acquired 333,333 units at $3.00 per unit and 401,961 units at $3.73
per unit for total proceeds to Aether LLC of approximately $2.5 million.
In June 1998, Telcom Ventures and Pyramid each loaned us $250,000. The
notes accrued interest at 8% per year and were due on demand with a stated
maturity date of the earlier of December 31, 1998 or the closing of an
anticipated private placement of units. The notes were convertible into units at
the option of the holder at the rate of $250,000 divided by the per unit price
to be paid in the anticipated private placements. In connection with the
issuance of these notes, we also issued 5,656 warrants with an exercise price of
$0.01 per unit to each of Telcom Ventures and Pyramid. Pyramid converted its
$250,000 loan plus accrued interest in August 1998 into 57,180 units at a per
unit price of $4.42 and exercised its warrant and acquired 5,656 units. In
August 1998, we repaid the amount owed Telcom Ventures, including $2,520 in
interest. Telcom Ventures exercised its warrant and received 5,656 units in
August 1999.
4) In August 1998, Reuters MarketClip Holdings Sarl received 1,131,222
units in exchange for $4,735,020 in cash and forgiveness of $530,980 Aether LLC
owed Reuters for hardware and other inventory, offset by $266,000 Reuters owed
us under a license agreement we previously entered into with Reuters relating to
sales of MarketClip, and related fees.
5) In October 1998, 3Com Corporation contributed $6,000,000, in exchange
for 1,000,000 units. At the same time Aether LLC issued 3Com a conditional
warrant to purchase 357,466 units exercisable at $0.01 per unit if the
milestones described below are achieved before October 29, 2001. 3Com achieved
the first milestone entitling it to exercise 57,466 units as a result of having
completed a joint sales and marketing plan. 3Com may exercise an additional
150,000 units when Aether LLC receives revenue of $6 million in engineering
services revenue from business opportunities introduced by 3Com. 3Com may
II-2
<PAGE> 108
exercise an additional 150,000 units if Aether LLC attains 6,000 wireless
service subscribers as a result of business opportunities introduced to us by
3Com. 3Com has not attained either of these last two milestones and has not
exercised any of its warrants.
6) Aether LLC from time to time has granted options or warrants to acquire
units to employees and members of the managing board. The following table sets
forth certain information regarding such grants:
<TABLE>
<CAPTION>
RANGE OF
NO. OF UNITS EXERCISE PRICES
------------ ---------------
<S> <C>
1996 277,375 $1.00
1997 122,625 $1.00
1998 241,875 $3.73-$4.42
1999 1,007,142 $4.42-$20.00
</TABLE>
7) Prior to the closing of this offering, each member of Aether LLC will
contribute its membership units in Aether LLC to Aether Systems, Inc. in
exchange for two and one-half shares of common stock of Aether Systems, Inc.
Following such contribution of membership units, Aether LLC will merge with and
into Aether Systems, Inc., as a result of which all of the assets and
liabilities of Aether LLC will be transferred to Aether Systems, Inc. In
connection with this merger, each option and warrant to acquire a membership
unit in Aether LLC will be exchanged for an option or warrant, as the case may
be, to purchase 2.5 shares of common stock of Aether Systems, Inc.
8) In August 1999, Aether LLC issued 40,000 units (equivalent to 100,000
shares) pursuant to Mr. Ein's exercise of an option for units at an exercise
price of $.40 per unit. On September 8, 1999, Mr. Beese exercised an option for
30,000 units (equivalent to 75,000 shares) at an exercise price of $.40 per
unit.
9) On September 28, 1999, we issued to Merrill Lynch Capital Corporation in
connection with a credit facility warrants to purchase up to 2,419,690 shares of
our common stock for no consideration. These warrants only become exercisable if
the credit facility is not repaid in a timely manner.
10) On September 28, 1999, we issued options for 195,442 units (equivalent
to 488,605 shares) in connection with Aether LLC's acquisition of Mobeo, Inc.
The exercise price of options for (1) 125,000 units (equivalent to 312,500
shares) is $15.00 per unit, (2) 46,442 units (equivalent to 116,105 shares) is
$12.00 per unit, and (3) 24,000 units (equivalent to 60,000 shares) is $6.00 per
unit.
The sale and issuance of securities in the transactions described above
were exempt from registration under the Securities Act in reliance on Section
4(2) of the Securities Act or Regulation D promulgated thereunder as
transactions by an issuer not involving a public offering, where the purchasers
were sophisticated investors who represented their intention to acquire
securities for investment only and not with a view to distribution and received
or had access to adequate information about the Aether LLC. Some of the options
identified in sub-items 6 and 10 were exempt from registration pursuant to Rule
701 under the Securities Act.
No underwriters were employed in any of the above transactions.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Exhibits
The exhibit index is incorporated by reference.
Financial Statement Schedules
None.
Schedules other than those listed above have been omitted since they are
not required or are not applicable or the required information is shown in the
financial statements or related notes. Columns omitted from schedules filed have
been omitted since the information is not applicable.
II-3
<PAGE> 109
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements, 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, as amended (the "Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the 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 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-4
<PAGE> 110
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 3 to Registration Statement on
Form S-1 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Owings Mills, State of Maryland on the 18th day of
October, 1999.
Aether Systems, Inc.
By: /s/ DAVID S. OROS
----------------------------------
David S. Oros
President and Chief Executive
Officer and Chairman
Pursuant to the requirements of the Securities Act of 1933, as amended,
this amendment to the Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ DAVID S. OROS President, Chief Executive Officer October 18, 1999
- ----------------------------------------------------- and Chairman
David S. Oros
/s/ * Chief Financial Officer (Principal October 18, 1999
- ----------------------------------------------------- Financial and Accounting Officer)
David C. Reymann
*By: /s/ DAVID S. OROS
- -----------------------------------------------------
David S. Oros
Attorney-in-fact
</TABLE>
II-5
<PAGE> 111
SCHEDULE II
VALUATION OF QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END
CLASSIFICATION OF YEAR EXPENSES DEDUCTIONS OF YEAR
-------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1996
Provision for doubtful accounts and sales
returns........................................ $ -- $ -- $ -- $ --
Provision for inventory obsolescence............. -- -- -- --
1997
Provision for doubtful accounts and sales
returns........................................ -- -- -- --
Provision for inventory obsolescence............. -- -- -- --
1998
Provision for doubtful accounts and sales
returns........................................ -- 157,061 -- 157,061
Provision for inventory obsolescence............. -- 169,630 -- 169,630
</TABLE>
<PAGE> 112
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT AND DESCRIPTION
------- ------------------------
<C> <S>
1.1 -- Form of Purchase Agreement
2.1 -- Agreement of Merger, dated as of October 18, 1999,
between Aether Systems LLC, and Aether Systems, Inc.
**2.2 -- Stock Purchase Agreement by and among Aether Technologies
International, L.L.C., Mobeo, Inc. and Perter Kibler,
Winston Barrett and Edward Spear dated as of August 19,
1999.
3.1 -- Amended and Restated Certificate of Incorporation of
Aether Systems, Inc.
3.2 -- Bylaws of Aether Systems, Inc.
4.1 -- Specimen Certificate for Aether Systems Common Stock
5.1 -- Opinion of Wilmer, Cutler & Pickering as to the legality
of the shares of common Stock being registered
**10.1 -- Amended and Restated License, Marketing and Distribution
Agreement between Reuters America, Inc. and Aether
Technologies International, L.L.C. dated August 11, 1998.
**10.2 -- Contract Between Discover Brokerage Direct, Inc. and
Aether Technologies International, L.L.C. dated August 5,
1999.
**10.3 -- Options Price Reporting Authority Vendor Agreement
between Aether Technologies and the American Stock
Exchange, Inc. dated June 3, 1997.
**10.4 -- Agreement between Aether Technologies International,
L.L.C. and New York Stock Exchange dated July 19, 1999.
**10.5 -- Vendor Agreement by and between Aether Technologies
International, L.L.C. and the Nasdaq Stock Market, Inc.
dated October 4, 1996.
**10.6 -- Dow Jones Indexes Enterprise Distribution Agreement dated
April 23, 1999.
**10.7 -- Employment Agreement between Aether Technologies
International, L.L.C. and David Oros dated July 7, 1999.
**10.8 -- Employment Agreement between Aether Technologies
International, L.L.C. and David Reymann dated May 18,
1999.
**10.9 -- Series A Preferred Stock Purchase Agreement dated as of
August 9, 1999.
**10.10 -- Investors' Rights Agreement by and among AirWeb
Corporation and each of the holder of the Series A
Preferred Stock listed in Schedule A and Patrick McVeigh,
Barak Berkowitz, Michael Bolbec and Andrew Simms dated
August 9, 1999.
**10.11 -- Right of First Refusal and Co-Sale Agreement by and among
AirWeb Corporation, Inc., and those holders of the Common
Stock identified in Schedule A and B dated August 9,
1999.
**10.12 -- Voting Agreement by and among the holders of Common Stock
set forth in Schedule A and Purchase of the Series A
Preferred Stock dated August 9, 1999.
**10.13 -- Aether-OpenSky Side Letter regarding development and
resale services dated August 9, 1999.
**10.14 -- Software License Agreement by and between Aether
Technologies International, L.L.C. and AirWeb Corporation
dated August 9, 1999.
**10.15 -- AirWeb Corporation Warrant to Purchase 3,000,000 Shares
of Series A Preferred Stock dated August 9, 1999.
**10.16 -- Strategic License Agreement between Aether Technologies
International, L.L.C. and Riverbed Technologies, Inc.
dated as of June 15, 1999.
**10.17 -- Consulting Agreement between Aether Technologies, L.L.C.
and Orbcomm Global, L.P. dated as of October 26, 1998.
**10.18 -- Credit Agreement dated as of September 28, 1999 among
Merrill Lynch & Co. and the leaders named therein.
**10.19 -- Aether Systems, Inc. 1999 Equity Incentive Plan effective
as of October 1, 1999
</TABLE>
<PAGE> 113
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT AND DESCRIPTION
------- ------------------------
<C> <S>
**10.20 -- Aether Systems, Inc. Senior Bonus Plan effective as of
September 29, 1999
10.21 -- Form of Registration Rights Agreement
10.22 -- Form of Subscription Agreement between Aether Systems,
Inc. and National Discount Brokers
11.1 -- Statement regarding computation of per share earnings.
**21.1 -- Subsidiaries of Aether Systems
23.1 -- Consent of KPMG LLP
23.2 -- Consent of PricewaterhouseCoopers LLP
23.3 -- Consent of Wilmer, Cutler & Pickering, included in
Exhibit 5.1
**23.4 -- Consent of J. Carter Beese, Jr.
**23.5 -- Consent of Frank A. Bonsal, Jr.
**23.6 -- Consent of Mark D. Ein
**23.7 -- Consent of Rahul C. Prakash
**23.8 -- Consent of Janice M. Roberts
**23.9 -- Consent of Dr. Rajendra Singh
**23.10 -- Consent of Devin N. Wenig
**23.11 -- Consent of Thomas E. Wheeler
**23.12 -- Consent of George P. Stamas
**23.13 -- Consent of the Yankee Group
**24.1 -- Power of Attorney, included on the signature page hereof
</TABLE>
- ---------------
** Previously filed.
<PAGE> 1
EXHIBIT 1.1
==============================================================================
AETHER SYSTEMS, INC.
(a Delaware corporation)
[1] Shares of Common Stock
PURCHASE AGREEMENT
Dated: October ___, 1999
==============================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PURCHASE AGREEMENT........................................................... 1
SECTION 1. Representations and Warranties............................. 3
(a) Representations and Warranties by the Company.............. 3
(i) Compliance with Registration Requirements.......... 3
(ii) Independent Accountants............................ 4
(iii) Financial Statements............................... 4
(iv) No Material Adverse Change in Business............. 5
(v) Good Standing of the Company....................... 6
(vi) Good Standing of Subsidiaries...................... 6
(vii) Capitalization..................................... 6
(viii) Authorization of Agreement......................... 6
(ix) Authorization and Description of Securities........ 7
(x) Absence of Defaults and Conflicts.................. 7
(xi) Absence of Labor Dispute........................... 8
(xii) Absence of Proceedings............................. 8
(xiii) Accuracy of Exhibits............................... 8
(xiv) Possession of Intellectual Property................ 8
(xv) Absence of Further Requirements.................... 8
(xvi) Possession of Licenses and Permits................. 9
(xvii) Title to Property. ................................ 9
(xviii) Compliance with Cuba Act. ......................... 9
(xix) Investment Company Act............................. 9
(xx) Environmental Laws................................. 10
(xxi) Registration Rights................................ 10
(xxii) Dividends and Distributions........................ 10
(xxiii) Taxes.............................................. 10
(xxiv) Insurance.......................................... 10
(xxv) ERISA.............................................. 11
(xxvi) Year 2000 Compliance............................... 11
(b) Officer's Certificates..................................... 11
SECTION 2. Sale and Delivery to Underwriters; Closing................. 11
(a) Initial Securities......................................... 11
(b) Option Securities.......................................... 12
(c) Payment.................................................... 12
(d) Denominations; Registration................................ 13
(e) Appointment of Qualified Independent Underwriter........... 13
SECTION 3. Covenants of the Company................................... 14
(a) Compliance with Securities Regulations and Commission
Requests................................................... 14
(b) Filing of Amendments....................................... 14
(c) Delivery of Registration Statements........................ 14
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
(d) Delivery of Prospectuses................................... 14
(e) Continued Compliance with Securities Laws.................. 14
(f) Blue Sky Qualifications.................................... 15
(g) Rule 158................................................... 15
(h) Use of Proceeds............................................ 16
(i) Listing.................................................... 16
(j) Restriction on Sale of Securities.......................... 16
(k) Reporting Requirements..................................... 16
(l) Compliance with NASD Rules................................. 16
(m) Compliance with Rule 463................................... 17
SECTION 4. Payment of Expenses........................................ 17
(a) Expenses................................................... 17
(b) Termination of Agreement................................... 17
SECTION 5. Conditions of Underwriters' Obligations.................... 17
(a) Effectiveness of Registration Statement.................... 17
(b) Opinion of Counsel for Company............................. 17
(c) Opinion of Counsel for Underwriters........................ 17
(d) Officers' Certificate...................................... 18
(e) Accountants' Comfort Letters............................... 18
(f) Bring-down Comfort Letters................................. 18
(g) Approval of Listing........................................ 18
(h) No Objection............................................... 18
(i) Lock-up Agreements......................................... 18
(j) Conditions to Purchase of Option Securities................ 19
(k) Additional Documents....................................... 19
(l) Termination of Agreement................................... 20
SECTION 6. Indemnification............................................ 20
(a) Indemnification of Underwriters............................ 20
(b) Indemnification of Company, Directors and Officers......... 21
(c) Actions against Parties; Notification...................... 22
(d) Settlement without Consent if Failure to Reimburse......... 22
(e) Indemnification for Reserved Securities.................... 22
SECTION 7. Contribution............................................... 22
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery .................................................. 23
SECTION 9. Termination of Agreement................................... 23
(a) Termination; General....................................... 23
(b) Liabilities................................................ 24
SECTION 10. Default by One or More of the Underwriters................. 24
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
SECTION 11. Notices.................................................... 25
SECTION 12. Parties.................................................... 25
SECTION 13. Governing Law and Time..................................... 25
SECTION 14. Effect of Headings......................................... 25
SCHEDULES
Schedule A - List of Underwriters............................Sch A-1
Schedule B - Pricing Information.............................Sch B-1
Schedule C - List of Persons subject to Lock-up..............Sch C-1
EXHIBITS
Exhibit A - Form of Opinion of Company's Counsel................A-1
Exhibit B - Form of Lock-up Letter...............................B-1
</TABLE>
iii
<PAGE> 5
AETHER SYSTEMS, INC.
(a Delaware corporation)
[1] Shares of Common Stock
(Par Value $.01 Per Share)
PURCHASE AGREEMENT
October ____, 1999
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
BancBoston Robertson Stephens Inc.
Donaldson, Lufkin & Jenrette
Securities Corporation
U.S. Bancorp Piper Jaffray Inc.
as Representatives of the several Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
Aether Systems, Inc., a Delaware corporation (the "Company"), confirms its
agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") and each of the other Underwriters named in
Schedule A hereto (collectively, the "Underwriters", which term shall also
include any underwriter substituted as hereinafter provided in Section 10
hereof), for whom Merrill Lynch, BancBoston Robertson Stephens Inc., Donaldson,
Lufkin & Jenrette Securities Corporation and U.S. Bancorp Piper Jaffray Inc. are
acting as representatives (in such capacity, the "Representatives"), with
respect to the issue and sale by the Company and the purchase by the
Underwriters, acting severally and not jointly, of the respective numbers of
shares of Common Stock, par value $.01 per share, of the Company ("Common
Stock") set forth in said Schedule A, and with respect to the grant by the
Company to the Underwriters, acting severally and not jointly, of the option
described in Section 2(b) hereof to purchase all or any part of [11] additional
shares of Common Stock to cover over-allotments, if any. The aforesaid [1]
shares of Common Stock (the "Initial Securities") to be purchased by the
Underwriters and all or any part of the [11] shares of Common Stock subject to
the option
1
<PAGE> 6
described in Section 2(b) hereof (the "Option Securities") are hereinafter
called, collectively, the "Securities".
The Company understands that the Underwriters propose to make a public
offering of the Securities as soon as the Representatives deem advisable after
this Agreement has been executed and delivered.
The Company and the Underwriters agree that up to _______ shares of the
Securities to be purchased by the Underwriters (the "Reserved Securities") shall
be reserved for sale by the Underwriters to certain eligible employees and
persons having business relationships with the Company, as part of the
distribution of the Securities by the Underwriters, subject to the terms of this
Agreement, the applicable rules, regulations and interpretations of the National
Association of Securities Dealers, Inc. (the "NASD") and all other applicable
laws, rules and regulations. To the extent that such Reserved Securities are not
orally confirmed for purchase by such eligible employees and persons having
business relationships with the Company by the end of the first business day
after the date of this Agreement, such Reserved Securities may be offered to the
public as part of the public offering contemplated hereby.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (No. 333-85697) covering the
registration of the Securities under the Securities Act of 1933, as amended (the
"1933 Act"), including the related preliminary prospectus or prospectuses.
Promptly after execution and delivery of this Agreement, the Company will either
(i) prepare and file a prospectus in accordance with the provisions of Rule 430A
("Rule 430A") of the rules and regulations of the Commission under the 1933 Act
(the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of
the 1933 Act Regulations or (ii) if the Company has elected to rely upon Rule
434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term sheet (a
"Term Sheet") in accordance with the provisions of Rule 434 and Rule 424(b). The
information included in such prospectus or in such Term Sheet, as the case may
be, that was omitted from such registration statement at the time it became
effective but that is deemed to be part of such registration statement at the
time it became effective (a) pursuant to paragraph (b) of Rule 430A is referred
to as "Rule 430A Information" or (b) pursuant to paragraph (d) of Rule 434 is
referred to as "Rule 434 Information." Each prospectus used before such
registration statement became effective, and any prospectus that omitted, as
applicable, the Rule 430A Information or the Rule 434 Information, that was used
after such effectiveness and prior to the execution and delivery of this
Agreement, is herein called a "preliminary prospectus." Such registration
statement, including the exhibits thereto and schedules thereto at the time it
became effective and including the Rule 430A Information and the Rule 434
Information, as applicable, is herein called the "Registration Statement." Any
registration statement filed pursuant to Rule 462(b) of the 1933 Act Regulations
is herein referred to as the "Rule 462(b) Registration Statement," and after
such filing the term "Registration Statement" shall include the Rule 462(b)
Registration Statement. The final prospectus in the form first furnished to the
Underwriters for use in connection with the offering of the Securities is herein
called the "Prospectus." If Rule 434 is relied on, the term "Prospectus" shall
refer to the preliminary prospectus dated _______, 19__ together with the Term
Sheet and all references in this Agreement to the date of the Prospectus shall
mean the date of the Term
2
<PAGE> 7
Sheet. For purposes of this Agreement, all references to the Registration
Statement, any preliminary prospectus, the Prospectus or any Term Sheet or any
amendment or supplement to any of the foregoing shall be deemed to include the
copy filed with the Commission pursuant to its Electronic Data Gathering,
Analysis and Retrieval system ("EDGAR").
SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the Company. The Company represents
and warrants to each Underwriter as of the date hereof, as of the Closing Time
referred to in Section 2(c) hereof, and as of each Date of Delivery (if any)
referred to in Section 2(b) hereof and agrees with each Underwriter, as follows:
(i) Compliance with Registration Requirements. Each of the
Registration Statement and any Rule 462(b) Registration Statement has
become effective under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b)
Registration Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are pending or, to
the knowledge of the Company, are contemplated by the Commission, and any
request on the part of the Commission for additional information has been
complied with.
At the respective times the Registration Statement, any Rule 462(b)
Registration Statement and any post-effective amendments thereto became
effective and at the Closing Time (and, if any Option Securities are
purchased, at the Date of Delivery), the Registration Statement, the Rule
462(b) Registration Statement and any amendments and supplements thereto
complied and will comply in all material respects with the requirements of
the 1933 Act and the 1933 Act Regulations and did not and will not contain
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading, and the Prospectus, any preliminary prospectus and any
supplement thereto or prospectus wrapper prepared in connection therewith,
at their respective times of issuance and at the Closing Time, complied
and will comply in all material respects with any applicable laws or
regulations of foreign jurisdictions in which the Prospectus and such
preliminary prospectus, as amended or supplemented, if applicable, are
distributed in connection with the offer and sale of Reserved Securities.
Neither the Prospectus nor any amendments or supplements thereto
(including any prospectus wrapper), at the time the Prospectus or any such
amendment or supplement was issued and at the Closing Time (and, if any
Option Securities are purchased, at the Date of Delivery), included or
will include an untrue statement of a material fact or omitted or will
omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. If Rule 434 is used, the Company will comply with the
requirements of Rule 434 and the Prospectus shall not be "materially
different", as such term is used in Rule 434, from the prospectus included
in the Registration Statement at the time it became effective. The
representations and warranties in this subsection shall not apply to
statements in or omissions from the Registration Statement or Prospectus
made in reliance upon and in conformity with information furnished to the
Company in
3
<PAGE> 8
writing by any Underwriter through the Representatives expressly for use
in the Registration Statement or Prospectus.
Each preliminary prospectus and the prospectus filed as part of the
Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the 1933 Act, complied when
so filed in all material respects with the 1933 Act Regulations and each
preliminary prospectus and the Prospectus delivered to the Underwriters
for use in connection with this offering was identical to the
electronically transmitted copies thereof filed with the Commission
pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(ii) Independent Accountants. The accountants who certified the
Company's financial statements and supporting schedules included in the
Registration Statement are independent public accountants as required by
the 1933 Act and the 1933 Act Regulations.
(iii) Financial Statements.
(A) The financial statements of the Company included in the
Registration Statement and the Prospectus, together with the related
schedules and notes, present fairly the financial position of the Company
and the consolidated Subsidiaries (as defined below) at the dates
indicated and the results of operations, changes in stockholders' equity
and cash flows of the Company and the consolidated Subsidiaries for the
periods specified; said financial statements have been prepared in
conformity with generally accepted accounting principles ("GAAP") applied
on a consistent basis throughout the periods involved. The supporting
schedules of the Company included in the Registration Statement present
fairly in accordance with GAAP the information required to be stated
therein. The selected financial data and the summary financial information
of the Company included in the Prospectus present fairly the information
shown therein and have been compiled on a basis consistent with that of
the audited financial statements of the Company included in the
Registration Statement.
(B) The financial statements of Mobeo, Inc. ("Mobeo") included
in the Registration Statement and the Prospectus, together with the
related schedules and notes, present fairly the financial condition of
Mobeo at the dates indicated and the results of operations, stockholders'
equity and cash flows of Mobeo for the periods specified; said financial
statements have been prepared in conformity with GAAP applied on a
consistent basis throughout the periods involved. The selected financial
data and the summary financial information of Mobeo included in the
Prospectus present fairly the information shown therein and have been
compiled on a basis consistent with that of the audited financial
statements of Mobeo included in the Registration Statement.
(C) The pro forma financial statements and the related notes
thereto included in the Registration Statement and the Prospectus present
fairly the information shown therein, have been prepared in accordance
with the Commission's rules and guidelines with respect to pro forma
financial statements and have been properly
4
<PAGE> 9
compiled on the bases described therein, and the assumptions used in the
preparation thereof are reasonable and the adjustments used therein are
appropriate to give effect to the transactions and circumstances referred
to therein.
(D) The Company and each of the Subsidiaries maintain a
system of internal accounting controls sufficient to provide reasonable
assurance that (w) transactions are executed in accordance with
management's general or specific authorization; (x) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP, as applicable, and to maintain asset accountability;
(y) access to assets is permitted only in accordance with management's
general or specific authorization; and (z) the recorded accountability for
assets is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(iv) No Material Adverse Change in Business. Since the respective
dates as of which information is given in the Registration Statement and
the Prospectus, except as otherwise stated therein, (A) there has been no
material adverse change in the condition, financial or otherwise, or in
the earnings, business affairs or business prospects of the Company and
the Subsidiaries considered as one enterprise, whether or not arising in
the ordinary course of business (a "Material Adverse Effect"), (B) there
have been no transactions entered into by the Company or any of the
Subsidiaries, other than those in the ordinary course of business, which
are material with respect to the Company and the Subsidiaries considered
as one enterprise, and (C) there has been no dividend or distribution of
any kind declared, paid or made by the Company on any class of its capital
stock.
(v) Good Standing of the Company. The Company has been duly
organized and is validly existing as a corporation in good standing under
the laws of the State of Delaware and has corporate power and authority to
own, lease and operate its properties and to conduct its business as
described in the Prospectus and to enter into and perform its obligations
under this Agreement; and the Company is duly qualified as a foreign
corporation to transact business and is in good standing in each other
jurisdiction in which such qualification is required, whether by reason of
the ownership or leasing of property or the conduct of business, except
where the failure so to qualify or to be in good standing would not result
in a Material Adverse Effect.
(vi) Good Standing and Ownership of Subsidiaries. Each subsidiary
of the Company (each a "Subsidiary" and, collectively, the "Subsidiaries")
has been duly organized and is validly existing as a corporation or
limited liability company in good standing under the laws of the
jurisdiction of its incorporation or formation, has corporate or limited
liability company power and authority to own, lease and operate its
properties and to conduct its business as described in the Prospectus and
is duly qualified as a foreign corporation or limited liability company to
transact business and is in good standing in each jurisdiction in which
such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the failure
5
<PAGE> 10
so to qualify or to be in good standing would not result in a Material
Adverse Effect; except as otherwise disclosed in the Registration
Statement, all of the issued and outstanding capital stock or other equity
interests of each such Subsidiary has been duly authorized and validly
issued, is fully paid and non-assessable and is owned by the Company,
directly or through Subsidiaries, free and clear of any security interest,
mortgage, pledge, lien, encumbrance, claim or equity; none of the
outstanding shares of capital stock or other equity interests of any
Subsidiary was issued in violation of the preemptive or similar rights of
any securityholder of such Subsidiary. The only Subsidiaries are the
Subsidiaries listed on Exhibit 21 to the Registration Statement.
(vii) Capitalization. The authorized, issued and outstanding
capital stock of the Company will, at the Closing Time and giving effect
to the issuance of the Initial Securities hereunder, be as set forth in
the Prospectus in the column entitled "Pro Forma Consolidated As Adjusted"
under the caption "Capitalization" (except for subsequent issuances, if
any, pursuant to this Agreement, pursuant to reservations, agreements or
employee benefit plans referred to in the Prospectus or pursuant to the
exercise of convertible securities or options referred to in the
Prospectus). The shares of issued and outstanding capital stock of the
Company have been duly authorized and validly issued and are fully paid
and non-assessable; none of the outstanding shares of capital stock of the
Company was issued in violation of the preemptive or other similar rights
of any securityholder of the Company.
(viii) Authorization of Agreement. This Agreement has been duly
authorized, executed and delivered by the Company.
(ix) Authorization and Description of Securities. The Securities
have been duly authorized for issuance and sale to the Underwriters
pursuant to this Agreement and, when issued and delivered by the Company
pursuant to this Agreement, against payment of the consideration set forth
herein, will be validly issued, fully paid and non-assessable; the Common
Stock conforms to all statements relating thereto contained in the
Prospectus and such description conforms to the rights set forth in the
instruments defining the same; no holder of the Securities will be subject
to personal liability by reason of being such a holder; and the issuance
of the Securities is not subject to the preemptive or other similar rights
of any securityholder of the Company.
(x) Absence of Defaults and Conflicts. Neither the Company nor
any of the Subsidiaries is in violation of its charter or by-laws or in
default in the performance or observance of any obligation, agreement,
covenant or condition contained in any contract, indenture, mortgage, deed
of trust, loan or credit agreement, note, lease or other agreement or
instrument to which the Company or any of the Subsidiaries is a party or
by which it or any of them may be bound, or to which any of the property
or assets of the Company or any Subsidiary is subject (collectively,
"Agreements and Instruments") except for such defaults that would not
result in a Material Adverse Effect; and the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated in this Agreement and in the Registration Statement
(including
6
<PAGE> 11
the issuance and sale of the Securities and the use of the proceeds from
the sale of the Securities as described in the Prospectus under the
caption "Use of Proceeds") and compliance by the Company with its
obligations under this Agreement have been duly authorized by all
necessary corporate action and do not and will not, whether with or
without the giving of notice or passage of time or both, conflict with or
constitute a breach of, or default or Repayment Event (as defined below)
under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any Subsidiary
pursuant to, the Agreements and Instruments (except for such conflicts,
breaches or defaults or liens, charges or encumbrances that would not
result in a Material Adverse Effect), nor will such action result in any
violation of the provisions of the charter or by-laws of the Company or
any Subsidiary or any applicable law, statute, rule, regulation, judgment,
order, writ or decree of any government, government instrumentality or
court, domestic or foreign, having jurisdiction over the Company or any
Subsidiary or any of their assets, properties or operations. As used
herein, a "Repayment Event" means any event or condition which gives the
holder of any note, debenture or other evidence of indebtedness (or any
person acting on such holder's behalf) the right to require the
repurchase, redemption or repayment of all or a portion of such
indebtedness by the Company or any Subsidiary.
(xi) Absence of Labor Dispute. No labor dispute with the employees
of the Company or any Subsidiary exists or, to the knowledge of the
Company, is imminent, and the Company is not aware of any existing or
imminent labor disturbance by the employees of any of its or any
Subsidiary's principal suppliers, manufacturers, customers or contractors,
which, in either case, may reasonably be expected to result in a Material
Adverse Effect.
(xii) Absence of Proceedings. There is no action, suit, proceeding,
inquiry or investigation before or brought by any court or governmental
agency or body, domestic or foreign, now pending, or, to the knowledge of
the Company, threatened, against or affecting the Company or any
Subsidiary, which is required to be disclosed in the Registration
Statement (other than as disclosed therein), or which might reasonably be
expected to result in a Material Adverse Effect, or which might reasonably
be expected to materially and adversely affect the properties or assets
thereof or the consummation of the transactions contemplated in this
Agreement or the performance by the Company of its obligations hereunder;
the aggregate of all pending legal or governmental proceedings to which
the Company or any Subsidiary is a party or of which any of their
respective property or assets is the subject which are not described in
the Registration Statement, including ordinary routine litigation
incidental to the business, could not reasonably be expected to result in
a Material Adverse Effect.
(xiii) Accuracy of Exhibits. There are no contracts or documents
which are required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits thereto which have not been so
described and filed as required.
7
<PAGE> 12
(xiv) Possession of Intellectual Property. The Company and the
Subsidiaries own or possess, or can acquire on reasonable terms, adequate
patents, patent rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures),
trademarks, service marks, trade names or other intellectual property
(collectively, "Intellectual Property") necessary to carry on the business
now operated by them, and neither the Company nor any of the Subsidiaries
has received any notice or is otherwise aware of any infringement of or
conflict with asserted rights of others with respect to any Intellectual
Property or of any facts or circumstances which would render any
Intellectual Property invalid or inadequate to protect the interest of the
Company or any of the Subsidiaries therein, and which infringement or
conflict (if the subject of any unfavorable decision, ruling or finding)
or invalidity or inadequacy, singly or in the aggregate, would result in a
Material Adverse Effect.
(xv) Absence of Further Requirements. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or agency
is necessary or required for the performance by the Company of its
obligations hereunder, in connection with the offering, issuance or sale
of the Securities under this Agreement or the consummation of the
transactions contemplated by this Agreement, except (i) such as have been
already obtained or as may be required under the 1933 Act or the 1933 Act
Regulations or state securities or blue sky laws and (ii) such as have
been obtained under the laws and regulations of jurisdictions outside the
United States in which the Reserved Securities are offered.
(xvi) Possession of Licenses and Permits. The Company and the
Subsidiaries possess such permits, licenses, approvals, consents and other
authorizations (collectively, "Governmental Licenses") issued by the
appropriate federal, state, local or foreign regulatory agencies or bodies
necessary to conduct the business now operated by them; the Company and
the Subsidiaries are in compliance with the terms and conditions of all
such Governmental Licenses, except where the failure so to comply would
not, singly or in the aggregate, have a Material Adverse Effect; all of
the Governmental Licenses are valid and in full force and effect, except
when the invalidity of such Governmental Licenses or the failure of such
Governmental Licenses to be in full force and effect would not have a
Material Adverse Effect; and neither the Company nor any of the
Subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such Governmental Licenses which, singly
or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would result in a Material Adverse Effect.
(xvii) Title to Property. The Company and the Subsidiaries have good
and marketable title to all real property owned by the Company and the
Subsidiaries and good title to all other properties owned by them, in each
case, free and clear of all mortgages, pledges, liens, security interests,
claims, restrictions or encumbrances of any kind except such as (A) are
described in the Prospectus or (B) do not, singly or in the aggregate,
materially affect the value of such property and do not interfere with the
use made and proposed to be made of such property by the Company or any of
the Subsidiaries; and all
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of the leases and subleases material to the business of the Company and
the Subsidiaries, considered as one enterprise, and under which the
Company or any of the Subsidiaries holds properties described in the
Prospectus, are in full force and effect, and neither the Company nor any
Subsidiary has any notice of any material claim of any sort that has been
asserted by anyone adverse to the rights of the Company or any Subsidiary
under any of the leases or subleases mentioned above, or affecting or
questioning the rights of the Company or such Subsidiary to the continued
possession of the leased or subleased premises under any such lease or
sublease.
(xviii) Compliance with Cuba Act. The Company has complied with, and
is and will be in compliance with, the provisions of that certain Florida
act relating to disclosure of doing business with Cuba, codified as
Section 517.075 of the Florida statutes, and the rules and regulations
thereunder (collectively, the "Cuba Act") or is exempt therefrom.
(xix) Investment Company Act. The Company is not, and upon the
issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the Prospectus
will not be, 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 "1940 Act").
(xx) Environmental Laws. Except as described in the Registration
Statement and except as would not, singly or in the aggregate, result in a
Material Adverse Effect, (A) neither the Company nor any of the
Subsidiaries is in violation of any federal, state, local or foreign
statute, law, rule, regulation, ordinance, code, policy or rule of common
law or any judicial or administrative interpretation thereof, including
any judicial or administrative order, consent, decree or judgment,
relating to pollution or protection of human health, the environment
(including, without limitation, ambient air, surface water, groundwater,
land surface or subsurface strata) or wildlife, including, without
limitation, laws and regulations relating to the release or threatened
release of chemicals, pollutants, contaminants, wastes, toxic substances,
hazardous substances, petroleum or petroleum products (collectively,
"Hazardous Materials") or to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous
Materials (collectively, "Environmental Laws"), (B) the Company and the
Subsidiaries have all permits, authorizations and approvals required under
any applicable Environmental Laws and are each in compliance with their
requirements, (C) there are no pending or threatened administrative,
regulatory or judicial actions, suits, demands, demand letters, claims,
liens, notices of noncompliance or violation, investigation or proceedings
relating to any Environmental Law against the Company or any of the
Subsidiaries and (D) there are no events or circumstances that might
reasonably be expected to form the basis of an order for clean-up or
remediation, or an action, suit or proceeding by any private party or
governmental body or agency, against or affecting the Company or any of
the Subsidiaries relating to Hazardous Materials or any Environmental
Laws.
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(xxi) Registration Rights. Except as described in the Registration
Statement under the heading "Transactions Between Aether and its Officers,
Directors or Significant Stockholders" or "Description of Capital Stock,"
there are no persons with registration rights or other similar rights to
have any securities registered pursuant to the Registration Statement or
otherwise registered by the Company under the 1933 Act.
(xxii) Dividends and Distributions. No Subsidiary is currently
prohibited, directly or indirectly, from paying any dividends to the
Company, making any other distribution on such Subsidiary's capital stock,
repaying to the Company any loans or advances to such Subsidiary from the
Company, or transferring any of such Subsidiary's property or assets to
the Company or any other Subsidiary.
(xxiii) Taxes. The Company and each of the Subsidiaries have filed
all foreign, federal, state and local tax returns that are required to be
filed or has requested extensions thereof (except in any case in which the
failure so to file would not result in a Material Adverse Effect) and have
paid all taxes required to be paid by them and any other assessment, fine
or penalty levied against them, to the extent that any of the foregoing is
due and payable, except for any such assessment, fine or penalty that is
currently being contested in good faith.
(xxiv) Insurance. The Company and each of the Subsidiaries are
insured by insurers of recognized financial responsibility against such
losses and risks and in such amounts as are prudent and customary in the
businesses in which they are engaged; neither the Company nor any such
Subsidiary has been refused any insurance coverage sought or applied for;
and neither the Company nor any such Subsidiary 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 its business at a cost that would
not have a Material Adverse Effect.
(xxv) ERISA. The Company and each of the Subsidiaries are each in
compliance in all material respects with all presently applicable
provisions of ERISA; no "reportable event" (as defined in ERISA) has
occurred with respect to any "pension plan" (as defined in ERISA) for
which the Company would have any liability; the Company has not incurred
and does not expect to incur liability under (A) Title IV of ERISA with
respect to termination of, or withdrawal from, any "pension plan" or (B)
Sections 412 or 4971 of the United States Internal Revenue Code (the
"Code"); and each "pension plan" for which the Company would have any
liability that is intended to be qualified under Section 401(a) of the
Code is so qualified in all material respects and nothing has occurred,
whether by action or by failure to act, which would cause the loss of such
qualification.
(xxvi) Year 2000 Compliance. The Company has reviewed its operations
and those of the Subsidiaries to evaluate the extent to which the business
or operations of the Company or any of the Subsidiaries will be affected
by the Year 2000 Problem (as defined below); (i) as a result of such
review, the Company does not believe that (A)
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there are any issues related to the Company's or any Subsidiary's
preparedness to address the Year 2000 Problem that are of a character
required to be described or referred to in the Prospectus which have not
been accurately described in the Prospectus, and (B) except to the extent
disclosed in the Prospectus, the Year 2000 Problem will have a Material
Adverse Effect; and (ii) the Company is inquiring or has inquired whether
the suppliers, vendors, customers or other material third parties used or
served by the Company and the Subsidiaries are addressing or will address
the Year 2000 Problem in a timely manner, except to the extent that a
failure to address the Year 2000 Problem by any supplier, vendor, customer
or material third party would not have a Material Adverse Effect. "Year
2000 Problem" means any significant risk that the Company's computer
hardware or software applications and those of the Subsidiaries (or of any
suppliers, vendors or other material third parties) will not, in the case
of dates or time periods occurring after December 31, 1999, function at
least as effectively as in the case of dates or time periods occurring
prior to January 1, 2000.
(a1) Representations and Warranties by the Company with respect to
OpenSky. The Company represents and warrants to each Underwriter as of the date
hereof, as of the Closing Time referred to in Section 2(c) hereof, and as of
each Date of Delivery (if any) referred to in Section 2(b) hereof, as follows:
(i) Good Standing and Ownership of OpenSky. Airweb Corporation d/b/a
OpenSky ("OpenSky") has been duly organized and is validly existing as a
limited liability company in good standing under the laws of the
jurisdiction of its formation. Except as otherwise disclosed in the
Registration Statement, the Company owns a 26% membership interest in
OpenSky, free and clear of any security interest, mortgage, pledge, lien,
encumbrance, claim or equity.
(ii) No Material Adverse Change in Business. To the knowledge of the
Company, since the respective dates as of which information is given in
the Registration Statement and the Prospectus, except as otherwise stated
therein, there has been no material adverse change in the condition,
financial or otherwise, or in the earnings, business affairs or business
prospects of OpenSky, whether or not arising in the ordinary course of
business.
(iii) Certain Representations and Warranties. As of August 9, 1999,
all of the representations and warranties set forth in Sections 1(a)(vi),
(x), (xi), (xii), (xiv), (xvi), (xvii), (xx), (xxii), (xxiii), (xxiv),
(xxv) and (xxvi) (the "OpenSky Representations") are true and correct with
respect to OpenSky as if OpenSky were a Subsidiary. To the knowledge of
the Company, all of the OpenSky Representations are true and correct with
respect to OpenSky as if OpenSky were a Subsidiary.
(b) Officer's Certificates. Any certificate signed by any officer of the
Company or any of the Subsidiaries delivered to the Representatives or to
counsel for the Underwriters shall be deemed a representation and warranty by
the Company to each Underwriter as to the matters covered thereby.
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SECTION 2. Sale and Delivery to Underwriters; Closing.
(a) Initial Securities. On the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Company agrees to sell to each Underwriter, severally and not jointly, and each
Underwriter, severally and not jointly, agrees to purchase from the Company, at
the price per share set forth in Schedule B, the number of Initial Securities
set forth in Schedule A opposite the name of such Underwriter, plus any
additional number of Initial Securities which such Underwriter may become
obligated to purchase pursuant to the provisions of Section 10 hereof.
(b) Option Securities. In addition, on the basis of the representations
and warranties herein contained and subject to the terms and conditions herein
set forth, the Company hereby grants an option to the Underwriters, severally
and not jointly, to purchase up to an additional [11] shares of Common Stock at
the price per share set forth in Schedule B, less an amount per share equal to
any dividends or distributions declared by the Company and payable on the
Initial Securities but not payable on the Option Securities. The option hereby
granted will expire 30 days after the date hereof and may be exercised in whole
or in part from time to time only for the purpose of covering over-allotments
which may be made in connection with the offering and distribution of the
Initial Securities upon notice by the Representatives to the Company setting
forth the number of Option Securities as to which the several Underwriters are
then exercising the option and the time and date of payment and delivery for
such Option Securities. Any such time and date of delivery (a "Date of
Delivery") shall be determined by the Representatives, but shall not be later
than seven full business days after the exercise of said option, nor in any
event prior to the Closing Time, as hereinafter defined. If the option is
exercised as to all or any portion of the Option Securities, each of the
Underwriters, acting severally and not jointly, will purchase that proportion of
the total number of Option Securities then being purchased which the number of
Initial Securities set forth in Schedule A opposite the name of such Underwriter
bears to the total number of Initial Securities, subject in each case to such
adjustments as the Representatives in their discretion shall make to eliminate
any sales or purchases of fractional shares.
(c) Payment. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of Hogan &
Hartson L.L.P., 555 13th Street, N.W., Washington, DC 20004, or at such other
place as shall be agreed upon by the Representatives and the Company, at 9:00
A.M. (Eastern time) on the third (fourth, if the pricing occurs after 4:30 P.M.
(Eastern time) on any given day) business day after the date hereof (unless
postponed in accordance with the provisions of Section 10), or such other time
not later than ten business days after such date as shall be agreed upon by the
Representatives and the Company (such time and date of payment and delivery
being herein called "Closing Time").
In addition, in the event that any or all of the Option Securities are
purchased by the Underwriters, payment of the purchase price for, and delivery
of certificates for, such Option Securities shall be made at the above-mentioned
offices, or at such other place as shall be agreed upon by the Representatives
and the Company, on each Date of Delivery as specified in the notice from the
Representatives to the Company.
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Payment shall be made to the Company by wire transfer of immediately
available funds to a bank account designated by the Company, against delivery to
the Representatives for the respective accounts of the Underwriters of
certificates for the Securities to be purchased by them. It is understood that
each Underwriter has authorized the Representatives, for its account, to accept
delivery of, receipt for, and make payment of the purchase price for, the
Initial Securities and the Option Securities, if any, which it has agreed to
purchase. Merrill Lynch, individually and not as representative of the
Underwriters, may (but shall not be obligated to) make payment of the purchase
price for the Initial Securities or the Option Securities, if any, to be
purchased by any Underwriter whose funds have not been received by the Closing
Time or the relevant Date of Delivery, as the case may be, but such payment
shall not relieve such Underwriter from its obligations hereunder.
(d) Denominations; Registration. Certificates for the Initial Securities
and the Option Securities, if any, shall be in such denominations and registered
in such names as the Representatives may request in writing at least one full
business day before the Closing Time or the relevant Date of Delivery, as the
case may be. The certificates for the Initial Securities and the Option
Securities, if any, will be made available for examination and packaging by the
Representatives in The City of New York not later than 10:00 A.M. (Eastern time)
on the business day prior to the Closing Time or the relevant Date of Delivery,
as the case may be.
(e) Appointment of Qualified Independent Underwriter. The Company hereby
confirms its engagement of BancBoston Robertson Stephens Inc. as, and BancBoston
Robertson Stephens Inc. hereby confirms its agreement with the Company to render
services as, a "qualified independent underwriter" within the meaning of Rule
2720 of the Conduct Rules of the NASD with respect to the offering and sale of
the Securities. BancBoston Robertson Stephens Inc., solely in its capacity as
qualified independent underwriter and not otherwise, is referred to herein as
the "Independent Underwriter".
SECTION 3. Covenants of the Company. The Company covenants with each
Underwriter as follows:
(a) Compliance with Securities Regulations and Commission Requests. The
Company, subject to Section 3(b), will comply with the requirements of Rule 430A
or Rule 434, as applicable, and will notify the Representatives immediately, and
confirm the notice in writing, (i) when any post-effective amendment to the
Registration Statement shall become effective, or any supplement to the
Prospectus or any amended Prospectus shall have been filed, (ii) of the receipt
of any comments from the Commission, (iii) of any request by the Commission for
any amendment to the Registration Statement or any amendment or supplement to
the Prospectus or for additional information, and (iv) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or of any order preventing or suspending the use of any preliminary
prospectus, or of the suspension of the qualification of the Securities for
offering or sale in any jurisdiction, or of the initiation or threatening of any
proceedings for any of such purposes. The Company will promptly effect the
filings necessary pursuant to Rule 424(b) and will take such steps as it deems
necessary to ascertain promptly whether the form of prospectus transmitted for
filing under Rule 424(b) was received for filing
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<PAGE> 18
by the Commission and, in the event that it was not, it will promptly file such
prospectus. The Company will make every reasonable effort to prevent the
issuance of any stop order and, if any stop order is issued, to obtain the
lifting thereof at the earliest possible moment.
(b) Filing of Amendments. The Company will give the Representatives notice
of its intention to file or prepare any amendment to the Registration Statement
(including any filing under Rule 462(b)), any Term Sheet or any amendment,
supplement or revision to either the prospectus included in the Registration
Statement at the time it became effective or to the Prospectus, will furnish the
Representatives with copies of any such documents a reasonable amount of time
prior to such proposed filing or use, as the case may be, and will not file or
use any such document to which the Representatives or counsel for the
Underwriters shall object.
(c) Delivery of Registration Statements. The Company has furnished or will
deliver to the Representatives and counsel for the Underwriters, without charge,
signed copies of the Registration Statement as originally filed and of each
amendment thereto (including exhibits filed therewith or incorporated by
reference therein) and signed copies of all consents and certificates of
experts, and will also deliver to the Representatives, without charge, a
conformed copy of the Registration Statement as originally filed and of each
amendment thereto (without exhibits) for each of the Underwriters. The copies of
the Registration Statement and each amendment thereto furnished to the
Underwriters will be identical to the electronically transmitted copies thereof
filed with the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(d) Delivery of Prospectuses. The Company has delivered to each
Underwriter, without charge, as many copies of each preliminary prospectus as
such Underwriter reasonably requested, and the Company hereby consents to the
use of such copies for purposes permitted by the 1933 Act. The Company will
furnish to each Underwriter, without charge, during the period when the
Prospectus is required to be delivered under the 1933 Act or the Securities
Exchange Act of 1934 (the "1934 Act"), such number of copies of the Prospectus
(as amended or supplemented) as such Underwriter may reasonably request. The
Prospectus and any amendments or supplements thereto furnished to the
Underwriters will be identical to the electronically transmitted copies thereof
filed with the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(e) Continued Compliance with Securities Laws. The Company will comply
with the 1933 Act and the 1933 Act Regulations so as to permit the completion of
the distribution of the Securities as contemplated in this Agreement and in the
Prospectus. If at any time when a prospectus is required by the 1933 Act to be
delivered in connection with sales of the Securities, any event shall occur or
condition shall exist as a result of which it is necessary, in the opinion of
counsel for the Underwriters or for the Company, to amend the Registration
Statement or amend or supplement the Prospectus in order that the Prospectus
will not include any untrue statements of a material fact or omit to state a
material fact necessary in order to make the statements therein not misleading
in the light of the circumstances existing at the time it is delivered to a
purchaser, or if it shall be necessary, in the opinion of such counsel, at any
such time to amend the Registration Statement or amend or supplement the
Prospectus in order to comply with the
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<PAGE> 19
requirements of the 1933 Act or the 1933 Act Regulations, the Company will
promptly prepare and file with the Commission, subject to Section 3(b), such
amendment or supplement as may be necessary to correct such statement or
omission or to make the Registration Statement or the Prospectus comply with
such requirements, and the Company will furnish to the Underwriters such number
of copies of such amendment or supplement as the Underwriters may reasonably
request.
(f) Blue Sky Qualifications. The Company will use its best efforts, in
cooperation with the Underwriters, to qualify the Securities for offering and
sale under the applicable securities laws of such states and other jurisdictions
(domestic or foreign) as the Representatives may designate and to maintain such
qualifications in effect for a period of not less than one year from the later
of the effective date of the Registration Statement and any Rule 462(b)
Registration Statement; provided, however, that the Company shall not be
obligated to file any general consent to service of process or to qualify as a
foreign corporation or as a dealer in securities in any jurisdiction in which it
is not so qualified or to subject itself to taxation in respect of doing
business in any jurisdiction in which it is not otherwise so subject. In each
jurisdiction in which the Securities have been so qualified, the Company will
file such statements and reports as may be required by the laws of such
jurisdiction to continue such qualification in effect for a period of not less
than one year from the effective date of the Registration Statement and any Rule
462(b) Registration Statement.
(g) Rule 158. The Company will timely file such reports pursuant to the
1934 Act as are necessary in order to make generally available to its
securityholders as soon as practicable an earnings statement for the purposes
of, and to provide the benefits contemplated by, the last paragraph of Section
11(a) of the 1933 Act.
(h) Use of Proceeds. The Company will use the net proceeds received by it
from the sale of the Securities in the manner specified in the Prospectus under
"Use of Proceeds".
(i) Listing. The Company will use its best efforts to effect and maintain
the quotation of the Common Stock (including the Securities) on the Nasdaq
National Market and will file with the Nasdaq National Market all documents and
notices required by the Nasdaq National Market of companies that have securities
that are traded in the over-the-counter market and quotations for which are
reported by the Nasdaq National Market.
(j) Restriction on Sale of Securities. During a period of 180 days from
the date of the Prospectus, the Company will not, without the prior written
consent of the Merrill Lynch, (i) directly or indirectly, offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase or otherwise
transfer or dispose of any share of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock or file any registration
statement under the 1933 Act with respect to any of the foregoing or (ii) enter
into any swap or any other agreement or any transaction that transfers, in whole
or in part, directly or indirectly, the economic consequence of ownership of the
Common Stock, whether any such swap or transaction described in clause (i) or
(ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or
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otherwise. The foregoing sentence shall not apply to (A) the Securities to be
sold hereunder, (B) any shares of Common Stock issued by the Company upon the
exercise of an option or warrant or the conversion of a security outstanding on
the date hereof and referred to in the Prospectus or (C) any shares of Common
Stock issued or options to purchase Common Stock granted pursuant to existing
employee benefit plans of the Company referred to in the Prospectus.
(k) Reporting Requirements. The Company, during the period when the
Prospectus is required to be delivered under the 1933 Act or the 1934 Act, will
file all documents required to be filed with the Commission pursuant to the 1934
Act within the time periods required by the 1934 Act and the rules and
regulations of the Commission thereunder.
(l) Compliance with NASD Rules. The Company hereby agrees that it will use
its best efforts to ensure that the Reserved Securities will be restricted as
required by the NASD or the NASD rules from sale, transfer, assignment, pledge
or hypothecation for a period of three months following the date of this
Agreement. The Underwriters will notify the Company as to which persons will
need to be so restricted. At the request of the Underwriters, the Company will
direct the transfer agent to place a stop transfer restriction upon such
securities for such period of time. Should the Company release, or seek to
release, from such restrictions any of the Reserved Securities, the Company
agrees to reimburse the Underwriters for any reasonable expenses (including,
without limitation, legal expenses) they incur in connection with such release.
(m) Compliance with Rule 463. The Company will comply with Rule 463 of the
1933 Act Regulations.
SECTION 4. Payment of Expenses.
(a) Expenses. The Company will pay all expenses incident to the
performance of its obligations under this Agreement, including (i) the
preparation, printing and filing of the Registration Statement (including
financial statements and exhibits) as originally filed and of each amendment
thereto, (ii) the preparation, printing and delivery to the Underwriters of this
Agreement, any Agreement among Underwriters and such other documents as may be
required in connection with the offering, purchase, sale, issuance or delivery
of the Securities, (iii) the preparation, issuance and delivery of the
certificates for the Securities to the Underwriters, including any stock or
other transfer taxes and any stamp or other duties payable upon the sale,
issuance or delivery of the Securities to the Underwriters, (iv) the fees and
disbursements of the Company's counsel, accountants and other advisors, (v) the
qualification of the Securities under securities laws in accordance with the
provisions of Section 3(f) hereof, including filing fees and the reasonable fees
and disbursements of counsel for the Underwriters in connection therewith and in
connection with the preparation of the Blue Sky Survey and any supplement
thereto, (vi) the printing and delivery to the Underwriters of copies of each
preliminary prospectus, any Term Sheets and of the Prospectus and any amendments
or supplements thereto, (vii) the preparation, printing and delivery to the
Underwriters of copies of the Blue Sky Survey and any supplement thereto, (viii)
the fees and expenses of any transfer agent or registrar for the Securities,
(ix) the filing fees incident to, and the reasonable fees and disbursements of
counsel to
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the Underwriters in connection with, the review by the NASD of the terms of the
sale of the Securities, (x) the fees and expenses incurred in connection with
the inclusion of the Securities in the Nasdaq National Market, (xi) all costs
and expenses of the Underwriters, including the fees and disbursements of
counsel for the Underwriters, in connection with matters related to the Reserved
Securities which are designated by the Company for sale to employees and others
having a business relationship with the Company and (xii) the fees and expenses
of the Independent Underwriter.
(b) Termination of Agreement. If this Agreement is terminated by the
Representatives in accordance with the provisions of Section 5 or Section
9(a)(i) hereof, the Company shall reimburse the Underwriters for all of their
out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the Underwriters.
SECTION 5. Conditions of Underwriters' Obligations. The obligations of the
several Underwriters hereunder are subject to the accuracy of the
representations and warranties of the Company contained in Section 1 hereof or
in certificates of any officer of the Company or any Subsidiary delivered
pursuant to the provisions hereof, to the performance by the Company of its
covenants and other obligations hereunder, and to the following further
conditions:
(a) Effectiveness of Registration Statement. The Registration Statement,
including any Rule 462(b) Registration Statement, has become effective and at
Closing Time no stop order suspending the effectiveness of the Registration
Statement shall have been issued under the 1933 Act or proceedings therefor
initiated or threatened by the Commission, and any request on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of counsel to the Underwriters. A prospectus containing
the Rule 430A Information shall have been filed with the Commission in
accordance with Rule 424(b) (or a post-effective amendment providing such
information shall have been filed and declared effective in accordance with the
requirements of Rule 430A) or, if the Company has elected to rely upon Rule 434,
a Term Sheet shall have been filed with the Commission in accordance with Rule
424(b).
(b) Opinion of Counsel for Company. At Closing Time, the Representatives
shall have received the favorable opinion, dated as of Closing Time, of Wilmer,
Cutler & Pickering, counsel for the Company, in form and substance reasonably
satisfactory to counsel for the Underwriters, together with signed or reproduced
copies of such letter for each of the other Underwriters to the effect set forth
in Exhibit A hereto and to such further effect as counsel to the Underwriters
may reasonably request.
(c) Opinion of Counsel for Underwriters. At Closing Time, the
Representatives shall have received the favorable opinion, dated as of Closing
Time, of Hogan & Hartson L.L.P., counsel for the Underwriters, together with
signed or reproduced copies of such letter for each of the other Underwriters
with respect to the matters set forth in clauses (i), (ii), (v), (vi) (solely as
to preemptive or other similar rights arising by operation of law or under the
charter or by-laws of the Company), (viii) through (x), inclusive, (xii), (xiv)
(solely as to the information in the Prospectus under "Description of Capital
Stock--Common Stock") and the penultimate
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paragraph of Exhibit A hereto. In giving such opinion such counsel may rely, as
to all matters governed by the laws of jurisdictions other than the law of the
State of New York and the federal law of the United States and the General
Corporation Law of the State of Delaware, upon the opinions of counsel
satisfactory to the Representatives. Such counsel may also state that, insofar
as such opinion involves factual matters, they have relied, to the extent they
deem proper, upon certificates of officers of the Company and the Subsidiaries
and certificates of public officials.
(d) Officers' Certificate. At Closing Time, there shall not have been,
since the date hereof or since the respective dates as of which information is
given in the Prospectus, any material adverse change in the condition, financial
or otherwise, or in the earnings, business affairs or business prospects of the
Company and the Subsidiaries considered as one enterprise, whether or not
arising in the ordinary course of business, and the Representatives shall have
received a certificate of the President or a Vice President of the Company and
of the chief financial or chief accounting officer of the Company, dated as of
Closing Time, to the effect that (i) there has been no such material adverse
change, (ii) the representations and warranties in Section 1(a) hereof are true
and correct with the same force and effect as though expressly made at and as of
Closing Time, (iii) the Company has complied with all agreements and satisfied
all conditions on its part to be performed or satisfied at or prior to Closing
Time, and (iv) no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are pending or are contemplated by the Commission.
(e) Accountants' Comfort Letters. At the time of the execution of this
Agreement, the Representatives shall have received from KPMG LLP and
PricewaterhouseCoopers LLP letters dated such date, in form and substance
satisfactory to the Representatives, together with signed or reproduced copies
of such letters for each of the other Underwriters containing statements and
information of the type ordinarily included in accountants' "comfort letters" to
underwriters with respect to the financial statements and certain financial
information (including, in the case of KPMG LLP, pro forma financial
information) of the Company and Mobeo, respectively, contained in the
Registration Statement and the Prospectus.
(f) Bring-down Comfort Letters. At Closing Time, the Representatives shall
have received from KPMG LLP and PricewaterhouseCoopers LLP letters, dated as of
Closing Time, to the effect that they reaffirm the statements made in the
letters furnished pursuant to subsection (e) of this Section, except that the
specified date referred to shall be a date not more than three business days
prior to Closing Time.
(g) Approval of Listing. At Closing Time, the Securities shall have been
approved for inclusion in the Nasdaq National Market, subject only to official
notice of issuance.
(h) No Objection. The NASD shall have confirmed that it has not raised any
objection with respect to the fairness and reasonableness of the underwriting
terms and arrangements.
(i) Lock-up Agreements. At the date of this Agreement, the Representatives
shall have received an agreement substantially in the form of Exhibit B hereto
signed by the persons listed on Schedule C hereto.
18
<PAGE> 23
(j) Consummation of Capital Contributions and Merger. The capital
contribution transactions contemplated by the Agreement and Plan of
Contribution, dated as of October ___, 1999, among the Company, 3Com
Corporation, NexGen Technologies, L.L.C., Pyramid Ventures, Inc., Reuters
MarketClip Holdings Sarl, Telcom-ATI Investors, L.L.C., Transettlements, Inc.,
Mark D. Ein and J. Carter Beese, and the merger transaction contemplated by the
Agreement and Plan of Merger, dated as of October ___, 1999, between the Company
and Aether Systems L.L.C., shall have been consummated in a manner satisfactory
to the Representatives.
(k) Conditions to Purchase of Option Securities. In the event that the
Underwriters exercise their option provided in Section 2(b) hereof to purchase
all or any portion of the Option Securities, the representations and warranties
of the Company contained herein and the statements in any certificates furnished
by the Company or any Subsidiary of the Company hereunder shall be true and
correct as of each Date of Delivery and, at the relevant Date of Delivery, the
Representatives shall have received:
(i) Officers' Certificate. A certificate, dated such Date of
Delivery, of the President or a Vice President of the Company and of the
chief financial or chief accounting officer of the Company confirming that
the certificate delivered at the Closing Time pursuant to Section 5(d)
hereof remains true and correct as of such Date of Delivery.
(ii) Opinion of Counsel for Company. The favorable opinion of
Wilmer, Cutler & Pickering, counsel for the Company, in form and substance
reasonably satisfactory to counsel for the Underwriters, dated such Date
of Delivery, relating to the Option Securities to be purchased on such
Date of Delivery and otherwise to the same effect as the opinion required
by Section 5(b) hereof.
(iii) Opinion of Counsel for Underwriters. The favorable opinion of
Hogan & Hartson L.L.P., counsel for the Underwriters, dated such Date of
Delivery, relating to the Option Securities to be purchased on such Date
of Delivery and otherwise to the same effect as the opinion required by
Section 5(c) hereof.
(iv) Bring-down Comfort Letters. Letters from each of KPMG LLP and
PricewaterhouseCoopers LLP, in form and substance satisfactory to the
Representatives and dated such Date of Delivery, substantially in the same
form and substance as the letters furnished to the Representatives
pursuant to Section 5(f) hereof, except that the "specified date" in the
letter furnished pursuant to this paragraph shall be a date not more than
five days prior to such Date of Delivery.
(l) Additional Documents. At Closing Time and at each Date of Delivery,
counsel for the Underwriters shall have been furnished with such documents and
opinions as they may reasonably require for the purpose of enabling them to pass
upon the issuance and sale of the Securities as herein contemplated, or in order
to evidence the accuracy of any of the representations or warranties, or the
fulfillment of any of the conditions, herein contained; and all proceedings
taken by the Company in connection with the issuance and sale of the Securities
as
19
<PAGE> 24
herein contemplated shall be reasonably satisfactory in form and substance to
the Representatives and counsel for the Underwriters.
(m) Termination of Agreement. If any condition specified in this Section
shall not have been fulfilled when and as required to be fulfilled, this
Agreement, or, in the case of any condition to the purchase of Option Securities
on a Date of Delivery which is after the Closing Time, the obligations of the
several Underwriters to purchase the relevant Option Securities, may be
terminated by the Representatives by notice to the Company at any time at or
prior to Closing Time or such Date of Delivery, as the case may be, and such
termination shall be without liability of any party to any other party except as
provided in Section 4 and except that Sections 1, 6, 7 and 8 shall survive any
such termination and remain in full force and effect.
SECTION 6. Indemnification.
(a) Indemnification of Underwriters. (1) The Company agrees to indemnify
and hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Registration
Statement (or any amendment thereto), including the Rule 430A Information
and the Rule 434 Information, if applicable, or the omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading or arising out of
any untrue statement or alleged untrue statement of a material fact
included in any preliminary prospectus or the Prospectus (or any amendment
or supplement thereto), or the omission or alleged omission therefrom of a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of (A) the violation of any
applicable laws or regulations of foreign jurisdictions where Reserved
Securities have been offered and (B) any untrue statement or alleged
untrue statement of a material fact included in the supplement or
prospectus wrapper material distributed in foreign jurisdictions in
connection with the reservation and sale of the Reserved Securities to
eligible employees of the Company or the omission or alleged omission
therefrom of a material fact necessary to make the statements therein,
when considered in conjunction with the Prospectus or preliminary
prospectus, not misleading;
(iii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission or in connection with any violation
of the nature referred to in Section 6(a)(1)(ii)(A) hereof; provided that
(subject
20
<PAGE> 25
to Section 6(d) below) any such settlement is effected with the written
consent of the Company; and
(iv) against any and all expense whatsoever, as incurred (including
the fees and disbursements of counsel chosen by Merrill Lynch), reasonably
incurred in investigating, preparing or defending against any litigation,
or any investigation or proceeding by any governmental agency or body,
commenced or threatened, or any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or
omission or in connection with any violation of the nature referred to in
Section 6(a)(1)(ii)(A) hereof, to the extent that any such expense is not
paid under (i), (ii) or (iii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
Underwriter through the Representatives expressly for use in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434 Information, if applicable, or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto).
(2) In addition to and without limitation of the Company's obligation
to indemnify BancBoston Robertson Stephens Inc. as an Underwriter, the Company
also agrees to indemnify and hold harmless the Independent Underwriter and each
person, if any, who controls the Independent Underwriter within the meaning of
Section 15 of the 1933 Act or Section 20 of the 1934 Act, from and against any
and all loss, liability, claim, damage and expense whatsoever, as incurred,
incurred as a result of the Independent Underwriter's participation as a
"qualified independent underwriter" within the meaning of Rule 2720 of the
Conduct Rules of the National Association of Securities Dealers, Inc. in
connection with the offering of the Securities.
(b) Indemnification of Company, Directors and Officers. Each Underwriter
severally agrees to indemnify and hold harmless the Company, its directors, each
of its officers who signed the Registration Statement, and each person, if any,
who controls the Company within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act against any and all loss, liability, claim, damage
and expense described in the indemnity contained in subsection (a) of this
Section, as incurred, but only with respect to untrue statements or omissions,
or alleged untrue statements or omissions, made in the Registration Statement
(or any amendment thereto), including the Rule 430A Information and the Rule 434
Information, if applicable, or any preliminary prospectus or the Prospectus (or
any amendment or supplement thereto) in reliance upon and in conformity with
written information furnished to the Company by such Underwriter through Merrill
Lynch expressly for use in the Registration Statement (or any amendment thereto)
or such preliminary prospectus or the Prospectus (or any amendment or supplement
thereto).
(c) Actions against Parties; Notification. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against
21
<PAGE> 26
it in respect of which indemnity may be sought hereunder, but failure to so
notify an indemnifying party shall not relieve such indemnifying party from any
liability hereunder to the extent it is not materially prejudiced as a result
thereof and in any event shall not relieve it from any liability which it may
have otherwise than on account of this indemnity agreement. In the case of
parties indemnified pursuant to Section 6(a) above, counsel to the indemnified
parties shall be selected by Merrill Lynch, and, in the case of parties
indemnified pursuant to Section 6(b) above, counsel to the indemnified parties
shall be selected by the Company. An indemnifying party may participate at its
own expense in the defense of any such action; provided, however, that counsel
to the indemnifying party shall not (except with the consent of the indemnified
party) also be counsel to the indemnified party. In no event shall the
indemnifying parties be liable for fees and expenses of more than one counsel
(in addition to any local counsel) separate from their own counsel for all
indemnified parties in connection with any one action or separate but similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances; provided, that, if indemnity is sought pursuant to
Section 6(a)(2), then, in addition to the fees and expenses of such counsel for
the indemnified parties, the indemnifying party shall be liable for the
reasonable fees and expenses of not more than one counsel (in addition to any
local counsel) separate from its own counsel and that of the other indemnified
parties for the Independent Underwriter in its capacity as a "qualified
independent underwriter" and all persons, if any, who control the Independent
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
1934 Act in connection with any one action or separate but similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstances if, in the reasonable judgment of the Independent Underwriter,
there may exist a conflict of interest between the Independent Underwriter and
the other indemnified parties. Any such separate counsel for the Independent
Underwriter and such control persons of the Independent Underwriter shall be
designated in writing by the Independent Underwriter. No indemnifying party
shall, without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 6 or Section
7 hereof (whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.
(d) Settlement without Consent if Failure to Reimburse. If at any time an
indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 6(a)(iii) effected without its written consent if (i) such settlement is
entered into more than 45 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received notice of
the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement.
22
<PAGE> 27
(e) Indemnification for Reserved Securities. In connection with the offer
and sale of the Reserved Securities, the Company agrees, promptly upon a
request, in writing to indemnify and hold harmless the Underwriters from and
against any and all losses, liabilities, claims, damages and expenses incurred
by them as a result of the failure of eligible employees of the Company to pay
for and accept delivery of Reserved Securities which, by the end of the first
business day following the date of this Agreement, were subject to a properly
confirmed agreement to purchase.
SECTION 7. Contribution. If the indemnification provided for in Section 6
hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the Underwriters on the other hand from the offering of the Securities
pursuant to this Agreement or (ii) if the allocation provided by clause (i) is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of the Company on the one hand and of the Underwriters on the
other hand in connection with the statements or omissions, or in connection with
any violation of the nature referred to in Section 6(a)(1)(ii)(A) hereof, which
resulted in such losses, liabilities, claims, damages or expenses, as well as
any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the
Underwriters on the other hand in connection with the offering of the Securities
pursuant to this Agreement shall be deemed to be in the same respective
proportions as the total net proceeds from the offering of the Securities
pursuant to this Agreement (before deducting expenses) received by the Company
and the total underwriting discount received by the Underwriters, in each case
as set forth on the cover of the Prospectus, or, if Rule 434 is used, the
corresponding location on the Term Sheet, bear to the aggregate initial public
offering price of the Securities as set forth on such cover.
The relative fault of the Company on the one hand and the Underwriters on
the other hand shall be determined by reference to, among other things, whether
any such untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by the
Company or by the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission or any violation of the nature referred to in Section 6(a)(1)(ii)(A)
hereof.
The Company and the Underwriters agree that BancBoston Robertson Stephens
Inc. will not receive any additional benefits hereunder for serving as the
Independent Underwriter in connection with the offering and sale of the
Securities.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7 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 in this Section 7.
23
<PAGE> 28
The aggregate amount of losses, liabilities, claims, damages and expenses
incurred by an indemnified party and referred to above in this Section 7 shall
be deemed to include any legal or other expenses reasonably incurred by such
indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Securities 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 any such untrue or
alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such Underwriter, and
each director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall
have the same rights to contribution as the Company. The Underwriters'
respective obligations to contribute pursuant to this Section 7 are several in
proportion to the number of Initial Securities set forth opposite their
respective names in Schedule A hereto and not joint.
SECTION 8. Representations, Warranties and Agreements to Survive Delivery.
All representations, warranties and agreements contained in this Agreement or in
certificates of officers of the Company or any of the Subsidiaries submitted
pursuant hereto, shall remain operative and in full force and effect, regardless
of any investigation made by or on behalf of any Underwriter or controlling
person, or by or on behalf of the Company, and shall survive delivery of the
Securities to the Underwriters.
SECTION 9. Termination of Agreement.
(a) Termination; General. The Representatives may terminate this
Agreement, by notice to the Company, at any time at or prior to Closing Time (i)
if there has been, since the time of execution of this Agreement or since the
respective dates as of which information is given in the Prospectus, any
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and the
Subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business, or (ii) if there has occurred any material adverse
change in the financial markets in the United States or the international
financial markets, any outbreak of hostilities or escalation thereof or other
calamity or crisis or any change or development involving a prospective change
in national or international political, financial or economic conditions, in
each case the effect of which is such as to make it, in the judgment of the
Representatives, impracticable to market the Securities or to
24
<PAGE> 29
enforce contracts for the sale of the Securities, or (iii) if trading in any
securities of the Company has been suspended or materially limited by the
Commission or the Nasdaq National Market, or if trading generally on the
American Stock Exchange or the New York Stock Exchange or in the Nasdaq National
Market has been suspended or materially limited, or minimum or maximum prices
for trading have been fixed, or maximum ranges for prices have been required, by
any of said exchanges or by such system or by order of the Commission, the
National Association of Securities Dealers, Inc. or any other governmental
authority, or (iv) if a banking moratorium has been declared by either Federal
or New York authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this Section,
such termination shall be without liability of any party to any other party
except as provided in Section 4 hereof, and provided further that Sections 1, 6,
7 and 8 shall survive such termination and remain in full force and effect.
SECTION 10. Default by One or More of the Underwriters. If one or more of
the Underwriters shall fail at Closing Time or a Date of Delivery to purchase
the Securities which it or they are obligated to purchase under this Agreement
(the "Defaulted Securities"), the Representatives shall have the right, within
24 hours thereafter, to make arrangements for one or more of the non-defaulting
Underwriters, or any other underwriters, to purchase all, but not less than all,
of the Defaulted Securities in such amounts as may be agreed upon and upon the
terms herein set forth; if, however, the Representatives shall not have
completed such arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10% of
the number of Securities to be purchased on such date, each of the
non-defaulting Underwriters shall be obligated, severally and not jointly,
to purchase the full amount thereof in the proportions that their
respective underwriting obligations hereunder bear to the underwriting
obligations of all non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the
number of Securities to be purchased on such date, this Agreement or, with
respect to any Date of Delivery which occurs after the Closing Time, the
obligation of the Underwriters to purchase and of the Company to sell the
Option Securities to be purchased and sold on such Date of Delivery shall
terminate without liability on the part of any non-defaulting Underwriter.
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default.
In the event of any such default which does not result in a termination of
this Agreement or, in the case of a Date of Delivery which is after the Closing
Time, which does not result in a termination of the obligation of the
Underwriters to purchase and the Company to sell the relevant Option Securities,
as the case may be, either the Representatives or the Company shall have the
right to postpone Closing Time or the relevant Date of Delivery, as the case may
be, for a period not exceeding seven days in order to effect any required
changes in the Registration
25
<PAGE> 30
Statement or Prospectus or in any other documents or arrangements. As used
herein, the term "Underwriter" includes any person substituted for an
Underwriter under this Section 10.
SECTION 11. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be directed to the Representatives at North Tower, World
Financial Center, New York, New York 10281-1201, attention of Carl Gardiner, and
notices to the Company shall be directed to it at 11460 Cronridge Drive, Owings
Mills, Maryland 21117, attention of David S. Oros.
SECTION 12. Parties. This Agreement shall inure to the benefit of and be
binding upon the Underwriters and the Company and their respective successors.
Nothing expressed or mentioned in this Agreement is intended or shall be
construed to give any person, firm or corporation, other than the Underwriters
and the Company and their respective successors and the controlling persons and
officers and directors referred to in Sections 6 and 7 and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision herein contained. This Agreement and
all conditions and provisions hereof are intended to be for the sole and
exclusive benefit of the Underwriters and the Company and their respective
successors, and said controlling persons and officers and directors and their
heirs and legal representatives, and for the benefit of no other person, firm or
corporation. No purchaser of Securities from any Underwriter shall be deemed to
be a successor by reason merely of such purchase.
SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 14. Effect of Headings. The Article and Section headings
herein and the Table of Contents are for convenience only and shall not
affect the construction hereof.
26
<PAGE> 31
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the Underwriters and the Company in accordance with its terms.
Very truly yours,
AETHER SYSTEMS, INC.
By_________________________________
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
BANCBOSTON ROBERTSON STEPHENS INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
U.S. BANCORP PIPER JAFFRAY INC.
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By____________________________________________
Authorized Signatory
For themselves and as Representatives of the
other Underwriters named in Schedule A hereto.
27
<PAGE> 32
SCHEDULE A
<TABLE>
<CAPTION>
Name of Underwriter Number of
------------------- Initial
Securities
----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.....................................
BancBoston Robertson Stephens Inc.
Donaldson, Lufkin & Jenrette
Securities Corporation
U.S. Bancorp Piper Jaffray Inc.............................. --------
Total....................................................... [1]
========
</TABLE>
Sch A - 1
<PAGE> 33
SCHEDULE B
[2]
[1] Shares of Common Stock
(Par Value $.01 Per Share)
1. The initial public offering price per share for the Securities,
determined as provided in said Section 2, shall be $___________ .
2. The purchase price per share for the Securities to be paid by the
several Underwriters shall be $_____________, being an amount equal to the
initial public offering price set forth above less $______________ per
share; provided that the purchase price per share for any Option
Securities purchased upon the exercise of the over-allotment option
described in Section 2(b) shall be reduced by an amount per share equal to
any dividends or distributions declared by the Company and payable on the
Initial Securities but not payable on the Option Securities.
Sch B - 1
<PAGE> 34
SCHEDULE C
All executive officers, directors and stockholders of the Company.
Sch C - 1
<PAGE> 35
Exhibit A
FORM OF OPINION OF COMPANY'S COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of
the State of Delaware.
(ii) The Company has corporate power and authority to own, lease
and operate its properties and to conduct its business as
described in the Prospectus and to enter into and perform its
obligations under the Purchase Agreement.
(iii) The Company is duly qualified as a foreign corporation to
transact business and is in good standing in each
jurisdiction in which such qualification is required, whether
by reason of the ownership or leasing of property or the
conduct of business, except where the failure so to qualify
or to be in good standing would not result in a Material
Adverse Effect.
(iv) The authorized, issued and outstanding capital stock of the
Company will, at the Closing Time and giving effect to the
issuance of the Initial Securities under the Purchase
Agreement, be as set forth in the Prospectus in the column
entitled "Actual Pro Forma Consolidated As Adjusted" under
the caption "Capitalization" (except for subsequent
issuances, if any, pursuant to the Purchase Agreement or
pursuant to reservations, agreements or employee benefit
plans referred to in the Prospectus or pursuant to the
exercise of convertible securities or options referred to in
the Prospectus); the shares of issued and outstanding capital
stock of the Company have been duly authorized and validly
issued and are fully paid and non-assessable; and none of the
outstanding shares of capital stock of the Company was issued
in violation of the preemptive or other similar rights of any
securityholder of the Company.
(v) The Securities have been duly authorized for issuance and
sale to the Underwriters pursuant to the Purchase Agreement,
and, when issued and delivered by the Company pursuant to the
Purchase Agreement against payment of the consideration set
forth in the Purchase Agreement, will be validly issued and
fully paid and non-assessable and no holder of the Securities
is or will be subject to personal liability by reason of
being such a holder.
(vi) The issuance of the Securities is not subject to preemptive
or other similar rights of any securityholder of the Company.
(vii) Each Subsidiary has been duly organized and is validly
existing as a corporation or limited liability company in
good standing under the laws of the jurisdiction of its
A-1
<PAGE> 36
incorporation or formation, has corporate or limited
liability company power and authority to own, lease and
operate its properties and to conduct its business as
described in the Prospectus and is duly qualified as a
foreign corporation or limited liability company to transact
business and is in good standing in each jurisdiction in
which such qualification is required, whether by reason of
the ownership or leasing of property or the conduct of
business, except where the failure so to qualify or to be in
good standing would not result in a Material Adverse Effect;
except as otherwise disclosed in the Registration Statement,
all of the issued and outstanding capital stock or other
equity interests of each Subsidiary has been duly authorized
and validly issued, is fully paid and non-assessable and, to
the best of our knowledge, is owned by the Company, directly
or through Subsidiaries, free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or
equity; none of the outstanding shares of capital stock or
other equity interests of any Subsidiary was issued in
violation of the preemptive or similar rights of any
securityholder of such Subsidiary.
(viii) The Purchase Agreement has been duly authorized, executed and
delivered by the Company.
(ix) The Registration Statement, including any Rule 462(b)
Registration Statement, has been declared effective under the
1933 Act; any required filing of the Prospectus pursuant to
Rule 424(b) has been made in the manner and within the time
period required by Rule 424(b); and, to the best of our
knowledge, no stop order suspending the effectiveness of the
Registration Statement or any Rule 462(b) Registration
Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are
pending or threatened by the Commission.
(x) The Registration Statement, including any Rule 462(b)
Registration Statement, the Rule 430A Information and the
Rule 434 Information, as applicable, the Prospectus and each
amendment or supplement to the Registration Statement and the
Prospectus as of their respective effective or issue dates
(other than the financial statements and supporting schedules
included therein or omitted therefrom, as to which we express
no opinion) complied as to form in all material respects with
the requirements of the 1933 Act and the 1933 Act
Regulations.
(xi) If Rule 434 has been relied upon, the Prospectus was not
"materially different," as such term is used in Rule 434,
from the prospectus included in the Registration Statement at
the time it became effective.
(xii) The form of certificate used to evidence the Common Stock
complies in all material respects with all applicable
statutory requirements, with any applicable requirements of
the charter and by-laws of the Company and the requirements
of the Nasdaq National Market.
(xiii) To the best of our knowledge, there is not pending or
threatened any action, suit, proceeding, inquiry or
investigation, to which the Company or any Subsidiary is
A-2
<PAGE> 37
a party, or to which the property of the Company or any
Subsidiary is subject, before or brought by any court or
governmental agency or body, domestic or foreign, which is
required to be disclosed in the Prospectus other than those
described or referred to therein and the descriptions thereof
or references thereto are correct in all material respects,
or which might reasonably be expected to materially and
adversely affect the properties or assets thereof or the
consummation of the transactions contemplated in the Purchase
Agreement or the performance by the Company of its
obligations thereunder.
(xiv) The information in the Prospectus under "Description of
Capital Stock" and "Business--Intellectual Property Rights",
"Business--Government Regulation", "Business--Legal
Proceedings", and in the Registration Statement under Item
14, to the extent that it constitutes matters of law,
summaries of legal matters, the Company's charter and bylaws
or legal proceedings, or legal conclusions, has been reviewed
by us and is correct in all material respects.
(xv) To the best of our knowledge, there are no statutes or
regulations that are required to be described in the
Prospectus that are not described as required.
(xvi) All descriptions in the Prospectus of contracts and other
documents to which the Company or the Subsidiaries are a
party are accurate in all material respects; to the best of
our knowledge, there are no franchises, contracts,
indentures, mortgages, loan agreements, notes, leases or
other instruments required to be described or referred to in
the Registration Statement or to be filed as exhibits thereto
other than those described or referred to therein or filed or
incorporated by reference as exhibits thereto, and the
descriptions thereof or references thereto are correct in all
material respects.
(xvii) To the best of our knowledge, neither the Company nor any
Subsidiary is in violation of its charter or by-laws and no
default by the Company or any Subsidiary exists in the due
performance or observance of any material obligation,
agreement, covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note, lease or other
agreement or instrument that is described or referred to in
the Registration Statement or the Prospectus or filed or
incorporated by reference as an exhibit to the Registration
Statement.
(xviii) No filing with, or authorization, approval, consent, license,
order, registration, qualification or decree of, any court or
governmental authority or agency, domestic or foreign (other
than under the 1933 Act and the 1933 Act Regulations, which
have been obtained, or as may be required under the
securities or blue sky laws of the various states, as to
which we express no opinion) is necessary or required in
connection with the due authorization, execution and delivery
of the Purchase Agreement or for the offering, issuance, sale
or delivery of the Securities.
A-3
<PAGE> 38
(xix) The execution, delivery and performance of the Purchase
Agreement and the consummation of the transactions
contemplated in the Purchase Agreement and in the
Registration Statement (including the issuance and sale of
the Securities, and the use of the proceeds from the sale of
the Securities as described in the Prospectus under the
caption "Use Of Proceeds") and compliance by the Company with
its obligations under the Purchase Agreement do not and will
not, (A) whether with or without the giving of notice or
lapse of time or both, conflict with or constitute a breach
of, or default or Repayment Event (as defined in Section
1(a)(x) of the Purchase Agreement) under or result in the
creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company or any Subsidiary
pursuant to any contract, indenture, mortgage, deed of trust,
loan or credit agreement, note, lease or any other agreement
or instrument known to us, to which the Company or any
Subsidiary is a party or by which it or any of them may be
bound, or to which any of the property or assets of the
Company or any Subsidiary is subject (except for such
conflicts, breaches or defaults or liens, charges or
encumbrances that would not have a Material Adverse Effect),
(B) result in any violation of the provisions of the charter
or by-laws of the Company or any Subsidiary, or (C) violate
any applicable law, statute, rule, regulation, judgment,
order, writ or decree, known to us, of any government,
government instrumentality or court, domestic or foreign,
having jurisdiction over the Company or any Subsidiary or any
of their respective properties, assets or operations.
(xx) To the best of our knowledge, except as disclosed in the
Prospectus, there are no persons with registration rights or
other similar rights to have any securities registered
pursuant to the Registration Statement or otherwise
registered by the Company under the 1933 Act.
(xxi) The Company is not an "investment company" or an entity
"controlled" by an "investment company," as such terms are
defined in the 1940 Act.
Nothing has come to our attention that would lead us to believe that the
Registration Statement or any amendment thereto, including the Rule 430A
Information and Rule 434 Information (if applicable), (except for financial
statements and schedules and other financial data included therein or omitted
therefrom, as to which we make no statement), at the time such Registration
Statement or any such amendment became effective, contained an untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or that the
Prospectus or any amendment or supplement thereto (except for financial
statements and schedules and other financial data included therein or omitted
therefrom, as to which we need make no statement), at the time the Prospectus
was issued, at the time any such amended or supplemented prospectus was issued
or at the Closing Time, included or includes an untrue statement of a material
fact or omitted or omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
A-4
<PAGE> 39
In rendering such opinion, such counsel may rely, as to matters of fact
(but not as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the Company and public officials. Such
opinion shall not state that it is to be governed or qualified by, or that it is
otherwise subject to, any treatise, written policy or other document relating to
legal opinions, including, without limitation, the Legal Opinion Accord of the
ABA Section of Business Law (1991).
A-5
<PAGE> 40
Exhibit B
FORM OF LOCK-UP FROM DIRECTORS, OFFICERS OR OTHER STOCKHOLDERS
PURSUANT TO SECTION 5(I)
October __, 1999
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated,
BancBoston Robertson Stephens Inc.
Donaldson, Lufkin & Jenrette
Securities Corporation
U.S. Bancorp Piper Jaffray Inc.
as Representatives of the several
Underwriters to be named in the
within-mentioned Purchase Agreement
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Re: Proposed Public Offering by Aether Systems, Inc.
Dear Sirs:
The undersigned, a stockholder [and an officer and/or director] of Aether
Systems, Inc., a Delaware corporation (the "Company"), understands that Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch") and BancBoston Robertson Stephens Inc., Donaldson, Lufkin & Jenrette
Securities Corporation and U.S. Bancorp Piper Jaffray Inc. propose(s) to enter
into a Purchase Agreement (the "Purchase Agreement") with the Company providing
for the public offering of shares (the "Securities") of the Company's common
stock, par value $.01 per share (the "Common Stock"). In recognition of the
benefit that such an offering will confer upon the undersigned as a stockholder
[and an officer and/or director] of the Company, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
undersigned agrees with each underwriter to be named in the Purchase Agreement
that, during a period of 180 days from the date of the Purchase Agreement, the
undersigned will not, without the prior written consent of Merrill Lynch,
directly or indirectly, (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant for the sale of, or otherwise dispose of or
transfer any shares of the Company's Common Stock or any securities convertible
into or exchangeable or exercisable for Common Stock, whether now owned or
hereafter acquired by the undersigned or with respect to which the undersigned
has or hereafter acquires the power of disposition, or file any registration
statement under the Securities Act of 1933, as
B-1
<PAGE> 41
amended, with respect to any of the foregoing or (ii) enter into any swap or any
other agreement or any transaction that transfers, in whole or in part, directly
or indirectly, the economic consequence of ownership of the Common Stock,
whether any such swap or transaction is to be settled by delivery of Common
Stock or other securities, in cash or otherwise.
Very truly yours,
Signature:
-------------------------
Print Name:
------------------------
B-2
<PAGE> 1
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement"), dated as of
October 18, 1999, is by and between Aether Systems, Inc., a Delaware corporation
(the "Corporation"), and Aether Systems LLC, a Delaware limited liability
company (formerly Aether Technologies International, L.L.C., and referred to
herein as the "LLC").
WITNESSETH
WHEREAS, the LLC has determined (i) to offer equity securities to
the public (the "IPO") pursuant to a registration statement on Form S-1 filed
with the Securities and Exchange Commission (the "Registration Statement") and
(ii) in connection with the IPO, to convert into a corporation; and
WHEREAS, the Board of Directors and the sole stockholder of the
Corporation have approved and adopted this Agreement, and the Managers and
Members of the LLC have approved and adopted this Agreement by Super Majority
Approval.
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties to this Agreement covenant and agree
as follows:
ARTICLE I
THE MERGER
1.1 The Merger; Surviving Corporation. Subject to the terms and
conditions set forth in this Agreement, at the Effective Time (as defined in
Section 1.3 below), the LLC shall be merged with and into the Corporation,
pursuant to Section 264 of the Delaware General Corporation Law (the "DGCL") and
Section 18-209 of the Delaware Limited Liability Company Act (the "DLLCA"), and
the separate existence of the LLC shall cease. The Corporation shall be the
surviving entity (the "Surviving Corporation") and shall continue to be governed
by the DGCL.
1.2 Condition to the Merger. The LLC and the Corporation shall not
consummate the Merger unless and until there shall have occurred the closing of
the transactions contemplated by the Agreement and Plan of Contribution pursuant
to which the Corporation will issue shares of common stock, par value $.01
("Common Stock"), in exchange for Units contributed by the Members of the LLC.
The LLC and the Corporation agree that the foregoing condition shall not be
waived.
1.3 Effective Time. The Merger shall become effective upon filing of
the Certificate of Merger with the Secretary of State of the State of Delaware
(the "Effective Time"). The Certificate of Merger shall be filed at such time as
the Corporation and the LLC shall direct.
<PAGE> 2
1.4 Cancellation of the Limited Liability Company. In accordance
with Section 18-209(e) of the DLLCA, the Certificate of Merger filed pursuant to
Section 1.3 hereof shall be deemed a certificate of cancellation of the LLC.
ARTICLE II
THE SURVIVING CORPORATION
2.1 Name. The name of the Surviving Corporation shall continue to be
Aether Systems, Inc.
2.2 Certificate of Incorporation and Bylaws; Defined Terms. The
Certificate of Incorporation and Bylaws of the Surviving Corporation shall be as
set forth in Exhibit A and Exhibit B to this Agreement, respectively, unless and
until amended in accordance with their terms and applicable law.
2.3 Directors and Officers. The directors of the Corporation
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation and until his or her
successor is duly elected and qualified or until his or her earlier resignation
or removal. The officers of the Corporation immediately prior to the Effective
Time shall be the initial officers of the Surviving Corporation, each to hold
office in accordance with the Certificate of Incorporation and Bylaws of the
Surviving Corporation and until his or her successor is duly appointed and
qualified or until his or her earlier resignation or removal.
2
<PAGE> 3
ARTICLE III
CONVERSION OF SECURITIES
3.1 Conversion of LLC Interests.
(a) Except as otherwise provided in Section 3.1(b), at the
Effective Time, by virtue of the Merger and without any action on the part of
the Corporation, the LLC or any Member of the LLC, (i) all Units in the LLC
shall, from and after the Effective Time, be converted into 2.5 shares of Common
Stock of the Surviving Corporation and (ii) all options and warrants to acquire
membership interests shall, from and after the Effective Time, be converted into
options and warrants to acquire 2.5 shares of Common Stock of the Surviving
Corporation, each at an exercise price equal to the exercise price in effect
prior to the Effective Time divided by 2.5.
(b) Each share of Common Stock held in treasury of the LLC and
each Unit issued and outstanding immediately prior to the Effective Time which
is then owned beneficially or of record by the Corporation shall by virtue of
the Merger, and without any action on the part of the holder thereof, be
canceled and retired and cease to exist, without any conversion thereof and no
payment or distribution shall be made with respect thereto.
3.2 No Fractional Shares. No fractional shares of capital stock of
the Surviving Corporation shall be issued in the Merger. In lieu of any
fractional share that any holder would otherwise be entitled to receive, such
holder shall instead receive one whole share of the same class and series.
ARTICLE IV
TRANSFER OF ASSETS AND ASSUMPTION OF LIABILITIES
4.1 Transfer, Conveyance and Assumption. At the Effective Time,
the Corporation shall continue in existence as the Surviving Corporation and,
without further transfer, succeed to and possess all the rights, privileges and
powers of the LLC, and all the assets and property of whatever kind and
character of the LLC shall vest in the Surviving Corporation without further act
or deed. Thereafter, the Corporation, as the Surviving Corporation, shall be
liable for all of the liabilities and obligations of the LLC, and any claim or
judgment against the LLC may be enforced against the Corporation, as the
Surviving Corporation.
4.2 Further Assurances. If at any time the Corporation shall
consider or be advised that any further assignment, conveyance or assurance is
necessary or advisable to vest, perfect or confirm of record in the Surviving
Corporation the title to any property or right of the LLC, or otherwise, to
carry out the provisions hereof, the proper representatives of the LLC as of
3
<PAGE> 4
the Effective Time shall execute and deliver any and all proper deeds,
assignments and assurances, and do all things necessary and proper to vest,
perfect or convey title to such property or right in the Surviving Corporation
and otherwise to carry out the provisions hereof.
ARTICLE V
TERMINATION
5.1 Termination. This Agreement shall automatically terminate in the
event that the conditions to the Merger set forth in Section 1.2 of this
Agreement shall not have been satisfied on or before June 30, 2000, or if the
Managers of the LLC abandon that certain Plan of Conversion dated as of October
12, 1999.
5.2 Effect of Termination. If this Agreement is terminated pursuant
to Section 5.1, this Agreement shall become void and of no effect with no
liability on the part of any party hereto.
ARTICLE VI
MISCELLANEOUS
6.1 Entire Agreement. This Agreement contains the parties' entire
understanding and agreement with respect to its subject matter, and any and all
conflicting or inconsistent discussions, agreements, promises, representations
and statements, if any, between the parties or their representatives that are
not incorporated in this Agreement shall be null and void and are merged into
this Agreement.
6.2 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original, but all of which
together shall constitute a single agreement.
6.3 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, without giving effect to
conflicts of law principles.
6.4 Headings. The various section headings are inserted for purposes
of reference only and shall not affect the meaning or interpretation of this
Agreement or any provision hereof.
6.5 Definitions. Capitalized terms used but not defined herein shall
have the respective meanings assigned to such terms in the Limited Liability
Agreement for Aether Systems LLC, dated as of October 29, 1998, as amended.
4
<PAGE> 5
6.6 Severability. The provisions of this Agreement shall be
severable, and any invalidity, unenforceability or illegality of any provision
or provisions of this Agreement shall not affect any other provision or
provisions of this Agreement, and each term and provision of this Agreement
shall be construed to be valid and enforceable to the full extent permitted by
law.
[signature page follows]
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
AETHER SYSTEMS LLC
By: /s/ DAVID S. OROS
------------------------------
Name: David S. Oros
Title:Chairman, CEO and President
AETHER SYSTEMS, INC.
By: /s/ DAVID S. OROS
------------------------------
Name: David S. Oros
Title:Chairman, CEO and President
6
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
AETHER SYSTEMS, INC.
--------------------
FIRST: The name of the Corporation is Aether Systems, Inc.
SECOND: The address, including street, number, city, and county, of the
registered office of the Corporation in the State of Delaware is 1013
Centre Road, City of Wilmington 19805, County of New Castle; and the name of the
registered agent of the Corporation in the State of Delaware is Corporation
Service Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware as the same exists or may hereafter be amended
("Delaware Law").
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is 76,000,000, consisting of 75,000,000 shares
of Common Stock, par value $.01 per share, and 1,000,000 shares of Preferred
Stock, par value $.01.
Except as otherwise provided in respect of any class of stock hereafter
classified or reclassified or any series thereof hereafter authorized, and
except as otherwise specifically required by law: (1) the exclusive voting power
for all purposes shall be vested in the holders of the Common Stock and (2) each
holder of Common Stock shall be entitled to attend all special and annual
meetings of the stockholders of the Corporation and to cast one vote for each
outstanding share of Common Stock so held upon any matter or thing (including
without limitation the election of one or more directors) properly submitted to
a vote of, and acted upon by, the stockholders. Except as otherwise provided in
respect of any class of Preferred Stock hereafter classified, each share of
Common Stock shall share ratably in any dividends if or when declared by the
Board of Directors of the Corporation and paid by the Corporation. In the event
of liquidation, dissolution or winding up of the Corporation, whether voluntary
or involuntary, each share of Common Stock shall be entitled, after payment or
provision for payment of the amount to which any class or series hereafter
authorized shall have a preference on such distributions shall be entitled,
together with any class or series not having a preference, to share ratably in
the remaining net assets of the Corporation. Each share of Common Stock shall
have the same relative rights as and be identical in all respects to all other
shares of Common Stock.
Any other class or series of stock of the Corporation shall be subject
to all of the rights, privileges, preferences and priorities of such class or
series as set forth in the certificate of designations filed to establish such
class or series.
The Board of Directors is authorized to provide for the issuance from
time to time of Common Stock or Preferred Stock, whether now or hereafter
authorized, in one or more class or series, or securities convertible into
shares of its stock, in one or more class
<PAGE> 2
or series, for such consideration as may be determined by the Board of
Directors, without further stockholder approval. As provided by law and within
the limitations and restrictions set forth in the Company's Certificate of
Incorporation, the Board of Directors is empowered to fix or alter the powers,
dividend rights, dividend rate, conversion rights, voting rights, rights and
terms of redemption (including sinking fund provisions), the redemption price or
prices, liquidation and other preferences, and other special rights of any class
or series of Common Stock or Preferred Stock, whether now or hereafter
authorized, and the number of shares constituting any such class or series and
the designation thereof, and to increase or decrease the number of shares of any
class or series subsequent to the issue of shares of that class or series, but
not below the number of shares of such class or series then outstanding. In case
the number of shares of any class or series shall be so decreased, the shares
constituting such decrease shall resume the status that they had prior to the
adoption of the resolution originally fixing the number of shares of such class
or series.
FIFTH: The corporation is to have perpetual existence.
SIXTH: For the management of the business and for the conduct of the
affairs of the corporation, and in further definition, limitation and regulation
of the powers of the corporation and of its directors and of its stockholders or
any class thereof, as the case may be, it is further provided:
1. The management of the business and the
conduct of the affairs of the corporation shall be vested in its Board of
Directors. The phrase "whole Board" and the phrase "total number of directors"
shall be deemed to have the same meaning, to wit, the total number of directors
which the corporation would have if there were no vacancies. No election of
directors need be by written ballot.
2. The power to adopt, amend or repeal the Bylaws of
the Corporation may be exercised by the Board of Directors. Any adoptions,
amendment or repeal of the Bylaws by the Board of Directors shall require the
approval of a majority of the Board of Directors. The stockholders shall also
have the power to adopt, amend or repeal the Bylaws, provided that in addition
to any vote of the holders of any class or series of stock required by law or
this Certificate of Incorporation, the affirmative vote of at least 66-2/3% of
the voting power of all of the then outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class, shall be required for the stockholders to adopt,
amend or repeal any provision of the Bylaws of the Corporation.
SEVENTH: (a) The number of directors of the Corporation constituting the
whole Board of Directors shall be fixed by resolution of the Board of Directors.
Each director shall hold office until the next annual meeting of stockholders
and until his or her successor is elected and qualified, or until he or she
sooner resigns, is removed or becomes disqualified.
2
<PAGE> 3
(b) Any vacancy on the Board of Directors of the
Corporation may be filled by the stockholders at an annual meeting or special
meeting called for such purpose or by the vote of a majority of the remaining
directors then in office, although less than a quorum, or by the sole remaining
director.
(c) Any director may be removed, with cause, by
the holders of a majority of the shares then entitled to vote at an election of
directors at an annual meeting or special meeting of stockholders called for
such purpose. For purposes of this section, "cause" shall mean only (i)
conviction of a felony, (ii) declaration of unsound mind or order of a court,
(iii) gross dereliction of duty, (iv) conviction of an act involving moral
turpitude or (v) commission of an act which constitutes intentional misconduct
or a knowing violation of law if in either case such act involves both improper
substantial personal benefit and a material injury to the Corporation.
EIGHTH: Any action required by the General Corporation Law of the State
of Delaware to be taken at any annual meeting or special meeting of
stockholders, or any action which may be taken at any annual meeting or special
meeting of stockholders, may be taken only at such meeting, duly called in
accordance with the corporation's Bylaws, and not by written consent pursuant to
Section 228 of the General Corporation Law of the State of Delaware or
otherwise, except that action may be taken by written consent if the consent is
signed by the holders of all outstanding shares entitled to vote on the matter.
NINTH: (a) The Corporation shall indemnify, in accordance with and to
the full extent now or hereafter permitted by law, any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (including, without limitation, an action by or in the name of the
Corporation), by reason of his acting as a director or officer of the
Corporation or, at the request of the Corporation, in any other capacity for or
on behalf of the Corporation (and the Corporation, in the discretion of the
Board of Directors, shall indemnify a person by reason of the fact that he is or
was an employee of the Corporation) against any liability or expense actually
and reasonably incurred by such person in respect thereof. Such indemnification
is not exclusive of any other right to indemnification provided by law or
otherwise. The right to indemnification conferred by this Article Ninth shall be
deemed to be a contract between the Corporation and each person referred to
herein.
(b) No amendment to repeal these provisions shall apply to or have any
effect on the liability or alleged liability of any person for, or with respect
to, any acts or omissions of such person occurring prior to such amendment.
TENTH: A director of the Corporation shall under no circumstances have
any personal liability to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director; provided, however, that this
provision shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the Corporation or its 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
3
<PAGE> 4
the General Corporation Law of the State of Delaware, or (iv) for any
transaction from which the director derived an improper personal benefit.
ELEVENTH: The Board of Directors are hereby empowered to exercise all
such powers and do all such acts and things as may be exercised or done by the
Corporation, subject, nevertheless, to the provisions of the statutes of
Delaware, this Certificate of Incorporation and the Bylaws of the Corporation;
provided, however, that no Bylaws hereafter adopted by the stockholders shall
invalidate any prior act of the directors which would have been valid if such
by-laws had not been adopted.
TWELFTH: The Corporation reserves the right at any time, and from time
to time, to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation and other provisions authorized by the laws of the
State of Delaware in force at the time may be added or inserted, in the manner
now or hereafter prescribed by law; and all rights, preferences and privileges
of whatsoever nature conferred upon the stockholders, directors or any other
person whomsoever by and pursuant to the Certificate of Incorporation in its
present form or as hereafter amended are granted subject to the rights reserved
in this article.
4
<PAGE> 1
Exhibit 3.2
BYLAWS
OF
AETHER SYSTEMS, INC.
(a Delaware Corporation)
ARTICLE I
OFFICES
The Corporation shall maintain a registered office in the State of
Delaware as required by the General Corporation Law of the State of Delaware as
the same exists or may hereafter be amended ("DGCL"). The Corporation may also
have offices at other places, within or without the State of Delaware, as the
business of the Corporation may require.
ARTICLE II
STOCKHOLDERS
------------
Section 2.01 Place of Meetings. Meetings of the stockholders shall be
held at such place, within or without the State of Delaware, as the Board of
Directors designates. If no designation is made by the Board of Directors, the
place of meeting shall be the principal office of the Corporation.
Section 2.02 Annual Meeting. The annual meeting of the stockholders of
the Corporation shall be held at such date, place and/or time as may be fixed by
resolution of the Board of Directors.
Section 2.03 Special Meetings. A special meeting of the stockholders of
the corporation may be called only by the President, the Chairman of the Board
or by the Board of Directors pursuant to a resolution adopted by a majority of
the total number of directors which the Corporation would have if there were no
vacancies (the "Whole Board"), or at the request in writing of stockholders
owning at least fifty percent (50%) in amount of the entire capital stock of the
corporation issued and outstanding and entitled to vote generally in the
election of directors. No notice of a special meeting need be given to
stockholders if each stockholder entitled to vote at such meeting waives notice
thereof in writing; however, notice of such meeting must be provided to the
Board of Directors notwithstanding any waiver by the stockholders.
Section 2.04 Notice or Waiver of Notice. Written or printed notice,
stating the place, day and hour of the meeting and the purposes for which the
meeting is called, shall be prepared and delivered by the Corporation not less
than ten days nor more than sixty days before the date of the meeting, either
personally, or by mail, to each stockholder of record entitled to vote at such
meeting. If mailed, such notice shall be deemed to be delivered when deposited
in the United States mail with postage thereon prepaid, addressed to the
stockholder at his address as it
<PAGE> 2
appears on the stock transfer books of the Corporation. Such further notice
shall be given as may be required by law. Meetings may be held without notice if
all stockholders entitled to vote are present (except as otherwise provided by
law), or if notice is waived by those not present. Any previously scheduled
meeting of the stockholders may be postponed and (unless the Certificate of
Incorporation otherwise provides) any special meeting of the stockholders may be
canceled, by resolution of the Board of Directors upon public notice given prior
to the time previously scheduled for such meeting of stockholders.
Section 2.05 Stockholder List. After the record date for a meeting of
stockholders has been fixed, at least ten days before such meeting, the officer
or other agent of the Corporation who has charge of the stock ledger of the
Corporation shall make a list of all stockholders entitled to vote at the
meeting, arranged in alphabetical order and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place in the city where the meeting
is to be held, which place is to be specified in the notice of the meeting, or
at the place where the meeting is to be held. Such list shall also, for the
duration of the meeting, be produced and kept open to the examination of any
stockholder who is present at the time and place of the meeting.
Section 2.06. Presiding Officer of Meetings. The Chairman of the Board
of Directors, if any, or in the absence of the Chairman of the Board, the
President, shall preside at all meetings of the stockholders. In the absence of
the Chairman of the Board and the President, the presiding officer shall be
elected by vote of the holders of a majority of the shares of capital stock
entitled to be voted whose holders are present in person or represented by proxy
at the meeting.
Section 2.07. Secretary of Meetings. The Secretary of the Corporation
shall act as secretary of all meetings of the stockholders. In the absence of
the Secretary, the presiding officer of the meeting shall appoint any other
person to act as secretary of the meeting.
Section 2.08 Inspectors. The directors, in advance of any meeting, may,
but need not, appoint one or more inspectors of election to act at the meeting
or any adjournment thereof. If an inspector or inspectors are not appointed, the
person presiding at the meeting may, but need not, appoint one or more
inspectors. In case any person who may be appointed as an inspector fails to
appear or act, the vacancy may be filled by appointment made by the directors in
advance of the meeting or at the meeting by the person presiding thereat. Such
appointments shall be made in accordance with and each inspector shall have the
duties prescribed by Section 231 of the DGCL.
Section 2.09 Quorum and Adjournment. Except as otherwise provided by
law or by the Certificate of Incorporation, the holders of a majority of the
voting power of the outstanding shares of the Corporation entitled to vote
generally in the election of directors (the "Voting Stock"), represented in
person or by proxy, shall constitute a quorum at a meeting of stockholders,
except that when specified business is to be voted on by a class or series
voting separately as a class or series, the holders of a majority of the voting
power of the shares of such class or series shall constitute a quorum for the
transaction of such business. The chairman of the
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meeting or a majority of the shares of Voting Stock so represented may adjourn
the meeting from time to time, whether or not there is such a quorum (or, in the
case of specified business to be voted on by a class or series, the chairman or
a majority of the shares of such class or series so represented may adjourn the
meeting with respect to such specified business). No notice of the time and
place of adjourned meetings need be given except as required by law. The
stockholders present at a duly organized meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum. At any adjourned meeting at which a
quorum is present any business may be transacted which might have been
transacted at the original meeting.
Section 2.10 Voting and Proxies. Unless otherwise provided in the DGCL
or in the Certificate of Incorporation, and subject to the other provisions of
these Bylaws, each stockholder shall be entitled to one vote on each matter for
each share of the Corporation's capital stock that has voting power and that is
held by such stockholder. At all meetings of stockholders, a stockholder may
vote by proxy executed in writing by the stockholder or as may be permitted by
law, or by his duly authorized attorney-in-fact. Such proxy must be filed with
the Secretary of the Corporation or his representative at or before the time of
the meeting. No proxy shall be voted or acted upon after three years from its
date, unless the proxy provides for a longer period. A duly executed appointment
of proxy shall be irrevocable if the appointment form states that it is
irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. Persons holding stock in a
fiduciary capacity shall be entitled to vote the shares so held. Persons whose
stock is pledged shall be entitled to vote such stock unless the pledgor in a
transfer on the books of the corporation has expressly empowered the pledgee to
vote the pledged shares, in which case only the pledgee or his or her proxy
shall be entitled to vote.
Section 2.11 Required Vote. Election of directors at all meetings of
the stockholders at which directors are to be elected shall be by written
ballot. Except as otherwise set forth in the Certificate of Incorporation with
respect to the right of the holders of any series of Preferred Stock or any
other series or class of stock to elect additional directors under specified
circumstances, directors shall be elected by a plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote on the election of directors. Except as otherwise provided by law, the
Certificate of Incorporation or these Bylaws, all matters other than the
election of directors submitted to the stockholders at any meeting shall be
decided by the affirmative vote of a majority of the voting power of the
outstanding Voting Stock present in person or represented by proxy at the
meeting and entitled to vote thereon.
Section 2.12 Notice of Stockholder Business.
(a) Annual Meeting of Stockholders.
(1) Nominations of persons for election to the
Board of Directors of the Corporation and the proposal of any other business to
be considered at an annual meeting of the stockholders may be made only (a) by
or at the direction of the Board of Directors, or (b) by any stockholder of
record of the Corporation who gives notice in accordance with the procedures set
forth in clauses (2) and (3) of this paragraph 2.12(a) of this Bylaw, and who is
a stockholder
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of record both on the date of giving such notice and on the record date for
determination of stockholders entitled to vote at such annual meeting.
(2) For nominations or other business to be properly
brought before an annual meeting by a stockholder pursuant to clause (b) of
paragraph 2.12(a)(1) of this Bylaw, the stockholder must have given timely
notice thereof in writing to the Secretary of the Corporation and such other
business must otherwise be a proper matter for stockholder action. To be timely,
a stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not less than forty-five days nor more than
ninety days prior to the first anniversary of the proxy statement for the
preceding year's annual meeting; provided, however, that in the event that the
date of the annual meeting is advanced by more than twenty days, or delayed by
more than seventy days, from such anniversary date, notice by the stockholder to
be timely must be so delivered not earlier than the ninetieth day prior to such
annual meeting and not later than the close of business on the later of the
forty-fifth day prior to such annual meeting or the tenth day following the day
on which public announcement of the date of such meeting is first made. Such
stockholder's notice shall set forth (a) as to each person whom the stockholder
proposes to nominate for election or reelection as a director all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors in an election contest, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and Rule 14a-11 thereunder,
including such person's written consent to being named in the proxy statement as
a nominee and to serving as a director if elected; (b) as to any other business
that the stockholder proposes to bring before the meeting, a brief description
of the business desired to be brought before the meeting, the reasons for
conducting such business at the meeting and any material interest in such
business of such stockholder and the beneficial owner, if any, on whose behalf
the proposal is made; and (c) as to the stockholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination or proposal is made (i)
the name and address of such stockholder, as they appear on the Corporation's
books, and of such beneficial owner and (ii) the class and number of shares of
the Corporation which are owned beneficially and of record by such stockholder
and such beneficial owner. In no event shall the public announcement of an
adjournment of an annual meeting commence a new time period for the giving of a
stockholder's notice as described above.
(3) Notwithstanding anything in the second
sentence of paragraph 2.12(a)(2) of this Bylaw to the contrary, in the event
that the number of directors to be elected to the Board of Directors of the
Corporation is increased and there is no public announcement naming all of the
nominees for director or specifying the size of the increased Board of Directors
made by the Corporation at least forty-five days prior to the first anniversary
of the preceding year's annual meeting, a stockholder's notice required by this
Bylaw shall also be considered timely, but only with respect to nominees for any
new positions created by such increase, if it shall be delivered to the
Secretary at the principal executive offices of the Corporation not later than
the close of business on the tenth day following the day on which such public
announcement is first made by the Corporation.
(b) Special Meetings of Stockholders . Only such business
shall be conducted at a special meeting of stockholders as shall have been
brought before the meeting pursuant to the Corporation's notice of meeting
pursuant to Section 2.04 of these Bylaws. Nominations of
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persons for election to the Board of Directors may be made at a special meeting
of stockholders at which directors are to be elected pursuant to the
Corporation's notice of meeting (a) by or at the direction of the Board of
Directors or (b) by any stockholder of the Corporation who is entitled to vote
at the meeting, who complies with the notice procedures set forth in this Bylaw
and who is a stockholder of record at the time such notice is delivered to the
Secretary of the Corporation. In the event the Corporation calls a special
meeting of stockholders for the purpose of electing one or more directors to the
Board of Directors, any such stockholder may nominate a person or persons (as
the case may be), for election to such position(s) as are specified in the
Corporation's Notice of Meeting, if the stockholder's notice as required by
paragraph 2.12(a)(2) of this Bylaw shall be delivered to the Secretary at the
principal executive offices of the Corporation not earlier than the ninetieth
day prior to such special meeting and not later than the close of business on
the later of the seventieth day prior to such special meeting or the tenth day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting. In no event shall the public announcement of an
adjournment of a special meeting commence a new time period for the giving of a
stockholder's notice as described above.
(c) General.
(1) Only persons who are nominated in accordance
with the procedures set forth in this Bylaw shall be eligible to serve as
directors and only such business shall be conducted at a meeting of stockholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Bylaw. Except as otherwise provided by law, the Certificate of
Incorporation or these Bylaws, the chairman of the meeting shall have the power
and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made in accordance with the procedures set forth
in this Bylaw and, if any proposed nomination or business is not in compliance
with this Bylaw, to declare that such defective proposal or nomination shall be
disregarded.
(2) For purposes of this Bylaw, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act (or their successor provisions), or
in a notice of meeting or proxy statement mailed generally to the Corporation's
stockholders.
(3) Notwithstanding the foregoing provisions of
this Bylaw, a stockholder shall also comply with all applicable requirements of
state law and of the Exchange Act and the rules and regulations thereunder with
respect to the matters set forth in this Bylaw. Nothing in this Bylaw shall be
deemed to affect any rights of stockholders to request inclusion of proposals in
the Corporation's proxy statement pursuant to Rule 14a-8 (or its successor
provision) under the Exchange Act.
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ARTICLE III
DIRECTORS
---------
Section 3.01 General Powers. The business and affairs of the
Corporation shall be managed by or under the direction of its Board of
Directors. In addition to the powers and authorities by these Bylaws expressly
conferred upon them, the Board of Directors may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by law, by the
Certificate of Incorporation or by these Bylaws required to be exercised or done
by the stockholders. Except as otherwise provided in the Certificate of
Incorporation, each director of the Corporation shall be entitled to one vote
per director on all matters voted or acted upon by the Board of Directors.
Section 3.02 Qualifications and Number. A director need not be a
stockholder, a citizen of the United States or a resident of the State of
Delaware. The number of directors constituting the whole Board shall initially
be ten and shall thereafter be such a number as the Board of Directors by
resolution determines.
Section 3.03 Election and Term. Directors who are elected at an annual
meeting of stockholders shall hold office until their successors are elected and
qualified or until their earlier resignation or removal. Except as the DGCL may
otherwise require, any vacancy on the Board of Directors may be filled by the
vote of a majority of the remaining directors then in office, although less than
a quorum, or by the sole remaining director. Any director elected pursuant to
the immediately preceding sentence shall hold office until the next election of
the class for which such director shall have been chosen, and until his
successor shall be elected and qualified. Any director may resign at any time
upon written notice to the Corporation.
Section 3.04 Place of Meetings. Any meeting of the Board of
Directors may be held either within or without the State of Delaware.
Section 3.05 Regular Meetings. A regular meeting of the Board of
Directors shall be held without notice other than this Bylaw immediately after,
and at the same place as, each annual meeting of stockholders. The Board of
Directors may, by resolution, provide the time and place for the holding of
additional regular meetings without notice other than such resolution.
Section 3.06 Special Meetings. Special meetings of the Board of
Directors shall be called at the request of the Chairman of the Board, the
President or a majority of the Board of Directors. The person or persons
authorized to call special meetings of the Board of Directors may fix the place
and time of the meetings.
Section 3.07 Notice. Notice of any special meeting shall be given to
each director at his business or residence in writing or by facsimile or by
telephone communication. If mailed, such notice shall be deemed adequately
delivered when deposited in the United States mails so addressed, with postage
thereon prepaid, at least five days before such meeting. If by facsimile
transmission, such notice shall be transmitted at least twenty-four hours before
such meeting. If by telephone, the notice shall be given at least twelve hours
prior to the time set for the meeting. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the
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Board of Directors need be specified in the notice of such meeting, except for
amendments to these Bylaws as provided under Article X hereof. A meeting may be
held at any time without notice if all the directors are present (except as
otherwise provided by law) or if those not present waive notice of the meeting
in writing, either before or after such meeting.
Section 3.07 Organization. The Chairman of the Board, if any, or in the
absence of the Chairman of the Board, the President, shall preside over meetings
of the Board of Directors. In the absence of the Chairman of the Board and the
President, a presiding officer shall be chosen by a majority of the directors
present. The Secretary of the Corporation shall act as secretary of the meeting.
In his or her absence the presiding officer shall appoint another person to act
as secretary of the meeting.
Section 3.08 Quorum. A whole number of directors equal to at least a
majority of the Whole Board shall constitute a quorum for the transaction of
business, but if at any meeting of the Board of Directors there shall be less
than a quorum present, a majority of the directors present may adjourn the
meeting from time to time without further notice. The act of the majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors.
Section 3.09 Vote.
(a) The act of a majority of the directors present at any
meeting at which there is a quorum shall be the act of the Board of
Directors, except as may be otherwise specifically provided by law, by
the Certificate of Incorporation or by these Bylaws.
(b) Notwithstanding any provision in these Bylaws to the
contrary, the affirmative vote of at least two-thirds of the Board of
Directors shall be required to authorize the taking of any of the
following actions on the part of the Corporation:
(i) engaging in or committing to engage in the
disposition by the Corporation or any subsidiary thereof of
all or substantially all the assets of the Corporation or any
subsidiary thereof, merging or consolidating the Corporation
or any subsidiary thereof with and/or into another entity, or
selling all or substantially all of the assets of the
Corporation or any subsidiary thereof as an entirety; and
(ii) acquiring, directly or indirectly, any
substantial and material interest or participation in any
other business venture.
Section 3.10 Informal Action of Directors. Unless otherwise restricted
by the Certificate of Incorporation or these Bylaws, any action required or
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting if all members of the Board of
Directors or committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board of
Directors or committee.
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Section 3.11 Conference Call Meeting. Members of the Board of
Directors, or any committee thereof, may participate in a meeting of the Board
of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at such meeting.
ARTICLE IV
COMMITTEES
----------
Section 4.01 Committees of the Board. The Board of Directors may
designate one or more committees, each committee to consist of one or more of
the directors of the Corporation. The Board of Directors may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of the committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in place of any such absent or disqualified
member. Any such committee, to the extent permitted by law and to the extent
provided in the resolution of the Board of Directors, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation, and may authorize the
seal of the Corporation to be affixed to all papers which may require it;
provided, however, that no such committee shall have the power or authority (i)
to approve or adopt, or recommend to the stockholders, any action or matter (x)
expressly required by the DGCL to be submitted to stockholders for approval or
(y) set forth in Section 3.09(b) or (ii) to adopt, amend or repeal any Bylaw of
the Corporation; and unless the resolution designating the committee, these
Bylaws or the Certificate of Incorporation expressly so provides, no such
committee shall have the power or authority to declare a dividend, to authorize
the issuance of stock or to adopt a certificate of ownership and merger pursuant
to Section 253 of the DGCL. Such committee or committees shall have such name or
names as may be determined from time to time by resolution adopted by the Board.
Section 4.02 Procedures; Minutes of Meetings. Unless the Board of
Directors otherwise provides, each committee designated by the Board of
Directors may make, alter and repeal rules for the conduct of its business. Each
committee shall keep regular minutes of its meetings and report the same to the
Board, when required. Unless otherwise specified in the Board resolution
appointing the Committee, all provisions of the DGCL and these Bylaws relating
to meetings, action without meetings, notice (and waiver thereof) and quorum and
voting requirements of the Board apply, as well, to such committees and their
members.
ARTICLE V
OFFICERS
--------
Section 5.01. General. The elected officers of the Corporation shall be a
Chairman of the Board, a President, a Secretary, a Treasurer, and such other
officers as the Board of Directors from time to time may deem proper, including
without limitation one or more Vice Presidents,
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Assistant Secretaries or Assistant Treasurers. The Chairman of the Board shall
be chosen from the directors. All officers chosen by the Board of Directors
shall each have such powers and duties as generally pertain to their respective
offices, subject to the specific provisions of this Article IV. Such officers
shall also have powers and duties as from time to time may be conferred by the
Board of Directors or by any committee thereof. Any number of offices may be
held by the same person.
Section 5.02 Election and Term of Office. The elected officers of the
Corporation shall be elected annually by the Board of Directors at the regular
meeting of the Board of Directors held after each annual meeting of the
stockholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as convenient. Subject to Section
5.04 of these Bylaws, each officer shall hold office until his successor shall
have been duly elected and shall have qualified or until his death or until he
shall resign. Election or appointment of an officer or agent shall not of itself
create contract rights.
Section 5.03 Subordinate Officers. The Board of Directors may appoint,
or empower the chief executive officer or the president to appoint, such other
officers and agents as the business of the Corporation may require, each of whom
shall hold office for such period, have such authority, and perform such duties
as are provided in these Bylaws or as the Board of Directors may from time to
time determine.
Section 5.04 Removal and Resignation of Officers; Vacancy. Subject to
the rights, if any, of an officer under any contract of employment, any officer
may be removed, either with or without cause, at any time by an affirmative vote
of the majority of the Board of Directors at any regular or special meeting of
the Board of Directors or, except in the case of an officer chosen by the Board
of Directors, by any officer upon whom such power of removal may be conferred by
the Board of Directors. No elected officer shall have any contractual rights
against the Corporation for compensation by virtue of such election beyond the
date of the election of his successor, his death, his resignation or his
removal, whichever event shall first occur, except as otherwise provided in an
employment contract or an employee plan.
Any director or any officer, whether elected or appointed, may resign
at any time by serving written notice of such resignation on the Chairman of the
Board, the President or the Secretary, and such resignation shall be deemed to
be effective as of the close of business on the date said notice is received by
the Chairman of the Board, the President, or the Secretary or at such later date
as is stated therein. No formal action shall be required of the Board of
Directors or the stockholders to make any such resignation effective.
Section 5.05 Vacancy. A newly created office and a vacancy in any
office because of death, resignation, or removal may be filled by the Board of
Directors for the unexpired portion of the term at any meeting of the Board of
Directors.
Section 5.06 Chief Executive Officer. The President shall be the Chief
Executive Officer of the Corporation unless the Board of Directors designates
the Chairman of the Board as Chief Executive Officer. Subject to the control of
the Board of Directors, the Chief Executive Officer shall have general executive
charge, management and control of the properties, business
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and operations of the Corporation with all such powers as may be reasonably
incident to such responsibilities; may agree upon and execute all leases,
contracts, evidences of indebtedness and other obligations in the name of the
Corporation; and shall have such other powers and duties as designated in
accordance with these Bylaws and as from time to time are assigned by the Board
of Directors.
Section 5.07 Power to Vote Stock. Unless otherwise ordered by the Board
of Directors, the Chief Executive Officer of the Corporation shall have full
power and authority on behalf of the Corporation to attend and to vote at any
meeting of stockholders or partners of any corporation or any partnership in
which the Corporation may hold stock or partnership interests, as the case may
be, and may exercise on behalf of the Corporation any and all of the rights and
powers incident to the ownership of such stock or partnership interests at any
such meeting, and shall have power and authority to execute and deliver proxies,
waivers and consents on behalf of the Corporation in connection with the
exercise by the Corporation of the rights and powers incident to the ownership
of such stock or partnership interests. The Board of Directors may from time to
time confer like powers upon any other person or persons.
Section 5.08 Chairman of the Board. If elected, the Chairman of the
Board shall preside at all meetings of the stockholders and of the Board of
Directors; and he or she shall have such other powers and as duties designated
in these Bylaws and as from time to time may be assigned by the Board of
Directors.
Section 5.09 President. Unless the President is not the Chief Executive
Officer and the Board shall have vested such authority exclusively in the Chief
Executive Officer, the President shall have the authority to agree upon and
execute all leases, contracts, evidences of indebtedness, and other obligations
in the name of the Corporation; unless the Board of Directors otherwise
determines, he or she shall, in the absence of the Chairman of the Board or if
there be no Chairman of the Board, preside at all meetings of the stockholders
and (should he or she be a director) of the Board of Directors; may sign all
certificates for shares of capital stock of the Corporation; and shall have such
other powers and duties as designated in accordance with these Bylaws and as
from time to time may be assigned by the Board of Directors.
Section 5.10 Vice Presidents. In the absence of the Chairman of the
Board or Chief Executive Officer, if any, or President, or in the event of their
inability or refusal to act, a Vice President designated by the Board of
Directors shall perform the duties of the Chairman of the Board or Chief
Executive Officer, if any, or the President, as the case may be, and when so
acting shall have all the powers of and be subject to all the restrictions upon
the Chairman of the Board or Chief Executive Officer, if any, or President. In
the absence of a designation by the Board of Directors of a Vice President to
perform the duties of the Chairman of the Board or Chief Executive Officer, if
any, or President, the Vice President who is senior in terms of the time as a
Vice President of the Corporation shall so act. The Vice Presidents may sign all
certificates for shares of capital stock of the Corporation and shall perform
such other duties and have such other powers as the Board of Directors may from
time to time prescribe.
Section 5.11 Treasurer. The Treasurer shall have custody of all
the funds and securities of the Corporation which come into his or her hands.
When necessary or proper, he or she may
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endorse, on behalf of the Corporation, for collection checks, notes and other
obligations and shall deposit the same to the credit of the Corporation in such
bank or banks or depositories as shall be designated in the manner prescribed by
the Board of Directors, and he or she may sign all receipts and vouchers for
payments made to the Corporation, either alone or jointly with such other
officer as is designated by the Board of Directors. Whenever required by the
Board of Directors, the Treasurer shall render a statement of his or her cash
account. The Treasurer shall enter or cause to be entered regularly in the books
of the Corporation to be kept by him or her for that purpose full and accurate
accounts of all moneys received and paid out on account of the Corporation;
shall perform all acts incident to the position of Treasurer subject to the
control of the Board of Directors; may sign with the President or a
Vice-President all certificates for shares of the capital stock of the
Corporation; and shall, if required by the Board of Directors, give such bond
for the faithful discharge of his or her duties in such form as the Board of
Directors may require.
Section 5.12 Assistant Treasurers. Each Assistant Treasurer shall have
the usual powers and duties pertaining to his or her office, together with such
other powers and duties as may be assigned to him or her by the Board of
Directors.
Section 5.13 Secretary. The Secretary shall keep the minutes of all
meetings of the Board of Directors and the minutes of all meetings of the
stockholders in books provided for that purpose; shall attend to the giving and
serving of all notices; may in the name of the Corporation attest to all
contracts of the Corporation and affix the seal of the Corporation thereto; may
sign with the President or a Vice-President all certificates for shares of the
capital stock of the Corporation; shall have charge of the certificate books,
transfer books and stock ledgers, and such other books and papers as the Board
of Directors may direct, all of which shall at all reasonable times be open to
inspection of any director upon application at the office of the Corporation
during business hours; and shall in general perform all duties incident to the
office of Secretary, subject to the control of the Board of Directors.
Section 5.14 Assistant Secretary. Each Assistant Secretary shall have
the usual powers and duties pertaining to his or her office, together with such
other powers and duties as may be assigned to him or her by the Board of
Directors or the Secretary.
Section 5.15 Compensation. The Board of Directors shall have the
authority to establish reasonable compensation of all officers for services to
the Corporation.
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ARTICLE VI
CAPITAL STOCK
-------------
Section 6.01 Certificates of Stock. Certificates for shares of capital
stock of the Corporation shall be in such form as the Board of Directors may
from time to time prescribe and shall be signed by the President or a
Vice-President and by the Secretary or an Assistant Secretary or the Treasurer
or an Assistant Treasurer. Any or each of the signatures on a stock certificate,
including that of any transfer agent or registrar, may be a facsimile. If any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate has ceased to be such officer, transfer agent
or registrar before the certificate is issued, the certificate may be issued by
the Corporation with the same effect as if the officer, transfer agent or
registrar were the officer, transfer agent or registrar at the date of issuance.
Section 6.02 Transfer of Stock. Shares of stock of the Corporation
shall be transferable on the books of the Corporation only by the holder of
record thereof, in person or by duly authorized attorney, upon surrender and
cancellation of a certificate or certificates for a like number of shares, with
an assignment or power of transfer endorsed thereon or delivered therewith, duly
executed, and with such proof of the authenticity of the signature and of
authority to transfer, and of payment of transfer taxes, as the Corporation or
its agents may require.
Section 6.03 Ownership of Stock. The Corporation shall be entitled to
treat the holder of record of any share or shares of stock as the owner thereof
in fact and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it has express or other notice thereof, except as otherwise expressly provided
by law.
Section 6.04 Lost, Stolen or Destroyed Certificates. In case any
certificate for stock of the corporation is lost, stolen or destroyed, the
Corporation may require such proof of the fact and such indemnity to be given to
it, to its transfer agent or to its registrar, if any, as deemed necessary or
advisable by it.
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ARTICLE VII
INDEMNIFICATION; TRANSACTIONS WITH INTERESTED PERSONS
-----------------------------------------------------
Section 7.01 Indemnification. The Corporation (and any successor to the
Corporation by merger or otherwise) shall indemnify and hold harmless, to the
fullest extent permitted by applicable law as it presently exists or may
hereafter be amended, any person (an "Indemnitee") who was or is made or is
threatened to be made a party or is otherwise involved in any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "Proceeding"), by reason of the fact that he
or she, or a person for whom he or she is the legal representative, is or was a
director or officer of the Corporation or, while a director or officer of the
Corporation, is or was serving at the request of the Corporation as a director,
officer, employee or agent of another corporation or of a partnership, limited
liability company, joint venture, trust, enterprise or nonprofit entity,
including service with respect to an employee benefit plan, against all
liability, expense and loss (including attorneys' fees, judgments, fines, ERISA
taxes or penalties and amounts paid or to be paid in settlement) actually and
reasonably incurred or suffered by such Indemnitee, but only if such Indemnitee
acted in good faith and in a manner such Indemnitee reasonably believed to be in
or not opposed to the best interests of the Corporation, and with respect to any
criminal proceeding, had no reasonable cause to believe such Indemnitee's
conduct was unlawful. Notwithstanding the preceding sentence, except for a suit
or action brought under Section 7.3 hereof, the Corporation shall be required to
indemnify an Indemnitee in connection with a Proceeding (or part thereof)
commenced by such Indemnitee only if the commencement of such proceeding (or
part thereof) by the Indemnitee was authorized by the Board of Directors of the
Corporation.
Section 7.02 Prepayment of Expenses. The Corporation shall pay the
expenses (including attorneys' fees) incurred by an Indemnitee in defending any
Proceeding in advance of its final disposition; provided, however, that to the
extent required by law, such payment of expenses in advance of the final
disposition of the Proceeding shall be made only upon receipt of an undertaking
by the Indemnitee to repay all amounts advanced if it should be ultimately
determined that the Indemnitee is not entitled to be indemnified under this
Article VII or otherwise.
Section 7.03 Claims. If a claim for indemnification or payment of
expenses under this Article VII is not paid in full within sixty days after a
written claim therefor by the Indemnitee has been received by the Corporation,
the Indemnitee may file suit to recover the unpaid amount of such claim and, if
successful in whole or in part, shall be entitled to be paid the expense of
prosecuting such claim. In any such action the Corporation shall have the burden
of proving that the Indemnitee is not entitled to the requested indemnification
or payment of expenses under applicable law.
Section 7.04 Authorization. Any indemnification under Section 7.01
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case upon a determination that indemnification of the director
or officer is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in Section 7.01. Such determination
shall be made (a) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to such action, suit or proceeding,
or (b) if such a
13
<PAGE> 14
quorum is not obtainable, or, even if obtainable a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, or (c)
by the stockholders.
Section 7.05 Nonexclusivity of Rights. The rights conferred on any
Indemnitee by this Article VII shall not be exclusive of any other rights which
such Indemnitee may have or hereafter acquire under any statute, provision of
the Certificate of Incorporation, these Bylaws, agreement, vote of stockholders
or disinterested directors or otherwise.
Section 7.06 Amendment or Repeal. Any repeal or modification of the
foregoing provisions of this Article VII shall not adversely affect any right or
protection hereunder of any Indemnitee in respect of any act or omission
occurring prior to the time of such repeal or modification.
Section 7.07 Other Indemnification and Prepayment of Expenses. This
Article VII shall not limit the right of the Corporation, to the extent and in
the manner permitted by law, to indemnify and to advance expenses to persons
other than Indemnitees when and as authorized by the Board.
Section 7.08 Survival of Indemnification Rights. The rights to
indemnification and advance payment of expenses provided by Section 7.01 and
7.02 hereof shall continue as to a person who has ceased to be a director,
officer, employee or agent of the Corporation and shall inure to the benefit of
the personal representatives, heirs, executors and administrators of such
person.
Section 7.09 Insurance. The Corporation shall have power to purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee, partner (limited or
general), manager, trustee or agent of another corporation or of a partnership,
joint venture, limited liability company, trust or other enterprise, against any
liability asserted against such person or incurred by such person in any such
capacity, or arising out of such person's status as such, and related expenses,
whether or not the Corporation would have the power to indemnify such person
against such liability under the provisions of applicable law.
Section 7.10 Transactions With Interested Persons. No contract or
transaction between the Corporation and any of its directors or officers, or
between the Corporation and any other corporation, partnership, association or
other organization in which any of its directors or officers is a director or
officer or has a financial interest, shall be void or voidable solely for that
reason, or solely because the director or officer is present at or participates
in the meeting of the Board of Directors or committee thereof at which the
contract or transaction is authorized or solely because his or her vote is
counted for such purpose, if --
(a) the material facts as to his or her relationship or
interest and as to the contract or transaction are disclosed or are known to the
Board or the committee, and the Board or committee in good faith authorizes the
contract or transaction by the affirmative vote of a majority of the
disinterested Directors, even though the disinterested Directors are less than a
quorum;
14
<PAGE> 15
(b) the material facts as to his or her relationship or
interest and as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by the vote of the stockholders; or
(c) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified by the Board, a committee
thereof or the stockholders.
ARTICLE VIII
RECORD DATE
-----------
Section 8.01 Actions by Stockholders. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders, the Board may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted by
the Board, and which record date shall not be more than 60 days nor less than
ten days before the date of such meeting. If no record date is fixed by the
Board, the record date for determining stockholders entitled to notice of or to
vote at a meeting of stockholders shall be the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting,
unless the Board fixes a new record date for the adjourned meeting.
Section 8.02 Payments. In order that the Corporation may determine the
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights or the stockholders entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the Board may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than 60 days prior to such
action. If no record date is fixed, the record date for determining stockholders
for any such purpose shall be at the close of business on the day on which the
Board adopts the resolution relating thereto.
Section 8.03 Stockholders of Record. The Corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, to receive notifications, to vote as such
owner and to exercise all the rights and powers of an owner. The Corporation
shall not be bound to recognize any equitable or other claim to or interest in
such share or shares on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise may be provided by the
DGCL.
ARTICLE IX
MISCELLANEOUS
-------------
Section 9.01 Corporate Seal. The seal of the Corporation shall be
circular in form and shall contain the name of the Corporation and the words
"Corporate Seal, Delaware."
15
<PAGE> 16
Section 9.02 Fiscal Year. The Board of Directors shall have power
to fix, and from time to time to change, the fiscal year of the Corporation.
Section 9.03 Audits. The accounts, books and records of the Corporation
shall be audited upon the conclusion of each fiscal year by an independent
certified public accountant selected by the Board of Directors, and it shall be
the duty of the Board of Directors to cause such audit to be made annually.
Section 9.04 Dividends. The Board of Directors may from time to time
declare, and the Corporation may pay, dividends on its outstanding shares in the
manner and upon the terms and conditions provided by law and its Certificate of
Incorporation.
Section 9.03 Waiver of Notice. Whenever any notice is required to be
given to any stockholder or director of the Corporation under the provisions of
the DGCL, a waiver thereof in writing, signed by the person or persons entitled
to such notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice. Neither the business to be transacted
at, nor the purpose of, any annual or special meeting of the stockholders of the
Board of Directors need be specified in any waiver of notice of such meeting.
ARTICLE X
AMENDMENT
---------
These Bylaws may be amended, altered, added to, rescinded or repealed
at any meeting of the Board of Directors or of the stockholders, provided notice
of the proposed change was given in the notice of the meeting and, in the case
of a meeting of the Board of Directors, in a notice given no less than
twenty-four hours prior to the meeting; provided, however, that, notwithstanding
any other provisions of these Bylaws or any provision of law which might
otherwise permit a lesser vote or no vote, but in addition to any affirmative
vote of the holders of any particular class or series of the stock required by
law, the Certificate of Incorporation or these Bylaws, the affirmative vote of
the holders of at least 66-2/3% of the voting power of the then outstanding
Voting Stock, voting together as a single class, shall be required in order for
stockholders to alter, amend or repeal any provision of these Bylaws or to adopt
any additional bylaw.
16
<PAGE> 1
EXHIBIT 4.1
[AETHER LOGO]
<TABLE>
<S> <C>
NUMBER SHARES
AS
COMMON STOCK AETHER SYSTEMS, INC. CUSIP 00808V 10 5
PAR VALUE $.01 SEE REVERSE FOR CERTAIN DEFINITIONS
</TABLE>
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFICATE IS TRANSFERABLE IN BOSTON, MA OR NEW YORK, NY
This Certifies that
is the owner of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK,
PAR VALUE $.01 PER SHARE, OF
AETHER SYSTEMS, INC.
(the "Corporation"), a Delaware corporation. The Shares represented by this
certificate are transferable only on the stock transfer books of the
Corporation by the holder of record hereof, or by his duly authorized attorney
or legal representative, upon the surrender of this certificate properly
endorsed. This certificate is not valid until countersigned and registered by
the Corporation's transfer agent and registrar.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
executed by the facsimile signature of its duly authorized officers and has
caused a facsimile of its corporate seal to be hereunto affixed.
Dated:
[SIG [SEAL] [SIG]
Secretary Chairman and Chief Executive Officer
Countersigned and Registered:
BANKBOSTON, N.A.
By [SIG] Transfer Agent
and Registrar,
Authorized Signature
BANKNOTE CORP. OF AMERICA - WALL STREET - BROWNS SUMMIT - Aether Systems -
1-909D49-942- PROOF #310/1/99- CKM/MLM
<PAGE> 2
AETHER SYSTEMS, INC.
The Corporation will furnish to any stockholder upon request and
without charge a full statement of the powers, designations, limitations and
relative, participating, optional or other special rights of the shares of each
class authorized to be issued, the qualifications, limitations and restrictions
of such preferences and rights, the variations in the relative rights and
preferences between shares of any series of any authorized preferred class so
far as they have been fixed and determined, and the authority of the Board of
Directors to fix and determine the relative rights and preferences of
subsequent series of any such preferred class.
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:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT--......CUSTODIAN.......
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right under Uniform Gifts to Minors
of survivorship and not as Act..........................
tenants in common (State)
</TABLE>
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 Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
- ----------------------------------------------------------------------
to transfer the said shares on the books to 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 the Certificate, in every
particular, without alteration or
enlargement or any change whatever.
BANKNOTE CORP. OF AMERICA WALL ST. 1-909049-942 AETHER SYSTEMS Proof #2
10/1/99 GAC/MLM
<PAGE> 1
EXHIBIT 5.1
WILMER, CUTLER & PICKERING
2445 M Street, N.W.
Washington, D.C. 20037-1420
Telephone (202) 663-6000
Facsimile (202) 663-6363
October 18, 1999
Aether Systems, Inc.
11460 Cronridge Drive
Owings Mills, Maryland 21117
Gentlemen:
As counsel for Aether Systems, Inc., a Delaware corporation (the
"Company"), we are familiar with the Company's Registration Statement on Form
S-1 (File No. 333-85697), first filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended, (the
"Act") on August 20, 1999, as amended and supplemented (the "Registration
Statement"), which relates to your offering of shares of the Company's Common
Stock, par value $.01 by the Company (the "Shares").
In connection with the foregoing, we have examined (1) the form of
Amended and Restated Certificate of Incorporation of the Company filed as
Exhibit 3.1 to the Registration Statement (the "Amended Certificate"), to be
filed with the Secretary of State of Delaware on or prior to the closing of the
offering of the Shares, (2) the form of Bylaws of the Company filed as Exhibit
3.2 to the Registration Statement, (3) the Registration Statement, (4) the
proposed form of Purchase Agreement filed as Exhibit 1.1 to the Registration
Statement with respect to the Shares (the "Purchase Agreement"), (5) the form of
stock certificate for common stock of the Company filed as Exhibit 4.1 to the
Registration Statement, (6) certain resolutions adopted or to be adopted by the
Board of Directors and (7) such other records, certificates and documents of
public officials, the Company and its officers and directors as we have deemed
necessary to render this opinion.
In our examination of the aforesaid certificates, records and
documents, we have assumed without verification the genuineness of all
signatures, the legal capacity of all natural persons, the authenticity of all
original documents and the conformity to authentic original documents of all
documents submitted to us as copies (including telecopies). This opinion is
given, and all statements herein are made, in the context of the foregoing.
1
<PAGE> 2
This opinion letter is based as to matters of law solely on the
General Corporation Law of the State of Delaware. Although we are not members of
the bar of the State of Delaware, we have made such examination of the laws of
that state as we deemed necessary to render the opinions set forth herein. We
express no opinion herein as to any other laws, statutes, regulations or
ordinances.
Based on such examination and assumptions, we are of the opinion that upon
filing of the Amended Certificate the Shares have been duly authorized and, upon
issuance, delivery and payment therefor in the manner contemplated by the
Registration Statement and the Purchase Agreement, will be validly issued, fully
paid and non-assessable.
We assume no obligation to advise you of any changes in the foregoing
subsequent to the delivery of this opinion letter. This opinion letter has been
prepared solely for your use in connection with the filing of the Registration
Statement on the date of this opinion letter and should not be quoted in whole
or in part or otherwise be referred to, nor filed with or furnished to any
governmental agency or other person or entity, without the prior written consent
of this firm.
We hereby consent to the filing of this opinion letter as Exhibit
5.1 to the Registration Statement and to the reference to this firm under the
caption "Legal Matters" in the prospectus constituting a part of the
Registration Statement. In giving this consent, we do not thereby admit that we
are an "expert" within the meaning of the Act.
Very truly yours,
WILMER, CUTLER & PICKERING
By: /S/ MARK A. DEWIRE
----------------------------------
Mark A. Dewire, Esq., a partner
2
<PAGE> 1
EXHIBIT 10.21
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement") dated as of October 15,
1999 (the "Effective Date"), is by and among NexGen Technologies, L.L.C., a
Maryland limited liability company ("NexGen"), 3Com Corporation, a Delaware
corporation ("3Com"), Pyramid Ventures, Inc., a Delaware Corporation
("Pyramid"), Telcom-ATI Investors, L.L.C., a Delaware limited liability company
("Telcom"), Reuters MarketClip Holdings Sarl, a limited liability company formed
under the laws of Switzerland ("Reuters"), Transettlements, Inc., a Georgia
corporation ("Transettlements") and Aether Systems, Inc., a Delaware corporation
(the "Company"). Each of NexGen, 3Com, Pyramid, Telcom, Reuters and
Transettlements is referred to as an "Original Holder," and collectively they
are referred to as "Original Holders."
W I T N E S S E T H:
WHEREAS, the Original Holders, Mark D. Ein and J. Carter Beese, Jr. (the
Original Holders, Ein and Beese, together the "Members") are parties to the
Amended and Restated Limited Liability Company Agreement, dated as of October
29, 1998, as amended (the "LLC Agreement"), of Aether Systems LLC, a Delaware
limited liability company (the "LLC");
WHEREAS, the Original Holders, entered into a Plan of Conversion, dated as
of October 12, 1999 (the "Plan of Conversion"), which provides that immediately
prior to the closing of the Company's initial public offering of Common Stock
(the "IPO") (i) the LLC shall be converted into a corporation by the Members
contributing their interests in the LLC (the "Contributions") to the Company in
exchange for shares of common stock, par value $.01, in the Corporation ("Common
Stock") pursuant to the terms and conditions of an Agreement and Plan of
Contribution in the form attached as Exhibit A to the Plan of Conversion, and
(ii) immediately thereafter the LLC will be merged with and into the Company
pursuant to an Agreement and Plan of Merger (the "Merger Agreement") in the form
attached as Exhibit B to the Plan of Conversion; and
WHEREAS, the Merger Agreement provides that as a result of the Merger the
units of the LLC held by the Holders will be converted into shares of Common
Stock of the Company as set forth on Exhibit A hereto, as the entity surviving
the Merger.
NOW, THEREFORE, in consideration of the mutual promises herein contained,
and other consideration, the receipt and adequacy of which hereby is
acknowledged, the parties agree as follows:
1. Definitions; Certain Rules of Construction. Certain capitalized terms are
used in this Agreement with the specific meanings defined below in this Section
1. Except as otherwise explicitly specified to the contrary or unless the
context clearly requires otherwise, (a) the capitalized term "Section" refers to
sections of this Agreement, (b) the capitalized term "Exhibit"
<PAGE> 2
refers to exhibits to this Agreement, (c) references to a particular Section
include all subsections thereof, (d) the word "including" shall be construed as
"including without limitation", (e) references to a particular statute or
regulation include all rules and regulations thereunder and any successor
statute, regulation or rules, in each case as from time to time in effect, (f)
words in the singular or plural form include the plural and singular form,
respectively, and (g) references to a particular Person include such Person's
successors and assigns to the extent not prohibited by this Agreement.
1.1. "1933 Act" means the Securities Act of 1933, as amended and all
regulations thereunder.
1.2. "1934 Act" means the Securities Exchange Act of 1934, as amended
and all regulations thereunder.
1.3. "Board of Directors" means the Board of Directors of the Company.
1.4. "Common Stock" means the Company's common stock, par value $.01 per
share and other securities issued in respect of shares of Common Stock.
1.5. "Company" is defined in the recitals to this Agreement.
1.6. "Company Indemnitees" is defined in Section 2.8(b).
1.7. "Effective Period" means the period from the date on which a shelf
registration becomes effective to the date on which all of the Registrable
Securities cease to be Registrable Securities.
1.8. "Form S-1", "Form S-3", "Form S-4", and "Form S-8" mean such
respective registration forms in effect on the date hereof (or any successor
registration forms subsequently adopted by the SEC) under the 1933 Act.
1.9. "Holder" means (a) any Person that owns, or has the right to acquire,
Registrable Securities and (b) any assignee thereof in accordance with Section
2.11.
1.10. "Holder Indemnitee" is defined in Section 2.8(a).
1.11. "Indemnitee" means each of the Company Indemnitees and the Holder
Indemnitees.
1.12. "Initiating Holders" is defined in Section 2.1(a).
1.13. "Original Holders" is defined in the recitals to this Agreement.
2
<PAGE> 3
1.14. "Person" means any present or future natural person or any
corporation, association, partnership, joint venture, limited liability, joint
stock or other company, business trust, trust, organization, business or
government or any governmental agency or political subdivision thereof.
1.15. "register", "registered" and "registration" refer to a registration
effected by preparing and filing a registration statement or similar document in
compliance with the 1933 Act and the automatic effectiveness, or the declaration
or ordering of effectiveness, of such registration statement or document.
1.16. "Registrable Securities" means (i) shares of Common Stock received
by an Original Holder upon conversion of Units in the LLC in the Merger; (ii)
any Common Stock of the Company or other securities issued or issuable in
respect of shares of the shares described in (i) in any corporate
reorganization, merger or consolidation; and (iii) shares of the Company's
Common Stock or other securities issued or issuable in respect of the shares
described in clause (i) or (ii) upon any stock split, stock dividend,
recapitalization, or similar event; provided, however, that any share of Common
Stock previously sold to the public pursuant to a registered public offering or
pursuant to an exemption from the registration requirements of the 1933 Act
shall not be a Registrable Security.
1.17. "Rule 144" is defined in Section 2.9(a).
1.18. "Rule 144 Information" is defined in Section 2.9(b).
1.19. "SEC" means the Securities and Exchange Commission.
1.20. "Shelf Registration" means a registration statement for an offering
of Common Stock to be made on a delayed or continuous basis pursuant to Rule 415
promulgated under the 1933 Act.
1.21. "Violation" means, with respect to any registration statement
which includes any Registrable Securities:
(a) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto;
(b) the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not
misleading; or
(c) any violation or alleged violation by the Company of the 1933
Act, the 1934 Act, any state securities law or any rule or regulation
promulgated under the 1933
3
<PAGE> 4
Act, the 1934 Act or any state securities law in connection with any
matter relating to such registration statement.
2. Registration Rights.
2.1. Demand Registration.
(a) At any time after the first anniversary of the closing of the
IPO, if the Company shall receive a written request from the Holders of
not less than 20% of the Registrable Securities then outstanding and
entitled to registration rights under this Section 2 (the "Initiating
Holders") that the Company effect the registration under the 1933 Act of
an amount of Registrable Securities set forth in the written request
provided that such registration shall have a minimum anticipated aggregate
net offering price of Twenty Five Million Dollars ($25,000,000) based on
the then current trading price of the Common Stock, then the Company
shall, within ten days of the receipt thereof, give written notice of such
request to all Holders. Such Holders shall have the right, by giving
written notice to the Company within 20 days from receipt of the Company's
notice, to elect to have included in such registration such of their
Registrable Securities as such Holders may request in such notice of
election. Subject to the limitations of this Section 2.1, the Company
shall use commercially reasonable efforts to effect such a registration
statement as soon as practicable and in any event to file within
seventy-five (75) days of the receipt of such initial request a
registration statement under the 1933 Act covering all the Registrable
Securities which the Holders shall in writing request to be included in
such registration and to use commercially reasonable efforts to have such
registration statement become effective.
(b) If the Initiating Holders intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they
shall so advise the Company as part of their request made pursuant to this
Section 2.1 and the Company shall include such information in the written
notice referred to in Section 2.1(a). In such event, the right of any
Holder to include its Registrable Securities in such registration shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting
(unless otherwise mutually agreed by a majority in interest of the
Initiating Holders and such Holder) to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting
shall (together with the Company as provided in Section 2.3(d)) enter into
an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting by a majority in interest of
the Initiating Holders and approved by the Board of Directors, which
approval shall not be unreasonably withheld. Notwithstanding any other
provision of this Section 2.1, if, in the case of a registration requested
pursuant to Section 2.1(a), the underwriter advises the Initiating Holders
in writing that marketing factors require a limitation of the number of
shares to be underwritten, then the Initiating Holders shall so advise the
Company and all Holders of Registrable Securities which would otherwise be
underwritten pursuant hereto, and all
4
<PAGE> 5
securities other than Registrable Securities sought to be included in the
underwriting shall first be excluded. To the extent that further
limitation is required, the number of Registrable Securities that may be
included in the underwriting shall be allocated pro rata among all Holders
thereof desiring to participate in such underwriting (according to the
number of Registrable Securities then held by each such Holder). No
Registrable Securities requested by any Holder to be included in a
registration pursuant to Section 2.1(a) shall be excluded from the
underwriting unless all securities other than Registrable Securities are
first excluded.
(c) The Company is obligated to effect only three (3) registrations
pursuant to Section 2.1(a), counting for this purpose only registrations
which have been declared effective and registrations which have been
withdrawn by the Holders; provided, however, that no registration pursuant
to Section 2.1(a) shall be deemed to be a registration for any purpose of
this sentence if (i) the number of Registrable Securities included in the
registration statement does not equal or exceed 30% of the number of
Registrable Securities proposed by the Holders to be included in the
offering;.
(d) Notwithstanding the provisions of this Section 2.1 or 2.12, in
the event that the Company is requested to file any registration statement
pursuant to Section 2.1(a) or 2.12:
(i) the Company shall not be obligated to effect the filing of
such registration statement during the period starting with the date
sixty (60) days prior to the date of the Company's good faith
estimate of the filing of, and ending on a date one hundred eighty
(180) days following the effective date of any other registration
statement pertaining to a public offering of securities for the
account of the Company;
(ii) the Company shall not be obligated to effect more than
one (1) registration pursuant to Section 2.1(a) in any twelve (12)
month period; and
(iii) if the Company shall furnish to the Initiating Holders a
certificate signed by the president of the Company stating that, in
the good faith judgment of the Board of Directors, it would not be
in the best interests of the Company and its shareholders generally
for such registration statement to be filed, the Company shall have
the right to defer such filing for a period of not more than one
hundred twenty (120) days after receipt of the request of the
relevant Initiating Holders; provided, however, that the Company may
not utilize the right set forth in this Section 2.1(d)(iii) more
than once in any 12-month period.
(e) Each registration requested pursuant to Section 2.1(a) shall be
effected by the filing of a registration statement on Form S-3 (if
applicable) (or if such form is not available, any other form which
includes substantially the same information (other than information which
is incorporated by reference) as would be required to be included in a
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<PAGE> 6
registration statement on such form as currently constituted), or unless
another form would be equally effective.
2.2. Incidental Registration. If the Company proposes to register any of
its capital stock under the 1933 Act, whether for its own account or for the
account of shareholders other than the Holders (other than a registration on
Form S-8 relating solely to the sale of securities to participants in a Company
stock plan or a registration on Form S-4), the Company shall, each such time,
promptly give each Holder written notice of such registration. Upon the written
request of any Holder given within twenty (20) days after mailing of such notice
by the Company, the Company shall, subject to the provisions of Section 2.7, use
commercially reasonable efforts to cause a registration statement covering all
of the Registrable Securities that each such Holder has requested to be
registered to become effective under the 1933 Act. The Company shall be under no
obligation to complete any offering of its securities it proposes to make and
shall incur no liability to any Holder for its failure to do so.
2.3. Obligations of the Company. Whenever required under this Section 2 to
use commercially reasonable efforts to effect the registration of any
Registrable Securities, the Company shall, as expeditiously as reasonably
possible, prepare and file with the SEC a registration statement with respect to
such Registrable Securities and use commercially reasonable efforts to cause
such registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities to be registered thereunder,
keep such registration statement effective for up to one hundred twenty (120)
days or until such Holders have informed the Company in writing that the
distribution of their Registrable Securities has been completed. In addition,
the Company shall:
(a) prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with
such registration statement, and use commercially reasonable efforts to
cause each such amendment and supplement to become effective, as may be
necessary to comply with the provisions of the 1933 Act with respect to
the disposition of all securities covered by such registration statement;
(b) furnish to the Holders such reasonable number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them;
(c) use commercially reasonable efforts to register or qualify the
securities covered by such registration statement under such other
securities or blue sky laws of such states and jurisdictions as shall be
reasonably requested by the Holders, except that the Company shall not be
required in connection therewith or as a condition thereto to qualify to
do business or file a general consent to service of process in any such
state or jurisdiction;
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<PAGE> 7
(d) in the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering, and
generally provide its cooperation with such managing underwriter,
including making available members of senior management for the
underwriters' "road show" presentations, except in the case of a Shelf
Registration pursuant to Section 2.12; provided, however, that each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an underwriting agreement, including furnishing any
opinion of counsel or entering into a lock-up agreement reasonably
requested by the managing underwriter;
(e) notify each Holder of Registrable Securities covered by such
registration statement, at any time when a prospectus relating thereto
covered by such registration statement is required to be delivered under
the 1933 Act, of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing and promptly file such amendments and supplements which may be
required pursuant to Section 2.3(b) on account of such event and use
commercially reasonable efforts to cause each such amendment and
supplement to become effective;
(f) furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to this Section 2, on the date that such
Registrable Securities are delivered to the underwriters for sale in
connection with a registration pursuant to this Section 2, except in the
case of a Shelf Registration pursuant to Section 2.12, if such securities
are being sold through underwriters, or, if such securities are not being
sold through underwriters, on the date that the registration statement
with respect to such securities becomes effective, (i) an opinion or
opinions, dated such date, of the counsel representing the Company for the
purposes of such registration, in form and substance as is customarily
given by company counsel to the underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities and (ii) a letter dated
such date, from the independent certified public accountant of the
Company, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities;
(g) apply for listing and use commercially reasonable efforts to
list the Registrable Securities being registered on any national
securities exchange on which a class of the Company's equity securities is
listed or, if the Company does not have a class of equity securities
listed on a national securities exchange, apply for qualification and use
commercially reasonable efforts to qualify the Registrable Securities
being registered for inclusion on the automated quotation system of the
National Association of Securities Dealers, Inc.; and
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(h) without in any way limiting the types of registrations to which
this Section 2 shall apply, in the event that the Company shall effect a
Shelf Registration, take all necessary action, including the filing of
post-effective amendments, to permit the Holders to include their
Registrable Securities in such registration in accordance with the terms
of this Section 2.
2.4. Furnish Information.
(a) It shall be a condition precedent to the obligations of
the Company to take any action pursuant to this Section 2
in respect of the Registrable Securities of any selling
Holder that such selling Holder shall furnish to the
Company such information regarding itself, the Registrable
Securities held by it, and the intended method of
disposition of such Registrable Securities as shall be
required to effect the registration of such Registrable
Securities. The Company shall have no responsibility to
the Holders, to the extent such Holder fails to provide
such information in a timely manner, and if the Company
determines it appropriate, the Company may delay the filing
of any such registration statement until the Holder
provides such information.
(b) No Holder shall distribute any prospectus or make any
offer to sell (or solicit any offer to purchase) or sell
any Registrable Securities in a transaction covered by a
prospectus from and after the time that the Company
notifies the Holder that the prospectus fails to state a
material fact, contains a material misstatement or fails to
state a fact necessary in order to make the statements
included in the prospectus not misleading until the Company
has provided a revised, amended or supplemented prospectus
that corrects the misstatement or omission.
(c) Each Holder shall comply with the prospectus delivery
requirements of the Securities Act in connection with offers
to sell, solicitations of offers to purchase, and sales of
Registrable Securities in connection with any offer or sale
pursuant to a registration statement.
2.5. Expenses of Demand Registration. The Company shall bear all expenses
relating to Registrable Securities incurred in connection with each
registration, filing or qualification pursuant to Sections 2.1(a) and 2.12,
including all registration, filing and qualification fees, printing and
accounting fees, fees and disbursements of counsel for the Company. All
underwriting discounts and commissions relating to Registrable Securities
included in any registration effected pursuant to Sections 2.1 and 2.12 and the
fees and disbursements of counsel for the selling Holders will be borne and paid
ratably by the Holders of such Registrable Securities and the Company.
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<PAGE> 9
2.6. Expenses of Company Registration. The Company shall bear and pay all
expenses incurred in connection with any registration, filing or qualification
of Registrable Securities with respect to any registration pursuant to Section
2.2 for each Holder, including all registration, filing and qualification fees,
printing and accounting fees, fees and disbursements of counsel for the Company
and the reasonable fees and disbursements of one counsel for the selling
Holders. All underwriting discounts and commissions relating to Registrable
Securities included in any registration effected pursuant to Section 2.2 will be
borne and paid ratably by the Holders of such Registrable Securities and the
Company.
2.7. Underwriting Requirements. In connection with any offering involving
an underwriting of securities being issued by the Company, the Company shall not
be required under Section 2.2 to include any of the Holders' securities in such
underwriting unless such Holders accept the terms of the underwriting as agreed
upon between the Company and the underwriters selected by it, and then only in
such quantity, if any, as will not, in the opinion of the underwriters,
jeopardize the success of the offering by the Company. If the managing
underwriter for the offering shall advise the Company in writing that the total
amount of securities, including Registrable Securities, requested by
shareholders to be included in such offering exceeds the amount of securities to
be sold other than by the Company that can be successfully offered, then the
Company shall be required to include in the offering only that number of such
securities, including Registrable Securities, which the managing underwriter
believes will not jeopardize the success of the offering. The securities so
included in the offering will be reduced as follows:
(a) first, all securities which shareholders other than the
Company and the Holders seek to include in the offering shall be excluded
from the offering to the extent limitation on the number of shares
included in the underwriting is required; and
(b) if further limitation on the number of shares to be included
in the offering is required, then the number of shares held by Holders
that may be included in the underwriting shall be reduced pro rata among
the selling Holders in accordance with the number of shares of Registrable
Securities held by each such Holder;
provided, however, that in no event shall the amount of securities of the
selling Holders included in the offering be reduced below 30% of the total
amount of securities included in such offering, except if the managing
underwriter makes the determination described above and no securities other than
those of the Company are included. For purposes of the preceding sentence
concerning apportionment, for any selling shareholder which is a Holder of
Registrable Securities and which is a partnership or a corporation, the
partners, retired partners and shareholders of such Holder, or the estates and
family members of such partners and retired partners and any trusts for the
benefit of any of the foregoing persons shall collectively be deemed to be a
"selling Holder," and any pro rata reduction with respect to such "selling
Holder" shall be based upon the aggregate amount of shares carrying registration
rights owned by all entities and individuals included in such "selling Holder,"
as defined in this sentence.
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2.8. Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 2:
(a) The Company will indemnify and hold harmless each Holder, the
officers, directors, partners, agents and employees of each Holder, any
underwriter (as defined in the 1933 Act) for such Holder and each Person,
if any, who controls such Holder or underwriter within the meaning of the
1933 Act or the 1934 Act (collectively, the "Holder Indemnitees"), against
any losses, claims, damages or liabilities (joint or several) to which
they may become subject under the 1933 Act, the 1934 Act or any other
federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
any Violation. The Company will reimburse each Holder Indemnitee for any
legal or other expenses reasonably incurred by such Holder Indemnitee in
connection with investigating or defending any such loss, claim, damage,
liability or action. The indemnity agreement contained in this Section
2.8(a) shall not apply to amounts paid in settlement of any loss, claim,
damage, liability or action if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably withheld),
nor shall the Company be liable to any Holder Indemnitee in any such case
for any such loss, claim, damage, liability or action (i) to the extent
that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by or on behalf of
such Holder Indemnitee; or supplied by another Holder or (ii) in the case
of a sale directly by a Holder of Registrable Securities (including a sale
of such Registrable Securities through any underwriter retained by such
Holder engaging in a distribution solely on behalf of such Holder), such
untrue statement or alleged untrue statement or omission or alleged
omission was contained in a preliminary prospectus and corrected in a
final or amended prospectus, and such Holder failed to deliver a copy of
the final or amended prospectus at or prior to the confirmation of the
sale of the Registrable Securities to the Person asserting any such loss,
claim, damage or liability in any case in which such delivery is required
by the 1933 Act.
(b) Each Holder which includes any Registrable Securities in any
registration statement (i) will indemnify and hold harmless the Company,
each of its directors, each of its officers who have signed the
registration statement, each Person, if any, who controls the Company
within the meaning of the 1933 Act or the 1934 Act, each agent and any
underwriter for the Company, and any other Holder or other shareholder
selling securities in such registration statement or any of its directors,
officers, partners, agents or employees or any Person who controls such
Holder or such other shareholder or such underwriter (collectively, the
"Company Indemnitees"), against any losses, claims, damages or liabilities
(joint or several) to which any Company Indemnitee may become subject
under the 1933 Act, the 1934 Act or other federal or state law, insofar as
such losses, claims, damages or liabilities (or actions in respect
thereto) arise out of or are based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance
upon and in conformity with written information furnished by or on behalf
of such Holder expressly for use in connection with such registration and
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<PAGE> 11
(ii) will reimburse any legal or other expenses reasonably incurred by any
Company Indemnitee in connection with investigating or defending any such
loss, claim, damage, liability or action; provided, however, that the
liability of any Holder hereunder shall be limited to the amount of net
proceeds (after deduction of all underwriters' discounts and commissions
paid by such Holder in connection with the registration in question)
received by such Holder in the offering giving rise to the Violation; and
provided, further, that the indemnity agreement contained in this Section
2.8(b) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without
the consent of such Holder (which consent shall not be unreasonably
withheld) nor, in the case of a sale directly by the Company of its
securities (including a sale of such securities through any underwriter
retained by the Company to engage in a distribution solely on behalf of
the Company), shall such Holder be liable to the Company in any case in
which such untrue statement or alleged untrue statement or omission or
alleged omission was contained in a preliminary prospectus and corrected
in a final or amended prospectus, and the Company failed to deliver a copy
of the final or amended prospectus at or prior to the confirmation of the
sale of the securities to the Person asserting any such loss, claim,
damage or liability in any case in which such delivery is required by the
1933 Act.
(c) Promptly after receipt by any Company Indemnitee or Holder
Indemnitee (collectively, the "Indemnitees") under this Section 2.8 of
notice of the commencement of any action (including any governmental
action), such Indemnitee will, if a claim in respect thereof is to be made
against any indemnifying party under this Section 2.8, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume and control the defense
thereof with counsel mutually satisfactory to the parties; provided,
however, that such Indemnitee shall have the right to retain its own
counsel, with the fees and expenses to be paid by the indemnifying party,
if representation of such Indemnitee by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential
differing interests, as reasonably determined by either party, between
such Indemnitee and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the indemnifying
party within a reasonable time of the commencement of any such action, if
prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the Indemnitee under this Section
2.8 to the extent of such prejudice, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any
liability that it may have to such Indemnitee otherwise than under this
Section 2.8.
(d) The obligations of the Company and the Holders under this
Section 2.8 shall survive the completion of any offering of Registrable
Securities in a registration statement whether under this Section 2 or
otherwise.
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(e) If the indemnification provided for in this Section 2.8 is
unavailable to a party that would have been an Indemnitee under this
Section 2.8 in respect of any losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) referred to herein, then each
party that would have been an indemnifying party hereunder shall, in lieu
of indemnifying such Indemnitee, contribute to the amount paid or payable
by such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such
proportion as is appropriate to reflect the relative fault of such
indemnifying party, on the one hand, and such Indemnitee, on the other
hand, in connection with the statements or omissions which resulted in
such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof). The relative fault shall be determined by reference to,
among other things, whether the Violation relates to information supplied
by such indemnifying party or such Indemnitee and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such Violation. The parties agree that it would not be just and
equitable if contribution pursuant to this Section 2.8(e) were determined
by pro rata allocation or by any other method of allocation which does not
take account of the equitable considerations referred to in the preceding
sentence. The amount paid or payable by a contributing party as a result
of the losses, claims, damages or liabilities (or actions or proceedings
in respect thereof) referred to above in this Section 2.8(e) shall include
any legal or other expenses reasonably incurred by such Indemnitee in
connection with investigating or defending any such action or claim. No
Person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any
Person who was not guilty of such fraudulent misrepresentation. The
liability of any Holder of Registrable Securities in respect of any
contribution obligation of such Holder (after deduction of all
underwriters' discounts and commissions paid by such Holder in connection
with the registration in question) arising under this Section 2.8(e) shall
not in any event exceed an amount equal to the net proceeds to such Holder
from the disposition of the Registrable Securities disposed of by such
Holder pursuant to such registration.
2.9 Reports Under Securities Exchange Act of 1934.
(a) With a view to making available to the Holders the benefits of
Rule 144 promulgated under the 1933 Act ("Rule 144") and any other rule or
regulation of the SEC that may at any time permit a Holder to sell
securities of the Company to the public without registration, the Company
agrees to:
(i) use commercially reasonable efforts to make and keep
public information available, as those terms are understood and
defined in Rule 144, at all times; and
(ii) use commercially reasonable efforts to file with the SEC
in a timely manner all reports and other documents required of the
Company under the 1933 Act and the 1934 Act.
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2.10. Lock-up Agreements. If reasonably requested by the Company and the
managing underwriter, the Holders agree to enter into lock-up agreements
pursuant to which they will not, for a period of no longer than ninety days (90)
(or one hundred eighty (180) days in the case of the Company's initial public
offering) following the effective date of a registration statement for the
Company's public offering of the Company's securities, offer, sell or otherwise
dispose of any Registrable Securities (except Registrable Securities sold
pursuant to such registration statement) without the prior consent of the
Company and the underwriter, provided that the executive officers and directors
of the Company enter such lock-up agreements for the same period and on the same
terms.
2.11. Assignment of Registration Rights. The rights to cause the Company
to register Registrable Securities pursuant to this Section 2 may be assigned by
any Holder to a permitted transferee, and by such transferee to a subsequent
permitted transferee, but only if not less than 25% of such rights are
transferred to a transferee; provided, however, that such transfer does not
constitute a "distribution" within the meaning of the 1933 Act. Any transferee
to which rights under this Agreement are transferred shall: (i) as a condition
to such transfer, deliver to the Company a written instrument by which such
transferee agrees to be bound by the obligations imposed upon Holders under this
Agreement to the same extent as if such transferee were a Holder under this
Agreement; and (ii) be deemed to be a Holder hereunder.
2.12. Shelf Registration. In addition to the rights set forth above, if
the Holder(s) holding at least 20% of the Registrable Securities request in
writing that the Company file a shelf registration under Rule 415 of the
Securities Act (a "Shelf Registration") for a sale of Registrable Securities the
reasonably anticipated aggregate price to the public of which would exceed
$10,000,000, and the Company is entitled to use Form S-3 (or a successor form)
to register securities for such an offering, the Company shall use commercially
reasonable efforts to effect such registration (including, without limitation,
filing post-effective amendments, appropriate qualifications under applicable
blue sky or other state securities laws, and appropriate compliance with the
Securities Act) and to maintain the effectiveness of the Shelf Registration
throughout the term of this agreement. The Company will include all Registrable
Securities of any Holder or Holders. The Company shall have no obligation under
Sections 2.3(d) and (f) to facilitate any underwritten offering of shares sold
pursuant to the Shelf Registration.
3. Termination. The right of any Holder to request registration or inclusion
in any registration pursuant to this Agreement shall terminate on the earlier of
(a) such date that all shares of Registrable Securities held or entitled to be
held upon conversion by such Holder may immediately be sold under Rule 144
during any 90-day period; or (b) the eighth (8th) year anniversary of the
Closing Date.
4. Specific Performance. The parties recognize that their respective rights
under this Agreement are unique, and, accordingly, each party shall, in addition
to such other remedies as
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may be available to it at law or in equity, have the right to enforce its rights
hereunder by actions for injunctive relief and specific performance to the
extent permitted by law. This Agreement is not intended to limit or abridge any
rights of either party which may exist apart from this Agreement.
5. Notices. Any notices or other communications required or permitted
hereunder shall be sufficiently given if in writing and delivered in Person,
transmitted by facsimile transmission (fax) or sent by registered or certified
mail (return receipt requested) or recognized overnight delivery service,
postage pre-paid, addressed addressed (a) if to a Holder to such address as such
holder shall have furnished the Company in writing, or, until any such Holder so
furnishes an address to the Company, then to and at the address of the last
Holder of such securities who has so furnished an address to the Company or (b)
if to the Company, to 11460 Cronridge Drive, Owings Mills, Maryland 21117 to the
attention of the Corporate Secretary, or to such other address has such party
may notify to the other parties in writing. A notice or communication will be
effective (i) if delivered in Person or by overnight courier, on the business
day it is delivered, (ii) if transmitted by telecopier, on the business day of
actual confirmed receipt by the addressee thereof, and (iii) if sent by
registered or certified mail, three (3) business days after dispatch.
6. Binding Effect; Assignment. This Agreement shall be binding upon, and
inure to the benefit of, the parties and their respective personal
representatives, successors and permitted assigns; provided, however, that the
Company shall not have the right to assign its rights and obligations hereunder,
or any interest herein, without the prior written consent of the holders of a
majority of the Registrable Securities then outstanding.
7. Course of Dealing; Amendments, Waivers and Consents. No course of dealing
between the parties shall operate as a waiver of any party's rights under this
Agreement. Each party acknowledges that if any party, without being required to
do so by this Agreement, gives any notice or information to, or obtains any
consent from, the other party, such party shall not by implication have amended,
waived or modified any provision of this Agreement, or created any duty to give
any such notice or information or to obtain any such consent on any future
occasion. No delay or omission on the part of any party in exercising any right
under this Agreement shall operate as a waiver of such right or any other right
hereunder or thereunder. A waiver on any one occasion shall not be construed as
a bar to or waiver of any right or remedy on any future occasion. No amendment,
waiver or consent with respect to this Agreement shall be binding unless it is
in writing and signed by each of the Company and the holders of a majority of
the Registrable Securities then outstanding, except that an amendment to add to
the definition of Registerable Securities shares (the "Merrill Warrant Shares")
issued in respect of warrants (the "Merrill Warrants") issued to Merrill Lynch &
Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and to add Merrill Lynch
& Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated or any permitted
assign of the Merrill Warrants or the Merrill Warrant Shares may be adopted by
the Company without the consent of any other Holder.
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8. Miscellaneous. If any provision of this Agreement shall be found by any
court of competent jurisdiction to be invalid or unenforceable, the parties
hereby waive such provision to the extent that it is found to be invalid or
unenforceable. Such provision shall, to the maximum extent allowable by law, be
modified by such court so that it becomes enforceable, and, as modified, shall
be enforced as any other provision hereof, all the other provisions hereof
continuing in full force and effect. The headings contained in this Agreement
are for reference purposes only and shall not in any way affect the meaning or
interpretation hereof. This Agreement constitutes the entire understanding of
the parties with respect to the subject matter hereof and supersedes any and all
prior understandings and agreements, whether written or oral, with respect to
such subject matter. This Agreement may be executed in counterparts, which
together shall constitute one and the same instrument. This Agreement shall be
governed by and construed in accordance with the laws (other than the conflict
of laws rules) of the State of Delaware.
[Signature pages follow]
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<PAGE> 16
REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties have entered into this Agreement as of the
Effective Date.
AETHER SYSTEMS, INC.
By: ______________________________________
Name: David S. Oros
Title: President and CEO
Address: 11460 Cronridge Drive
Owings Mills, MD 21117
Fax No. 410-654-6554
3COM CORPORATION
By: ______________________________________
Name:
Title:
Address: 5400 Bayfront Plaza
Santa Clara, CA 95052
Fax No. [_________________]
NEXGEN TECHNOLOGIES, L.L.C.
By: ______________________________________
Name: David S. Oros
Title: Member
Address: 11460 Cronridge Drive
Owings Mills, MD 21117
Fax No. 410-654-6554
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TELCOM-ATI INVESTORS, L.L.C.
By: ______________________________________
Name:
Title:
Address: 211 N. Union Street,
Suite 300
Alexandria, VA 22314
Fax No. 703-[________________]
REUTERS MARKETCLIP HOLDINGS SARL
By: ______________________________________
Name:
Title:
Address: c/o Reuters America, Inc.
1700 Broadway, 2nd Floor
New York, NY 10019
Fax No. [________________]
PYRAMID VENTURES, INC.
By: ______________________________________
Name:
Title:
Address: One Bankers Trust Plaza
130 Liberty Street
New York, New York 10006
Fax No. [__________________]
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TRANSETTLEMENTS, INC.
By: ______________________________________
Name:
Title:
Address: c/o Transus, Inc.
2090 Jonesboro Road
Atlanta, Georgia 30515
Fax No. [__________________]
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EXHIBIT A
List of Original Holders
NexGen Technologies L.L.C. 6,791,668
Telcom ATI Investors, L.L.C. 5,151,948
Reuters MarketClip Holdings Sarl 2,828,055
Pyramid Ventures, Inc. 1,995,325
Transettlements, Inc. 625,000
3Com Corporation 2,500,000
<PAGE> 1
EXHIBIT 10.22
SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT, dated as of October ___, 1999 (the
"Agreement"), between Aether Systems, Inc., a Delaware corporation (the
"Company"), and National Discount Brokers, a _________ corporation (the
"Investor").
WHEREAS, the Company intends to effect an initial public offering (the
"IPO") of its common stock, $.01 par value per share (the "Common Stock"),
pursuant to Registration Statement No. 333-85697 (the "Registration Statement")
filed with the Securities and Exchange Commission under the Securities Act of
1933, as amended (the"Act");
WHEREAS, on the date set forth above, the Company is executing a
Purchase Agreement with respect to the IPO, a copy of which is attached hereto
as Exhibit A (the "Purchase Agreement"), with Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated, BancBoston Robertson Stephens Inc.,
Donaldson Lufkin & Jenrette Securities Corporation and U.S. Bancorp Piper
Jaffray Inc., as representatives of the Underwriters named therein (the
"Underwriters");
WHEREAS, the Investor has previously indicated to the Company its
interest in acquiring directly from the Company certain of the shares of Common
Stock that have been registered pursuant to the Registration Statement, and the
Company has agreed to issue and sell such shares to the Investor, on the terms
and subject to the conditions set forth herein;
NOW, THEREFORE, for and in consideration of the premises, and for other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
ARTICLE 1
PURCHASE AND SALE
Section 1.1 Subscription for Securities. The Investor hereby subscribes
for the purchase of 20,000 shares of Common Stock (the "Shares") at a purchase
price of $[____] per Share (which amount the Company represents is the Price to
the Public set forth on the cover page of the Company's Prospectus (as defined
in the Purchase Agreement)), for an aggregate purchase price of
[_________________ dollars ($_________)] (the "Purchase Price").
Section 1.2 Purchase and Sale of Shares. Subject to the terms and
conditions of this Agreement, at the Closing (as hereinafter defined), the
Investor agrees to purchase from the Company, and the Company agrees to issue
and sell to the Investor, the Shares.
<PAGE> 2
ARTICLE 2
CLOSING
Section 2.1 Closing Place and Date. The closing of the purchase and
sale of the Shares (the "Closing") shall take place at the offices of Wilmer,
Cutler & Pickering, counsel for the Company, 2445 M Street, N.W., Washington,
D.C. 20037 (or such other place as the Company and the Investor agree) on the
"Closing Time," as such term is defined in the Purchase Agreement (the "Closing
Date").
Section 2.2 Deliveries at Closing. At the Closing, the Company shall
issue and deliver to the Investor a certificate or certificates representing the
Shares, against payment of the Purchase Price therefor by bank cashier's check
or wire transfer of immediately available funds.
ARTICLE 3
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY
To induce the Investor to purchase the Shares, the Company hereby
represents and warrants to and covenants with the Investor as follows:
Section 3.1 Incorporation by Reference. The representations and
warranties of the Company set forth in Section 1 of the Purchase Agreement are
hereby incorporated by reference as if set forth in full herein and made to and
for the benefit of the Investor.
Section 3.2 Issuance of the Shares. The Shares have been duly
authorized and, when issued and delivered to the Investor against payment
therefor as provided by this Agreement, will be validly issued, fully paid and
non-assessable, and the issuance of such Shares will not be subject to any
preemptive or similar rights.
Section 3.3 No Violation. The execution, delivery and performance of
this Agreement by the Company, the compliance by the Company with all the
provisions hereof and the consummation of the transactions contemplated hereby
will not (i) require any consent, approval, authorization or other order of, or
qualification with, any court or governmental body or agency (except such as may
be required under the Act, the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the regulations promulgated thereunder or the securities or
Blue Sky laws of the various states), (ii) violate any of the terms or
provisions of the charter, articles of organization, by-laws or operating
agreement, as the case may be, of the Company or its subsidiaries or conflict
with or constitute a breach of, or a default under, any indenture, loan
agreement, mortgage, lease or other agreement or instrument to which the Company
or its subsidiary is a party or by which the Company or its subsidiary or their
respective property is bound, which conflict, breach or default is reasonably
likely to have a material adverse effect on the business, prospects, financial
condition or results of operations of the Company and its subsidiaries, taken as
a whole, or (iii) violate or conflict with any applicable law or
<PAGE> 3
any rule, regulation, judgment, order or decree of any court or any governmental
body or agency having jurisdiction over the Company, its subsidiaries or their
respective property.
Section 3.4 Authorization. This Agreement has been duly authorized,
executed and delivered by the Company.
ARTICLE 4
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE INVESTOR
To induce the Company to accept the Investor's subscription and to
issue and sell the Shares, the Investor hereby represents and warrants to and
covenants with the Company as follows:
Section 4.1 Authorization. This Agreement has been duly authorized,
executed and delivered by the Investor.
Section 4.2 Purchase for Investor's Own Account. The Shares are being
acquired for investment for the Investor's own account, not as a nominee or
agent, and not with a current view to the resale or distribution of any part
thereof; and the Investor has no present intention of selling, granting any
participation in, or otherwise distributing the same. The Investor does not have
any contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to the person or to any third person, with
respect to any of the Shares.
Section 4.3 Disclosure of Information. The Investor believes it has
received all the information it considers necessary or appropriate for deciding
whether to purchase the Shares, including but not limited to the delivery by the
Company of the Company's Preliminary Prospectus dated October 4, 1999.
ARTICLE 5
CONDITIONS TO CLOSING
Section 5.1 Conditions to the Investor's Obligations. The obligations
of the Investor hereunder to purchase the Shares from the Company shall be
subject to (i) receipt by the Investor of evidence that the conditions set forth
in Section 5 of the Purchase Agreement have been satisfied (or waived by the
representatives of the Underwriters) and (ii) delivery of the Company's final
Prospectus dated October ___, 1999.
Section 5.2 Conditions to the Company's Obligations. The obligations of
the Company hereunder and the Closing of the sale of the Shares shall be subject
to the occurrence, concurrently with the Closing hereunder, of the closing of
the purchase by the Underwriters of the "Initial Securities" in accordance with
the Purchase Agreement.
<PAGE> 4
ARTICLE 6
MISCELLANEOUS
Section 6.1 Governing Law. This Agreement and its validity,
construction and performance shall be governed in all respects by the internal
laws of the State of Maryland (without reference to the conflict of laws
provisions or principles thereof).
Section 6.2 Binding Effect; Assignment. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective heirs,
representatives, administrators, successors and assigns. Neither party may
assign this Agreement or any of its rights or obligations hereunder without the
written consent of the other party, which consent shall not be unreasonably
withheld.
Section 6.3 Entire Agreement; Amendment; Waiver. This Agreement
supersedes any and all prior agreements, understandings, discussions,
assurances, promises, representations or warranties among the parties with
respect to the subject matter hereof; and contains the entire agreement among
the parties with respect to the subject matter hereof. This Agreement shall not
be changed, modified or amended in any respect except by the mutual written
agreement of the parties hereto. Any provision of this Agreement may be waived
in writing by the party which is entitled to the benefits thereof. No waiver of
any provision of this Agreement shall be deemed to or shall constitute a waiver
of any other provision hereof (whether or not similar), nor shall any such
waiver constitute a continuing waiver.
Section 6.4 Severability. Any term or provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction only, be ineffective only to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
Section 6.5 No Third Party Beneficiaries. This Agreement and the
rights, benefits, privileges, interests, duties and obligations contained or
referred to herein shall be solely for the benefit of the parties hereto and no
third party shall have any rights or benefits hereunder as a third-party
beneficiary or otherwise hereunder.
Section 6.6 Survival of Warranties. The warranties and representations
of the parties contained in or made pursuant to this Agreement shall survive any
investigation made by the Investor and shall survive the execution and delivery
of this Agreement and the Closing.
Section 6.7 Headings. The captions, headings and titles herein are for
convenience of reference only and shall not effect the construction, meaning or
interpretation of this Agreement or any term or provision hereof.
<PAGE> 5
Section 6.8 Counterparts. This Agreement may be executed, including
facsimile signature, in one or more counterparts each of which shall be deemed
an original and all of which shall be considered one and the same agreement
notwithstanding that all parties are not signatories to the same counterpart. A
facsimile copy of an original signature to this Agreement shall have the same
force and effect, for all purposes, as the original signature.
Section 6.9 Expenses. Each party shall bear all of their expenses that
are incurred with respect to the negotiation, execution, delivery and
performance of this Agreement.
Section 6.10 Further Assurances. Each party hereto agrees to do all
acts and to make, execute and deliver such written instruments as shall from
time to time be reasonably required to carry out the terms and provisions of
this Agreement.
Section 6.11 Notices. All notices and other communications required or
permitted hereunder shall be in writing and shall be sent by facsimile or mailed
by registered or certified mail, postage prepaid, return receipt requested, or
otherwise delivered by hand or by messenger, addressed
(a) if to the Investor, at:
National Discount Brokers,
7 Hanover Square, 4th Floor
New York, NY 10004
Attention: ____________
Fax: ______________
(b) if to the Company, at:
Aether Systems, Inc.
11460 Cronridge Drive
Owings Mills, Maryland 21117
Attention: David Reymann
Fax: 410-654-6554
with copies to:
Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, D.C. 20037
Attention: Mark Dewire
Fax: 202-663-6363
or at such other address as the Company shall have furnished to the Investor. If
notice is provided via facsimile, it must be simultaneously confirmed via
telephone and it shall be deemed to be given when the transmission is received.
If notice is provided by U.S. mail,
<PAGE> 6
notice shall be deemed to be given three (3) days after proper deposit in a U.S.
mailbox, postage prepaid.
In witness whereof, the Company and the Investor have each duly
executed this Agreement as of October ___, 1999.
Aether Systems, Inc.
By: ___________________
Name:
Title:
National Discount Brokers
By: ____________________
Name:
Title:
<PAGE> 1
EXHIBIT 11.1
<TABLE>
<CAPTION>
Pro Forma Computation of Earnings
per Common Share
-----------------------------------------------------------
(in thousands, except per share data)
Year Ended December 31, 1996
-----------------------------------------------------------
Net Loss Shares Per Share Amount
-------- ------ ----------------
<S> <C> <C> <C>
BASIC EPS
Pro forma net loss available to
common shareholders $ (417) 10,555 $ (0.04)
EFFECT OF DILUTIVE SHARES
Stock options - - -
--------- --------- ---------
DILUTIVE EPS (1)
Pro forma net loss available to
common shareholders $ (417) 10,555 $ (0.04)
--------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1997
-----------------------------------------------------------
Net Loss Shares Per Share Amount
-------- ------ ----------------
<S> <C> <C> <C>
BASIC EPS
Pro forma net loss available to
common shareholders $ (2,747) 12,656 $ (0.22)
EFFECT OF DILUTIVE SHARES
Stock options - - -
--------- --------- ---------
DILUTIVE EPS (1)
Pro forma net loss available to
common shareholders $ (2,747) 12,656 $ (0.22)
--------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1998
-----------------------------------------------------------
Net Loss Shares Per Share Amount
-------- ------ ----------------
<S> <C> <C> <C>
BASIC EPS
Pro forma net loss available to
common shareholders $ (4,693) 15,916 $ (0.29)
EFFECT OF DILUTIVE SHARES
Stock options - - -
Warrants --------- --------- ---------
DILUTIVE EPS (1)(2)
Pro forma net loss available to
common shareholders $ (4,693) 15,916 $ (0.29)
--------- --------- ---------
</TABLE>
<PAGE> 2
EXHIBIT 11.1 (CONTINUED)
<TABLE>
<CAPTION>
Pro Forma Computation of Earnings
per Common Share
-----------------------------------------------------------
(in thousands, except per share data)
Six Months Ended June 30, 1998
-----------------------------------------------------------
Net Loss Shares Per Share Amount
-------- ------ ----------------
<S> <C> <C> <C>
BASIC EPS
Pro Forma Net loss available to
common shareholders $ (2,119) 14,271 $ (0.15)
EFFECT OF DILUTIVE SHARES
Stock options - - -
--------- --------- ---------
DILUTIVE EPS (1)
Pro Forma Net loss available to
common shareholders $ (2,119) 14,271 $ (0.15)
--------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30, 1999
-----------------------------------------------------------
Net Loss Shares Per Share Amount
-------- ------ ----------------
<S> <C> <C> <C>
BASIC EPS
Pro Forma Net loss available to
common shareholders $ (4,320) 19,878 $ (0.22)
EFFECT OF DILUTIVE SHARES
Stock options - - -
--------- --------- ---------
DILUTIVE EPS (1)(2)
Pro Forma Net loss available to
common shareholders $ (4,320) 19,878 $ (0.22)
--------- --------- ---------
</TABLE>
Notes:
1. Options to purchase approximately 693,438, 1.000 million,
1.545 million and 1.931 million shares of common stock were
outstanding during 1996, 1997, 1998 and 1999, respectively,
but were not included in the computation of pro forma
diluted earnings per share because the effect would have
been antidilutive.
2. Warrants to purchase 14,140 and 157,805 shares of common
stock were outstanding during 1998 and 1999, respectively,
but were not included in the computation of pro forma
diluted earnings per share because the effect would have
been antidilutive.
<PAGE> 1
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Aether Technologies International LLC
The audits referred to in our report dated February 25, 1999, included the
related financial statement schedule as of December 31, 1998, and for each of
the years in the three-year period ended December 31, 1998, included in the
registration statement. This financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion on
this financial statement schedule based on our audits. In our opinion, such
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
We consent to the use of our report included herein and to the references to our
Firm under the headings "Selected Consolidated Financial Data" and "Experts" in
the prospectus.
/s/ KPMG LLP
Washington, D.C.
October 18, 1999
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
reports dated March 10, 1999 relating to the financial statements of Mobeo,
Inc., which appear in such Registration Statement. We also consent to the
references to us under the headings "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
McLean, Virginia
October 18, 1999
